Question 1

Why are efficiency taxes preferred to regulatory policies as methods remedy externalities?

Accepted Answer

Efficiency taxes allow markets to coordi

Question 2

A corrective tax

Accepted Answer

A) allocates pollution to those factories that face the highest cost of reducing it. 
B) is a form of regulation. 
C) works well for all types of externalities. 
D) is inferior to regulatory policy according to most economists. 
A) allocates pollution to those factories that face the highest cost of reducing it. 
B) is a form of regulation. 
C) works well for all types of externalities. 
D) is inferior to regulatory policy according to most economists.

Question 3

Despite the appealing logic of the Coase theorem,private actors often fail to resolve on their own the problems caused by externalities.

Accepted Answer

A) True 
 B)False

Question 4

If only a few people are affected by an externality,then it is likely that

Accepted Answer

A) corrective taxes will provide the most efficient solution to the externality. 
B) command-and-control regulation will provide the most efficient solution to the externality. 
C) a private solution to the inefficiency will occur. 
D) a private solution will be very difficult to negotiate. 
A) corrective taxes will provide the most efficient solution to the externality. 
B) command-and-control regulation will provide the most efficient solution to the externality. 
C) a private solution to the inefficiency will occur. 
D) a private solution will be very difficult to negotiate.

Question 5

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 is undesirable for society. 
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 is undesirable for society.

Question 6

One advantage of regulation as a method for reducing pollution is that the government can determine the maximum quantity of pollution that is legally allowed.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following statements is correct?

Accepted Answer

A) Because a clean environment is a public good, a feasible goal is to eliminate all pollution, regardless of the cost. 
B) Rich countries usually have cleaner environments than poor countries because a clean environment is like other normal goods in that it has a positive income elasticity. 
C) Clean water and clean air are priceless goods. 
D) All of the above are correct. 
A) Because a clean environment is a public good, a feasible goal is to eliminate all pollution, regardless of the cost. 
B) Rich countries usually have cleaner environments than poor countries because a clean environment is like other normal goods in that it has a positive income elasticity. 
C) Clean water and clean air are priceless goods. 
D) All of the above are correct.

Question 8

Because there are positive externalities from higher education,

Accepted Answer

A) private markets will under-supply college classes. 
B) private markets will over-supply college classes. 
C) the government should impose a tax on college students. 
D) government intervention cannot improve the market for college classes. 
A) private markets will under-supply college classes. 
B) private markets will over-supply college classes. 
C) the government should impose a tax on college students. 
D) government intervention cannot improve the market for college classes.

Question 9

Which of the following statements is correct?

Accepted Answer

A) Automotive manufacturers prefer stricter fuel economy regulations to higher gasoline taxes. 
B) Higher gasoline taxes have provided a market-based incentive for Europeans to buy more fuel-efficient vehicles. 
C) Higher gasoline taxes have had no effect on the U.S.demand for gasoline because the demand for gasoline is perfectly inelastic. 
D) Fuel efficiency regulations are more effective than gasoline taxes in reducing the demand for gasoline in the United States and Europe. 
A) Automotive manufacturers prefer stricter fuel economy regulations to higher gasoline taxes. 
B) Higher gasoline taxes have provided a market-based incentive for Europeans to buy more fuel-efficient vehicles. 
C) Higher gasoline taxes have had no effect on the U.S.demand for gasoline because the demand for gasoline is perfectly inelastic. 
D) Fuel efficiency regulations are more effective than gasoline taxes in reducing the demand for gasoline in the United States and Europe.

Question 10

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 11

Private parties may choose not to solve an externality problem if the transaction costs are large enough.

Accepted Answer

A) True 
 B)False

Question 12

To produce honey,beekeepers place hives of bees in the fields of farmers.As bees gather nectar,they pollinate the crops in the fields,which increases the yields of these fields at no additional cost to the farmer.What might be a reasonable private solution to this externality,and how might the solution be reached?

Accepted Answer

One solution would be to have one person

Question 13

Dick owns a dog whose barking annoys Dick's neighbor Jane.Dick receives personal benefit from owning the dog,and Jane bears a cost of Dick's ownership of the dog.Assuming Jane has the legal right to peace and quiet,which of the following statements is correct?

Accepted Answer

A) If Dick's benefit exceeds Jane's cost, government intervention is necessary. 
B) Dick will pay to keep his dog if his benefit exceeds Jane's cost. 
C) If Jane's cost exceeds Dick's benefit, Dick will pay Jane to keep his dog. 
D) If Jane has the legal right to peace and quiet, no further transactions will be mutually beneficial. 
A) If Dick's benefit exceeds Jane's cost, government intervention is necessary. 
B) Dick will pay to keep his dog if his benefit exceeds Jane's cost. 
C) If Jane's cost exceeds Dick's benefit, Dick will pay Jane to keep his dog. 
D) If Jane has the legal right to peace and quiet, no further transactions will be mutually beneficial.

Question 14

Which of the following is a problem that keeps people from privately solving externality problems?

Accepted Answer

A) Each party involved holds out for a better deal. 
B) The externality is large. 
C) Only problems with a sufficiently large number of parties can be solved. 
D) There is a lack of government intervention. 
A) Each party involved holds out for a better deal. 
B) The externality is large. 
C) Only problems with a sufficiently large number of parties can be solved. 
D) There is a lack of government intervention.

Question 15

Government can be used to solve externality problems that are too costly for private parties to solve.

Accepted Answer

A) True 
 B)False

Question 16

Mike and Bob are both in the same enclosed hotel room.Mike assigns a $20 value to smoking his cigar.Bob values smoke-free air at $10.Which of the following scenarios is a successful example of the Coase theorem?

Accepted Answer

A) Bob offers Mike $15 not to smoke his cigar.Mike accepts and does not smoke. 
B) Mike pays Bob $11 so that Mike can smoke his cigar. 
C) Mike pays Bob $9 so that Mike can smoke his cigar. 
D) Bob offers Mike $10 not to smoke his cigar.Mike accepts and does not smoke. 
A) Bob offers Mike $15 not to smoke his cigar.Mike accepts and does not smoke. 
B) Mike pays Bob $11 so that Mike can smoke his cigar. 
C) Mike pays Bob $9 so that Mike can smoke his cigar. 
D) Bob offers Mike $10 not to smoke his cigar.Mike accepts and does not smoke.

Question 17

Which of the following statements is not correct?

Accepted Answer

A) A patent is a way for the government to encourage the production of a good with technology spillovers. 
B) A tax is a way for the government to reduce the production of a good with a negative externality. 
C) A tax that accurately reflects social costs produces the socially optimal outcome. 
D) Government policies cannot improve upon private market outcomes. 
A) A patent is a way for the government to encourage the production of a good with technology spillovers. 
B) A tax is a way for the government to reduce the production of a good with a negative externality. 
C) A tax that accurately reflects social costs produces the socially optimal outcome. 
D) Government policies cannot improve upon private market outcomes.

Question 18

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 19

Patents do not

Accepted Answer

A) provide firms an incentive to research. 
B) assign property rights to inventors. 
C) protect the rights of inventors for their lifetimes. 
D) internalize externalities. 
A) provide firms an incentive to research. 
B) assign property rights to inventors. 
C) protect the rights of inventors for their lifetimes. 
D) internalize externalities.

Question 20

Use a graph to illustrate the quantity of pollution that would be emitted (a)after a corrective tax has been imposed and (b)after tradable pollution permits have been imposed.Could these two quantities ever be equivalent?

Accepted Answer

@#IMG-DLM& Yes,these two quantities coul

Exam 10: Externalities

Why are efficiency taxes preferred to regulatory policies as methods remedy externalities?

A corrective tax

Despite the appealing logic of the Coase theorem,private actors often fail to resolve on their own the problems caused by externalities.

If only a few people are affected by an externality,then it is likely that

A negative externality

One advantage of regulation as a method for reducing pollution is that the government can determine the maximum quantity of pollution that is legally allowed.

Which of the following statements is correct?

Because there are positive externalities from higher education,

Which of the following statements is correct?

Private parties may choose not to solve an externality problem if the transaction costs are large enough.

Dick owns a dog whose barking annoys Dick's neighbor Jane.Dick receives personal benefit from owning the dog,and Jane bears a cost of Dick's ownership of the dog.Assuming Jane has the legal right to peace and quiet,which of the following statements is correct?

Which of the following is a problem that keeps people from privately solving externality problems?

Government can be used to solve externality problems that are too costly for private parties to solve.

Mike and Bob are both in the same enclosed hotel room.Mike assigns a $20 value to smoking his cigar.Bob values smoke-free air at $10.Which of the following scenarios is a successful example of the Coase theorem?

Which of the following statements is not correct?

Honey producers provide a positive externality to orchards because

Patents do not

Use a graph to illustrate the quantity of pollution that would be emitted (a)after a corrective tax has been imposed and (b)after tradable pollution permits have been imposed.Could these two quantities ever be equivalent?

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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