Question 1

Which of the following is not an effective method to reduce negative externalities?

Accepted Answer

A)  relying on voluntary compliance 
B)  taxing the output of industries that pollute 
C)  creating legal environmental standards 
D)  increasing public spending on cleanup and reduction of pollution 
A)  relying on voluntary compliance 
B)  taxing the output of industries that pollute 
C)  creating legal environmental standards 
D)  increasing public spending on cleanup and reduction of pollution

Question 2

Figure 10-12
  
-Refer to Figure 10-12.An alternative label for the quantity would be

Accepted Answer

A)    
B)    
C)    
D)    
A)    
B)    
C)    
D)

Question 3

Figure 10-4
  
-Refer to Figure 10-4.If this market is currently producing at Q₂,then total economic well-being would increase if output

Accepted Answer

A)  increased beyond Q4. 
B)  decreased to Q1. 
C)  increased to Q3. 
D)  stayed at Q2. 
A)  increased beyond Q4. 
B)  decreased to Q1. 
C)  increased to Q3. 
D)  stayed at Q2.

Question 4

Figure 10-4
  
-Refer to Figure 10-4.If this market is currently producing at Q₄,then total economic well-being would be maximized if output

Accepted Answer

A)  decreased to Q1. 
B)  decreased to Q2. 
C)  decreased to Q3. 
D)  stayed at Q4. 
A)  decreased to Q1. 
B)  decreased to Q2. 
C)  decreased to Q3. 
D)  stayed at Q4.

Question 5

Tradable pollution permits

Accepted Answer

A)  have prices that are set by the government. 
B)  will be more valuable to firms that can reduce pollution only at high costs. 
C)  are likely to create a higher level of total pollution. 
D)  are less desirable than corrective taxes in reducing pollution. 
A)  have prices that are set by the government. 
B)  will be more valuable to firms that can reduce pollution only at high costs. 
C)  are likely to create a higher level of total pollution. 
D)  are less desirable than corrective taxes in reducing pollution.

Question 6

A positive externality arises when a person engages in an activity that has

Accepted Answer

A)  an adverse effect on a bystander who is not compensated by the person who causes the effect. 
B)  an adverse effect on a bystander who is compensated by the person who causes the effect. 
C)  a beneficial effect on a bystander who pays the person who causes the effect. 
D)  a beneficial effect on a bystander who does not pay the person who causes the effect. 
A)  an adverse effect on a bystander who is not compensated by the person who causes the effect. 
B)  an adverse effect on a bystander who is compensated by the person who causes the effect. 
C)  a beneficial effect on a bystander who pays the person who causes the effect. 
D)  a beneficial effect on a bystander who does not pay the person who causes the effect.

Question 7

If a market is characterized by a positive externality that is not the result of a technology spillover,

Accepted Answer

A)  the socially optimal level of output is less than the equilibrium level of output, and the optimal price is greater than the equilibrium price. 
B)  the socially optimal level of output is greater than the equilibrium level of output, and the socially optimal price is less than the equilibrium price. 
C)  the socially optimal level of output is greater than the equilibrium level of output, and the socially optimal price is greater than the equilibrium price. 
D)  the socially optimal level of output is less than the equilibrium level of output, and the socially optimal price is less than the equilibrium price. 
A)  the socially optimal level of output is less than the equilibrium level of output, and the optimal price is greater than the equilibrium price. 
B)  the socially optimal level of output is greater than the equilibrium level of output, and the socially optimal price is less than the equilibrium price. 
C)  the socially optimal level of output is greater than the equilibrium level of output, and the socially optimal price is greater than the equilibrium price. 
D)  the socially optimal level of output is less than the equilibrium level of output, and the socially optimal price is less than the equilibrium price.

Question 8

University researchers create a positive externality because what they discover in their research labs can easily be learned by others who haven't contributed to the research costs.If there are no subsidies,what is the relationship between the equilibrium quantity of university research and the optimal quantity of university research produced?

Accepted Answer

A)  They are equal. 
B)  The equilibrium quantity is greater than the socially optimal quantity. 
C)  The equilibrium quantity is less than the socially optimal quantity. 
D)  There is not enough information to answer the question. 
A)  They are equal. 
B)  The equilibrium quantity is greater than the socially optimal quantity. 
C)  The equilibrium quantity is less than the socially optimal quantity. 
D)  There is not enough information to answer the question.

Question 9

That some firms are engaged in more than one type of business is explained,in some cases,by

Accepted Answer

A)  moral injunctions such as the Golden Rule. 
B)  the existence of charitable organizations. 
C)  government regulations that discourage the internalization of externalities. 
D)  the fact that the internalization of externalities sometimes coincides with the self-interest of the relevant parties. 
A)  moral injunctions such as the Golden Rule. 
B)  the existence of charitable organizations. 
C)  government regulations that discourage the internalization of externalities. 
D)  the fact that the internalization of externalities sometimes coincides with the self-interest of the relevant parties.

Question 10

A negative externality

Accepted Answer

A)  is an adverse impact on a bystander. 
B)  causes the product in a market to be under-produced. 
C)  is an adverse impact on market participants. 
D)  is present in markets where the good or service does not have any impact on bystanders. 
A)  is an adverse impact on a bystander. 
B)  causes the product in a market to be under-produced. 
C)  is an adverse impact on market participants. 
D)  is present in markets where the good or service does not have any impact on bystanders.

Question 11

If an externality is present in a market,economic efficiency may be enhanced by

Accepted Answer

A)  increased competition. 
B)  weakening property rights. 
C)  better informed market participants. 
D)  government intervention. 
A)  increased competition. 
B)  weakening property rights. 
C)  better informed market participants. 
D)  government intervention.

Question 12

Table 10-4
  
-Refer to Table 10-4.Taking into account private and external costs,total surplus in the market equilibrium amounts to

Accepted Answer

A)  $15. 
B)  $17. 
C)  $18. 
D)  $20. 
A)  $15. 
B)  $17. 
C)  $18. 
D)  $20.

Question 13

Table 10-3
  
-Refer to Table 10-3.The socially optimal quantity of output is

Accepted Answer

A)  3 units. 
B)  4 units. 
C)  5 units. 
D)  6 units. 
A)  3 units. 
B)  4 units. 
C)  5 units. 
D)  6 units.

Question 14

University researchers create a positive externality because what they discover in their research labs can easily be learned by others who haven't contributed to the research costs.What could the federal government do to equate the equilibrium quantity of university research and the socially optimal quantity of university research produced?

Accepted Answer

A)  tax university researchers 
B)  offer grants to university researchers 
C)  eliminate subsidized student loans 
D)  nothing 
A)  tax university researchers 
B)  offer grants to university researchers 
C)  eliminate subsidized student loans 
D)  nothing

Question 15

Honey producers provide a positive externality to orchards because

Accepted Answer

A)  the honey producers get more honey. 
B)  the orchard owner frequently gets stung by the honey producer's bees. 
C)  the orchard owner does not have to purchase bees to pollinate his flowers. 
D)  the honey producers have to rent access to the orchard grounds. 
A)  the honey producers get more honey. 
B)  the orchard owner frequently gets stung by the honey producer's bees. 
C)  the orchard owner does not have to purchase bees to pollinate his flowers. 
D)  the honey producers have to rent access to the orchard grounds.

Question 16

Figure 10-3
  
This figure reflects the market for outdoor concerts in a public park surrounded by residential neighborhoods.

-Refer to Figure 10-3.What price and quantity combination best represents the optimum price and number of concerts that should be organized?

Accepted Answer

A)  P1, Q1 
B)  P2, Q0 
C)  P2, Q1 
D)  The optimum quantity is zero concerts as long as residents in surrounding neighborhoods are adversely affected by noise and congestion. 
A)  P1, Q1 
B)  P2, Q0 
C)  P2, Q1 
D)  The optimum quantity is zero concerts as long as residents in surrounding neighborhoods are adversely affected by noise and congestion.

Question 17

The business activities of Firm A confer positive externalities on Firm B,and the business activities of Firm B confer positive externalities on Firm A.If the two firms merged,then

Accepted Answer

A)  their respective markets would move closer to the social optimum. 
B)  their respective markets would move further away from the social optimum. 
C)  total surplus in their respective markets would decrease. 
D)  the merger would serve as an example of a misguided public policy toward externalities. 
A)  their respective markets would move closer to the social optimum. 
B)  their respective markets would move further away from the social optimum. 
C)  total surplus in their respective markets would decrease. 
D)  the merger would serve as an example of a misguided public policy toward externalities.

Question 18

Figure 10-1
  
-Refer to Figure 10-1.This graph represents the tobacco industry.Without any government intervention,the equilibrium price and quantity are

Accepted Answer

A)  $1.90 and 38 units, respectively. 
B)  $1.80 and 35 units, respectively. 
C)  $1.60 and 42 units, respectively. 
D)  $1.35 and 58 units, respectively. 
A)  $1.90 and 38 units, respectively. 
B)  $1.80 and 35 units, respectively. 
C)  $1.60 and 42 units, respectively. 
D)  $1.35 and 58 units, respectively.

Question 19

Two firms,A and B,each currently dump 50 tons of chemicals into the local river.The government has decided to reduce the pollution and from now on will require a pollution permit for each ton of pollution dumped into the river.It costs Firm A $100 for each ton of pollution that it eliminates before it reaches the river,and it costs Firm B $50 for each ton of pollution that it eliminates before it reaches the river.The government gives each firm 20 pollution permits.Government officials are not sure whether to allow the firms to buy or sell the pollution permits to each other.What is the total cost of reducing pollution if firms are not allowed to buy and sell pollution permits from each other? What is the total cost of reducing pollution if the firms are allowed to buy and sell permits from each other?

Accepted Answer

A)  $3,000; $1,500 
B)  $4,500; $3,500 
C)  $4,500; $4,000 
D)  $4,500; $2,500 
A)  $3,000; $1,500 
B)  $4,500; $3,500 
C)  $4,500; $4,000 
D)  $4,500; $2,500

Question 20

Which of the following is not a characteristic of pollution permits?

Accepted Answer

A)  Prices are set by supply and demand. 
B)  Allowing firms to trade their permits reduces the total quantity of pollution beyond the initial allocation. 
C)  Real-world markets for pollution permits include sulfur dioxide and carbon. 
D)  Firms for whom pollution reduction is very expensive are willing to pay more for permits than firms for whom pollution reduction is less expensive. 
A)  Prices are set by supply and demand. 
B)  Allowing firms to trade their permits reduces the total quantity of pollution beyond the initial allocation. 
C)  Real-world markets for pollution permits include sulfur dioxide and carbon. 
D)  Firms for whom pollution reduction is very expensive are willing to pay more for permits than firms for whom pollution reduction is less expensive.

Which of the following is not an effective method to reduce negative externalities?

Figure 10-12 -Refer to Figure 10-12.An alternative label for the quantity would be

Figure 10-4 -Refer to Figure 10-4.If this market is currently producing at Q₂,then total economic well-being would increase if output

Figure 10-4 -Refer to Figure 10-4.If this market is currently producing at Q₄,then total economic well-being would be maximized if output

Tradable pollution permits

A positive externality arises when a person engages in an activity that has

If a market is characterized by a positive externality that is not the result of a technology spillover,

That some firms are engaged in more than one type of business is explained,in some cases,by

A negative externality

If an externality is present in a market,economic efficiency may be enhanced by

Table 10-4 -Refer to Table 10-4.Taking into account private and external costs,total surplus in the market equilibrium amounts to

Table 10-3 -Refer to Table 10-3.The socially optimal quantity of output is

Honey producers provide a positive externality to orchards because

Figure 10-3 This figure reflects the market for outdoor concerts in a public park surrounded by residential neighborhoods. -Refer to Figure 10-3.What price and quantity combination best represents the optimum price and number of concerts that should be organized?

The business activities of Firm A confer positive externalities on Firm B,and the business activities of Firm B confer positive externalities on Firm A.If the two firms merged,then

Figure 10-1 -Refer to Figure 10-1.This graph represents the tobacco industry.Without any government intervention,the equilibrium price and quantity are

Which of the following is not a characteristic of pollution permits?

Ten Principles of Economics.

Thinking Like an Economist.

Interdependence and the Gains from Trade.

The Market Forces of Supply and Demand.

Elasticity and Its Application

Supply, Demand, And Government Policies.

Consumers, Producers, and the Efficiency of Markets.

Application: The Costs of Taxation.

Application: International Trade.

Public Goods and Common Resources.

The Design of the Tax System.

The Costs of Production.

Firms in Competitive Markets.

Monopoly.

Monopolistic Competition.

Oligopoly.

The Market For the Factors of Production.

Earnings and Discrimination.

Income Inequality and Poverty.

The Theory of Consumer Choice.

Frontiers in Microeconomics.

Filters

Exam 10: Externalities.

Which of the following is not an effective method to reduce negative externalities?

Figure 10-12 -Refer to Figure 10-12.An alternative label for the quantity would be

Figure 10-4 -Refer to Figure 10-4.If this market is currently producing at Q₂,then total economic well-being would increase if output

Figure 10-4 -Refer to Figure 10-4.If this market is currently producing at Q₄,then total economic well-being would be maximized if output

Tradable pollution permits

A positive externality arises when a person engages in an activity that has

If a market is characterized by a positive externality that is not the result of a technology spillover,

That some firms are engaged in more than one type of business is explained,in some cases,by

A negative externality

If an externality is present in a market,economic efficiency may be enhanced by

Table 10-4 -Refer to Table 10-4.Taking into account private and external costs,total surplus in the market equilibrium amounts to

Table 10-3 -Refer to Table 10-3.The socially optimal quantity of output is

Honey producers provide a positive externality to orchards because

Figure 10-3 This figure reflects the market for outdoor concerts in a public park surrounded by residential neighborhoods. -Refer to Figure 10-3.What price and quantity combination best represents the optimum price and number of concerts that should be organized?

The business activities of Firm A confer positive externalities on Firm B,and the business activities of Firm B confer positive externalities on Firm A.If the two firms merged,then

Figure 10-1 -Refer to Figure 10-1.This graph represents the tobacco industry.Without any government intervention,the equilibrium price and quantity are

Which of the following is not a characteristic of pollution permits?

Ten Principles of Economics.

Thinking Like an Economist.

Interdependence and the Gains from Trade.

The Market Forces of Supply and Demand.

Elasticity and Its Application

Supply, Demand, And Government Policies.

Consumers, Producers, and the Efficiency of Markets.

Application: The Costs of Taxation.

Application: International Trade.

Public Goods and Common Resources.

The Design of the Tax System.

The Costs of Production.

Firms in Competitive Markets.

Monopoly.

Monopolistic Competition.

Oligopoly.

The Market For the Factors of Production.

Earnings and Discrimination.

Income Inequality and Poverty.

The Theory of Consumer Choice.

Frontiers in Microeconomics.

Filters