Question 1

What does internalizing an externality refer to

Accepted Answer

A) making buyers and sellers take into account the external effects of their actions 
B) making certain that all transactions benefit only buyers and sellers 
C) making certain government does not disrupt the internal workings of the market 
D) making buyers pay the full price for the products they purchase 
A) making buyers and sellers take into account the external effects of their actions 
B) making certain that all transactions benefit only buyers and sellers 
C) making certain government does not disrupt the internal workings of the market 
D) making buyers pay the full price for the products they purchase

Question 2

What does the Coase theorem suggest about private solutions to the externality problem

Accepted Answer

A) They will always allocate resources efficiently if private parties can bargain without cost. 
B) They are effective under all conditions. 
C) They are only efficient when there are negative externalities. 
D) They may not be possible because of the distribution of property rights. 
A) They will always allocate resources efficiently if private parties can bargain without cost. 
B) They are effective under all conditions. 
C) They are only efficient when there are negative externalities. 
D) They may not be possible because of the distribution of property rights.

Question 3

How do local governments address the problem of barking dogs

Accepted Answer

A) by imposing leash laws 
B) by requiring owners to purchase "bark collars" for their pets 
C) by imposing disturbing the peace laws 
D) by funding animal control departments 
A) by imposing leash laws 
B) by requiring owners to purchase "bark collars" for their pets 
C) by imposing disturbing the peace laws 
D) by funding animal control departments

Question 4

What are corrective taxes enacted to do

Accepted Answer

A) give inventors exclusive rights to their inventions 
B) correct for the effects of negative externalities 
C) discourage production of undesirable products 
D) adjust markets with positive externalities 
A) give inventors exclusive rights to their inventions 
B) correct for the effects of negative externalities 
C) discourage production of undesirable products 
D) adjust markets with positive externalities

Question 5

According to the Coase theorem,the private market will need government intervention in order to reach an efficient outcome.

Accepted Answer

A) True 
 B)False

Question 6

Hikers frequently claim that livestock grazing in Wilderness Recreation Areas reduces the satisfaction of their recreational hiking experience.What is the economic explanation for this conflict

Accepted Answer

A) Hikers do not value livestock as much as ranchers. 
B) Grazing cows create negative externalities that make hiking less pleasant. 
C) Ranchers are insensitive to the recreational use of public lands. 
D) Grazing cows is a profit-generating activity, but hiking is not. 
A) Hikers do not value livestock as much as ranchers. 
B) Grazing cows create negative externalities that make hiking less pleasant. 
C) Ranchers are insensitive to the recreational use of public lands. 
D) Grazing cows is a profit-generating activity, but hiking is not.

Question 7

Figure 10-1
This figure reflects the market for outdoor concerts in a public park surrounded by residential neighbourhoods.
  
-Refer to Figure 10-1.What does the difference between the social cost curve and the supply curve reflect

Accepted Answer

A) the profit margin of each concert 
B) the cost of spillover effects from the concert (e.g., noise and traffic) 
C) the value of concerts to society as a whole 
D) the amount by which the city should subsidize the concert organizers 
A) the profit margin of each concert 
B) the cost of spillover effects from the concert (e.g., noise and traffic) 
C) the value of concerts to society as a whole 
D) the amount by which the city should subsidize the concert organizers

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

Figure 10-2
  
-Refer to Figure 10-2.What is the market equilibrium quantity

Accepted Answer

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

Question 10

What is the difference between a corrective tax and pollution permits

Accepted Answer

A) A corrective tax sets the price of pollution, and permits set the quantity of pollution. 
B) A corrective tax provides a more efficient outcome than permits. 
C) A corrective tax sets the quantity of pollution, and permits set the price of pollution. 
D) Permits provide a more efficient outcome than a corrective tax. 
A) A corrective tax sets the price of pollution, and permits set the quantity of pollution. 
B) A corrective tax provides a more efficient outcome than permits. 
C) A corrective tax sets the quantity of pollution, and permits set the price of pollution. 
D) Permits provide a more efficient outcome than a corrective tax.

Question 11

A technology spillover is a type of negative externality.

Accepted Answer

A) True 
 B)False

Question 12

Why do private markets fail to reach a socially optimal level when negative externalities are present

Accepted Answer

A) Private benefit exceeds social benefit at the private market solution. 
B) Private costs exceed social costs at the private market solution. 
C) Social costs exceed private costs at the private market solution. 
D) Social benefit exceeds private benefit at the private market solution. 
A) Private benefit exceeds social benefit at the private market solution. 
B) Private costs exceed social costs at the private market solution. 
C) Social costs exceed private costs at the private market solution. 
D) Social benefit exceeds private benefit at the private market solution.

Question 13

When the government chooses an externality policy that aligns private incentives with social efficiency to solve an externality,what does it do

Accepted Answer

A) It provides incentives for private decision makers to solve the externality problem on their own. 
B) It typically uses command-and-control techniques. 
C) It follows a rule that the use of taxes is strictly forbidden. 
D) It follows a rule that subsidies are always the best policy. 
A) It provides incentives for private decision makers to solve the externality problem on their own. 
B) It typically uses command-and-control techniques. 
C) It follows a rule that the use of taxes is strictly forbidden. 
D) It follows a rule that subsidies are always the best policy.

Question 14

Most economists prefer regulation to taxation because regulation corrects market inefficiencies at a lower cost than taxation does.

Accepted Answer

A) True 
 B)False

Question 15

When correcting for an externality,command-and-control policies are always preferable to market-based policies.

Accepted Answer

A) True 
 B)False

Question 16

What will a positive externality cause a private market to produce

Accepted Answer

A) less than is socially desirable 
B) more than is socially desirable 
C) more than market equilibrium 
D) less than market equilibrium 
A) less than is socially desirable 
B) more than is socially desirable 
C) more than market equilibrium 
D) less than market equilibrium

Question 17

To enhance the well-being of society,when will a social planner encourage firms to increase production

Accepted Answer

A) when the firms are producing basic goods 
B) when there is a shortage in the market 
C) when technology spillovers are associated with production 
D) when any negative externalities associated with production are imposed only upon consumers 
A) when the firms are producing basic goods 
B) when there is a shortage in the market 
C) when technology spillovers are associated with production 
D) when any negative externalities associated with production are imposed only upon consumers

Question 18

How have policymakers chosen to solve the problem of too much car exhaust pollution

Accepted Answer

A) by setting emission standards and limiting driving by commuters 
B) by setting emission standards and taxing gasoline 
C) by taxing car producers and limiting driving by commuters 
D) by taxing gasoline and taxing car producers 
A) by setting emission standards and limiting driving by commuters 
B) by setting emission standards and taxing gasoline 
C) by taxing car producers and limiting driving by commuters 
D) by taxing gasoline and taxing car producers

Question 19

If only a few people are affected by an externality,what will likely happen

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 20

What does research into new technologies lead to

Accepted Answer

A) It provides positive externalities because it creates knowledge others can use. 
B) It results in negative externalities because government funding for research leads to cuts in government spending in other areas. 
C) It results in negative externalities because too many resources are used for the small benefits received by society. 
D) It provides positive externalities because it increases profits for the company that receives government funding for research. 
A) It provides positive externalities because it creates knowledge others can use. 
B) It results in negative externalities because government funding for research leads to cuts in government spending in other areas. 
C) It results in negative externalities because too many resources are used for the small benefits received by society. 
D) It provides positive externalities because it increases profits for the company that receives government funding for research.

Exam 10: Externalities

What does internalizing an externality refer to

What does the Coase theorem suggest about private solutions to the externality problem

How do local governments address the problem of barking dogs

What are corrective taxes enacted to do

According to the Coase theorem,the private market will need government intervention in order to reach an efficient outcome.

Hikers frequently claim that livestock grazing in Wilderness Recreation Areas reduces the satisfaction of their recreational hiking experience.What is the economic explanation for this conflict

Figure 10-1 This figure reflects the market for outdoor concerts in a public park surrounded by residential neighbourhoods. -Refer to Figure 10-1.What does the difference between the social cost curve and the supply curve reflect

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

Figure 10-2 -Refer to Figure 10-2.What is the market equilibrium quantity

What is the difference between a corrective tax and pollution permits

A technology spillover is a type of negative externality.

Why do private markets fail to reach a socially optimal level when negative externalities are present

When the government chooses an externality policy that aligns private incentives with social efficiency to solve an externality,what does it do

Most economists prefer regulation to taxation because regulation corrects market inefficiencies at a lower cost than taxation does.

When correcting for an externality,command-and-control policies are always preferable to market-based policies.

What will a positive externality cause a private market to produce

To enhance the well-being of society,when will a social planner encourage firms to increase production

How have policymakers chosen to solve the problem of too much car exhaust pollution

If only a few people are affected by an externality,what will likely happen

What does research into new technologies lead 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 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 Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

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