Question 1

Which of the following require firms to pay to pollute? (i)	corrective taxes
(ii)	tradable pollution permits
(iii)	pollution regulations

Accepted Answer

A) (i) only 
B) both (i) and (ii) 
C) (iii) only 
D) both (ii) and (iii) 
A) (i) only 
B) both (i) and (ii) 
C) (iii) only 
D) both (ii) and (iii)

Question 2

Figure 10-4
  
-Refer to Figure 10-4.If this market currently produces Q₃,total economic well-being would be increased if

Accepted Answer

A) production decreased to Q₂. 
B) production increased to Q₄. 
C) this product were no longer produced. 
D) output stayed at Q₃. 
A) production decreased to Q₂. 
B) production increased to Q₄. 
C) this product were no longer produced. 
D) output stayed at Q₃.

Question 3

Which of the following statements is correct?

Accepted Answer

A) Taxes are more difficult to administer than regulations. 
B) Taxes provide incentives for firms to adopt new methods to reduce negative externalities. 
C) Command-and-control policies provide incentives for private decisionmakers to solve their problems on their own. 
D) Corrective taxes distort incentives. 
A) Taxes are more difficult to administer than regulations. 
B) Taxes provide incentives for firms to adopt new methods to reduce negative externalities. 
C) Command-and-control policies provide incentives for private decisionmakers to solve their problems on their own. 
D) Corrective taxes distort incentives.

Question 4

An externality

Accepted Answer

A) is a type of market failure. 
B) causes markets to allocate resources efficiently. 
C) strengthens the role of the "invisible hand" in the marketplace. 
D) affects producers but not consumers. 
A) is a type of market failure. 
B) causes markets to allocate resources efficiently. 
C) strengthens the role of the "invisible hand" in the marketplace. 
D) affects producers but not consumers.

Question 5

Suppose that smoking creates a negative externality.If the government imposes a per-cigarette tax equal to the per-cigarette externality,then

Accepted Answer

A) the equilibrium quantity of cigarettes smoked will be less than the socially optimal quantity of cigarettes smoked. 
B) the equilibrium quantity of cigarettes smoked will be greater than the socially optimal quantity of cigarettes smoked. 
C) the equilibrium quantity of cigarettes smoked will equal the socially optimal quantity of cigarettes smoked. 
D) There is not enough information to answer the question. 
A) the equilibrium quantity of cigarettes smoked will be less than the socially optimal quantity of cigarettes smoked. 
B) the equilibrium quantity of cigarettes smoked will be greater than the socially optimal quantity of cigarettes smoked. 
C) the equilibrium quantity of cigarettes smoked will equal the socially optimal quantity of cigarettes smoked. 
D) There is not enough information to answer the question.

Question 6

When a beekeeper places his hives of bees in an orchard so that the bees can gather nectar to produce honey,the bees pollinate the orchard,which increases the yield of fruit.This benefits

Accepted Answer

A) only the beekeeper. 
B) the beekeeper, but it creates a negative externality because the bees are a hazard to the orchard owner. 
C) only the owner of the orchard. 
D) both the beekeeper and the orchard owner. 
A) only the beekeeper. 
B) the beekeeper, but it creates a negative externality because the bees are a hazard to the orchard owner. 
C) only the owner of the orchard. 
D) both the beekeeper and the orchard owner.

Question 7

This figure reflects the market for outdoor concerts in a public park surrounded by residential neighborhoods.
Figure 10-3
  
-Refer to Figure 10-3.At the private market outcome,the equilibrium price will be

Accepted Answer

A) P₀. 
B) P₁. 
C) P₂. 
D) None of the above is correct. 
A) P₀. 
B) P₁. 
C) P₂. 
D) None of the above is correct.

Question 8

Which of the following is an example of a positive externality?

Accepted Answer

A) A college student buys a new car when she graduates. 
B) The mayor of a small town plants flowers in the city park. 
C) Local high school teachers have pizza delivered every Friday for lunch. 
D) An avid fisherman buys new fishing gear for his next fishing trip. 
A) A college student buys a new car when she graduates. 
B) The mayor of a small town plants flowers in the city park. 
C) Local high school teachers have pizza delivered every Friday for lunch. 
D) An avid fisherman buys new fishing gear for his next fishing trip.

Question 9

When the government chooses a policy that aligns private incentives with social efficiency to solve an externality problem,it

Accepted Answer

A) provides incentives to private decisionmakers to induce them to solve the externality problem on their own. 
B) typically uses command-and-control techniques. 
C) uses taxes more often than subsidies. 
D) uses subsidies more often than taxes. 
A) provides incentives to private decisionmakers to induce them to solve the externality problem on their own. 
B) typically uses command-and-control techniques. 
C) uses taxes more often than subsidies. 
D) uses subsidies more often than taxes.

Question 10

Figure 10-2
  
-Refer to Figure 10-2.Suppose that the production of soccer balls creates a social cost which is depicted in the graph above.Without any government regulation,how many soccer balls will be produced?

Accepted Answer

A) 3 
B) 10 
C) 25 
D) 50 
A) 3 
B) 10 
C) 25 
D) 50

Question 11

In many cases the Coase theorem does not work well because

Accepted Answer

A) there are too few parties at the negotiation table. 
B) the government does not know about the Coase theorem. 
C) transaction costs are too high. 
D) transaction costs are too low. 
A) there are too few parties at the negotiation table. 
B) the government does not know about the Coase theorem. 
C) transaction costs are too high. 
D) transaction costs are too low.

Question 12

Barking dogs cannot be considered an externality because externalities must be associated with some form of market exchange.

Accepted Answer

A) True 
 B)False

Question 13

Both pollution permits and corrective taxes are viewed as cost effective ways to keep the environment clean.

Accepted Answer

A) True 
 B)False

Question 14

Suppose that electricity producers create a negative externality equal to $5 per unit.Further suppose that the government gives a $5 per-unit subsidy to producers.What is the relationship between the equilibrium quantity and the socially optimal quantity of electricity to be 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 15

Suppose that flower gardens create a positive externality equal to $1 per plant.Further suppose that the local government offers a $1 per-plant subsidy to growers.What is the relationship between the equilibrium quantity and the socially optimal quantity of plants grown?

Accepted Answer

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

Question 16

Since restored historic buildings convey a positive externality,local governments may choose to

Accepted Answer

A) regulation the demolition of them. 
B) provide tax breaks to owners who restore them. 
C) increase property taxes in historic areas. 
D) Both a and b are correct. 
A) regulation the demolition of them. 
B) provide tax breaks to owners who restore them. 
C) increase property taxes in historic areas. 
D) Both a and b are correct.

Question 17

Figure 10-4
  
-Refer to Figure 10-4.The socially optimal quantity would be

Accepted Answer

A) Q₁. 
B) Q₂. 
C) Q₃. 
D) Q₄. 
A) Q₁. 
B) Q₂. 
C) Q₃. 
D) Q₄.

Question 18

Which of the following is not an advantage of corrective taxes?

Accepted Answer

A) They raise revenues for the government. 
B) They enhance economic efficiency. 
C) They subsidize the production of goods with positive externalities. 
D) They move the allocation of resources closer to the social optimum. 
A) They raise revenues for the government. 
B) They enhance economic efficiency. 
C) They subsidize the production of goods with positive externalities. 
D) They move the allocation of resources closer to the social optimum.

Question 19

Suppose that smoking creates a negative externality.If the government does not interfere in the cigarette market,then

Accepted Answer

A) the equilibrium quantity of cigarettes smoked will equal the socially optimal quantity of cigarettes smoked. 
B) the equilibrium quantity of cigarettes smoked will be greater than the socially optimal quantity of cigarettes smoked. 
C) the equilibrium quantity of cigarettes smoked will be less than the socially optimal quantity of cigarettes smoked. 
D) There is not enough information to answer the question. 
A) the equilibrium quantity of cigarettes smoked will equal the socially optimal quantity of cigarettes smoked. 
B) the equilibrium quantity of cigarettes smoked will be greater than the socially optimal quantity of cigarettes smoked. 
C) the equilibrium quantity of cigarettes smoked will be less than the socially optimal quantity of cigarettes smoked. 
D) There is not enough information to answer the question.

Question 20

Assume that your roommate is very messy.Suppose she gets a $100 benefit from being messy but imposes a $200 cost on you.The Coase theorem would suggest that an efficient solution would be for you to

Accepted Answer

A) pay your roommate at least $100 but no more than $200 to clean up after herself. 
B) pay your roommate at least $201 to clean up after herself. 
C) charge your roommate at least $100 to have you clean up after her. 
D) charge your roommate at least $200 but no more than $300 to keep you from complaining about the mess. 
A) pay your roommate at least $100 but no more than $200 to clean up after herself. 
B) pay your roommate at least $201 to clean up after herself. 
C) charge your roommate at least $100 to have you clean up after her. 
D) charge your roommate at least $200 but no more than $300 to keep you from complaining about the mess.

Exam 10: Externalities

Which of the following require firms to pay to pollute? (i) corrective taxes (ii) tradable pollution permits (iii) pollution regulations

Figure 10-4 -Refer to Figure 10-4.If this market currently produces Q₃,total economic well-being would be increased if

Which of the following statements is correct?

An externality

Suppose that smoking creates a negative externality.If the government imposes a per-cigarette tax equal to the per-cigarette externality,then

When a beekeeper places his hives of bees in an orchard so that the bees can gather nectar to produce honey,the bees pollinate the orchard,which increases the yield of fruit.This benefits

This figure reflects the market for outdoor concerts in a public park surrounded by residential neighborhoods. Figure 10-3 -Refer to Figure 10-3.At the private market outcome,the equilibrium price will be

Which of the following is an example of a positive externality?

When the government chooses a policy that aligns private incentives with social efficiency to solve an externality problem,it

Figure 10-2 -Refer to Figure 10-2.Suppose that the production of soccer balls creates a social cost which is depicted in the graph above.Without any government regulation,how many soccer balls will be produced?

In many cases the Coase theorem does not work well because

Barking dogs cannot be considered an externality because externalities must be associated with some form of market exchange.

Both pollution permits and corrective taxes are viewed as cost effective ways to keep the environment clean.

Suppose that electricity producers create a negative externality equal to $5 per unit.Further suppose that the government gives a $5 per-unit subsidy to producers.What is the relationship between the equilibrium quantity and the socially optimal quantity of electricity to be produced?

Suppose that flower gardens create a positive externality equal to $1 per plant.Further suppose that the local government offers a $1 per-plant subsidy to growers.What is the relationship between the equilibrium quantity and the socially optimal quantity of plants grown?

Since restored historic buildings convey a positive externality,local governments may choose to

Figure 10-4 -Refer to Figure 10-4.The socially optimal quantity would be

Which of the following is not an advantage of corrective taxes?

Suppose that smoking creates a negative externality.If the government does not interfere in the cigarette market,then

Assume that your roommate is very messy.Suppose she gets a $100 benefit from being messy but imposes a $200 cost on you.The Coase theorem would suggest that an efficient solution would be for you to

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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