Question 1

The Coase theorem states that

Accepted Answer

A) taxes are an efficient way for governments to remedy negative externalities. 
B) subsidies are an efficient way for governments to remedy positive externalities. 
C) industrial policies encourage technology spillovers. 
D) in the absence of transaction costs, private parties can solve the problem of externalities on their own. 
A) taxes are an efficient way for governments to remedy negative externalities. 
B) subsidies are an efficient way for governments to remedy positive externalities. 
C) industrial policies encourage technology spillovers. 
D) in the absence of transaction costs, private parties can solve the problem of externalities on their own.

Question 2

Corrective taxes are typically advocated to correct for the effects of

Accepted Answer

A) positive externalities. 
B) negative externalities. 
C) patents. 
D) All of the above are correct. 
A) positive externalities. 
B) negative externalities. 
C) patents. 
D) All of the above are correct.

Question 3

This figure reflects the market for outdoor concerts in a public park surrounded by residential neighborhoods.
Figure 10-3
  
-Refer to Figure 10-3.The social cost curve is above the supply curve because

Accepted Answer

A) it takes into account the external costs imposed on society by the concert. 
B) it takes into account the effect of local noise restrictions on concerts in parks surrounded by residential neighborhoods. 
C) concert tickets are likely to cost more than the concert actually costs the organizers. 
D) residents in the surrounding neighborhoods get to listen to the concert for free. 
A) it takes into account the external costs imposed on society by the concert. 
B) it takes into account the effect of local noise restrictions on concerts in parks surrounded by residential neighborhoods. 
C) concert tickets are likely to cost more than the concert actually costs the organizers. 
D) residents in the surrounding neighborhoods get to listen to the concert for free.

Question 4

The social cost of pollution includes the private costs of the producers plus the costs to those bystanders adversely affected by the pollution.

Accepted Answer

A) True 
 B)False

Question 5

When the government intervenes in markets with externalities,it does so in order to

Accepted Answer

A) increase production when negative externalities are present. 
B) protect the interests of bystanders. 
C) make certain all benefits are received by market participants. 
D) reduce production when positive externalities are present. 
A) increase production when negative externalities are present. 
B) protect the interests of bystanders. 
C) make certain all benefits are received by market participants. 
D) reduce production when positive externalities are present.

Question 6

The Coase theorem suggests that efficient solutions to externalities can be determined through bargaining.Under what circumstances will private bargaining fail to produce a solution?

Accepted Answer

Private parties may fail to bargain to a

Question 7

Externalities tend to cause markets to be

Accepted Answer

A) inefficient. 
B) inequitable. 
C) unnecessary. 
D) overwhelmed. 
A) inefficient. 
B) inequitable. 
C) unnecessary. 
D) overwhelmed.

Question 8

Negative externalities lead markets to produce a smaller quantity of a good than is socially desirable,while positive externalities lead markets to produce a larger quantity of a good than is socially desirable.

Accepted Answer

A) True 
 B)False

Question 9

Suppose that smoking creates a negative externality.What can the government do to equate the equilibrium quantity of cigarettes and the socially optimal quantity of cigarettes smoked?

Accepted Answer

A) impose a tax on cigarettes that is equal to the per-unit externality 
B) offer a subsidy on cigarettes that is equal to the per-unit externality 
C) impose a regulation limiting the number of cigarettes that each consumer can purchase 
D) nothing 
A) impose a tax on cigarettes that is equal to the per-unit externality 
B) offer a subsidy on cigarettes that is equal to the per-unit externality 
C) impose a regulation limiting the number of cigarettes that each consumer can purchase 
D) nothing

Question 10

The Environmental Protection Agency (EPA)cannot reach a target level of pollution through the use of pollution permits.

Accepted Answer

A) True 
 B)False

Question 11

An externality is the impact of

Accepted Answer

A) society's decisions on the well-being of society. 
B) a person's actions on that person's well-being. 
C) one person's actions on the well-being of a bystander. 
D) society's decisions on the poorest person in the society. 
A) society's decisions on the well-being of society. 
B) a person's actions on that person's well-being. 
C) one person's actions on the well-being of a bystander. 
D) society's decisions on the poorest person in the society.

Question 12

Which of the following best defines the situation where one firm's research yields knowledge that is used by society as a whole?

Accepted Answer

A) social cost 
B) opportunity cost of technology 
C) internalization of an externality 
D) technology spillover 
A) social cost 
B) opportunity cost of technology 
C) internalization of an externality 
D) technology spillover

Question 13

If the government were to impose a fine of $1,000 for each unit of air-pollution released by a steel mill,the policy would be considered

Accepted Answer

A) a subsidy. 
B) a regulation. 
C) a corrective tax. 
D) an application of the Coase theorem. 
A) a subsidy. 
B) a regulation. 
C) a corrective tax. 
D) an application of the Coase theorem.

Question 14

In which of the following cases is the Coase theorem most likely to solve the externality?

Accepted Answer

A) Richard is annoyed because his roommate smokes. 
B) Chemicals from farms in the Mississippi Valley are polluting the Gulf of Mexico. 
C) Car exhaust in a small town is making one of its residents ill. 
D) Industrialization around the world is causing acid rain. 
A) Richard is annoyed because his roommate smokes. 
B) Chemicals from farms in the Mississippi Valley are polluting the Gulf of Mexico. 
C) Car exhaust in a small town is making one of its residents ill. 
D) Industrialization around the world is causing acid rain.

Question 15

Since externalities tend to keep markets from reaching a socially optimal equilibrium,government action

Accepted Answer

A) is always needed because private solutions can never be attained. 
B) is needed when private solutions fail to arise. 
C) will be needed only to correct for positive externalities. 
D) will be needed only to correct for negative externalities. 
A) is always needed because private solutions can never be attained. 
B) is needed when private solutions fail to arise. 
C) will be needed only to correct for positive externalities. 
D) will be needed only to correct for negative externalities.

Question 16

Government intervention that aims to promote technology-enhancing industries is called

Accepted Answer

A) assisted technology. 
B) intervention policy. 
C) industrial technology assistance. 
D) industrial policy. 
A) assisted technology. 
B) intervention policy. 
C) industrial technology assistance. 
D) industrial policy.

Question 17

Figure 10-7
  
-Refer to Figure 10-7.Which graph illustrates a regulation?

Accepted Answer

A) the left graph 
B) the right graph 
C) both graphs 
D) neither graph 
A) the left graph 
B) the right graph 
C) both graphs 
D) neither graph

Question 18

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 19

Using a supply and demand diagram,demonstrate how a positive externality leads to market inefficiency.How might the government help to eliminate this inefficiency?

Accepted Answer

@#IMG-DLM& When a positive externality exists,the

Question 20

Which of the following statements is not correct?

Accepted Answer

A) Government policies may improve the market's allocation of resources when negative externalities are present. 
B) Government policies may improve the market's allocation of resources when positive externalities are present. 
C) A positive externality is an example of a market failure. 
D) Without government intervention, the market will tend to undersupply products that produce negative externalities. 
A) Government policies may improve the market's allocation of resources when negative externalities are present. 
B) Government policies may improve the market's allocation of resources when positive externalities are present. 
C) A positive externality is an example of a market failure. 
D) Without government intervention, the market will tend to undersupply products that produce negative externalities.

Exam 10: Externalities

The Coase theorem states that

Corrective taxes are typically advocated to correct for the effects of

This figure reflects the market for outdoor concerts in a public park surrounded by residential neighborhoods. Figure 10-3 -Refer to Figure 10-3.The social cost curve is above the supply curve because

The social cost of pollution includes the private costs of the producers plus the costs to those bystanders adversely affected by the pollution.

When the government intervenes in markets with externalities,it does so in order to

The Coase theorem suggests that efficient solutions to externalities can be determined through bargaining.Under what circumstances will private bargaining fail to produce a solution?

Externalities tend to cause markets to be

Negative externalities lead markets to produce a smaller quantity of a good than is socially desirable,while positive externalities lead markets to produce a larger quantity of a good than is socially desirable.

Suppose that smoking creates a negative externality.What can the government do to equate the equilibrium quantity of cigarettes and the socially optimal quantity of cigarettes smoked?

The Environmental Protection Agency (EPA)cannot reach a target level of pollution through the use of pollution permits.

An externality is the impact of

Which of the following best defines the situation where one firm's research yields knowledge that is used by society as a whole?

If the government were to impose a fine of $1,000 for each unit of air-pollution released by a steel mill,the policy would be considered

In which of the following cases is the Coase theorem most likely to solve the externality?

Since externalities tend to keep markets from reaching a socially optimal equilibrium,government action

Government intervention that aims to promote technology-enhancing industries is called

Figure 10-7 -Refer to Figure 10-7.Which graph illustrates a regulation?

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

Using a supply and demand diagram,demonstrate how a positive externality leads to market inefficiency.How might the government help to eliminate this inefficiency?

Which of the following statements is not correct?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Applications

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

Oligopoly

Monopolistic Competition

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, investment, and the Financial System

The Basic Tools of Finance

Unemployment

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short Run Trade Off Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

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