Question 1

What are two ways to reduce pollution that require firms to pay to pollute

Accepted Answer

A) corrective taxes and pollution permits 
B) corrective taxes and a command-and-control policy 
C) pollution permits and a command-and-control policy 
D) pollution regulations and pollution permits 
A) corrective taxes and pollution permits 
B) corrective taxes and a command-and-control policy 
C) pollution permits and a command-and-control policy 
D) pollution regulations and pollution permits

Question 2

Which of the following would NOT likely be considered a negative externality

Accepted Answer

A) Smelter Ltd.creates steel and pollution in Anytown, Canada. 
B) Your friend buys a new puppy that barks every night. 
C) You have an adverse reaction to a medication your doctor prescribed for you. 
D) Your neighbour purchases the most powerful speakers money can buy for his patio. 
A) Smelter Ltd.creates steel and pollution in Anytown, Canada. 
B) Your friend buys a new puppy that barks every night. 
C) You have an adverse reaction to a medication your doctor prescribed for you. 
D) Your neighbour purchases the most powerful speakers money can buy for his patio.

Question 3

When externalities exist,what do buyers and sellers do and how do their actions affect market equilibrium

Accepted Answer

A) They neglect the external effects of their actions, but the market equilibrium is still efficient. 
B) They do not neglect the external effects of their actions, and the market equilibrium is efficient. 
C) They neglect the external effects of their actions, and the market equilibrium is not efficient. 
D) They do not neglect the external effects of their actions, and the market equilibrium is not efficient. 
A) They neglect the external effects of their actions, but the market equilibrium is still efficient. 
B) They do not neglect the external effects of their actions, and the market equilibrium is efficient. 
C) They neglect the external effects of their actions, and the market equilibrium is not efficient. 
D) They do not neglect the external effects of their actions, and the market equilibrium is not efficient.

Question 4

What does the supply curve for a product reflect

Accepted Answer

A) the cost to suppliers of an externality 
B) the quantity buyers will ultimately purchase of the product 
C) the cost to sellers of producing the product 
D) the seller's profit from producing the product 
A) the cost to suppliers of an externality 
B) the quantity buyers will ultimately purchase of the product 
C) the cost to sellers of producing the product 
D) the seller's profit from producing the product

Question 5

In some cases,why might pollution permits be better than a corrective tax

Accepted Answer

A) Pollution permits allow for a market solution while a corrective tax does not. 
B) Pollution permits generate more revenue for the government than a corrective tax. 
C) Pollution permits are never preferred over a corrective tax. 
D) Pollution permits can have a maximum level of pollution set on them by the government. 
A) Pollution permits allow for a market solution while a corrective tax does not. 
B) Pollution permits generate more revenue for the government than a corrective tax. 
C) Pollution permits are never preferred over a corrective tax. 
D) Pollution permits can have a maximum level of pollution set on them by the government.

Question 6

If a sawmill creates too much noise for local residents,what will result

Accepted Answer

A) It will be up to the residents to either adapt or move. 
B) A sense of social responsibility will cause owners of the mill to reduce noise levels. 
C) The government can raise economic well-being through noise-control regulations. 
D) The government can raise economic well-being by installing sound barriers around homes closest to the sawmill. 
A) It will be up to the residents to either adapt or move. 
B) A sense of social responsibility will cause owners of the mill to reduce noise levels. 
C) The government can raise economic well-being through noise-control regulations. 
D) The government can raise economic well-being by installing sound barriers around homes closest to the sawmill.

Question 7

Figure 10-2
  
-Refer to Figure 10-2.If this market is currently producing at Q₄,how could total economic well-being be increased

Accepted Answer

A) if output decreased to zero 
B) if output decreased to Q₂ 
C) if output stayed at Q₄ 
D) if output increased 
A) if output decreased to zero 
B) if output decreased to Q₂ 
C) if output stayed at Q₄ 
D) if output increased

Question 8

If there are no externalities,what does the invisible hand lead a market to maximize

Accepted Answer

A) producer profit from that market 
B) total benefit to society from that market 
C) both equity and efficiency in that market 
D) output of goods or services in that market 
A) producer profit from that market 
B) total benefit to society from that market 
C) both equity and efficiency in that market 
D) output of goods or services in that market

Question 9

When negative externalities are present in a market,what will result

Accepted Answer

A) Producers will be affected, but not consumers. 
B) Overproduction will occur. 
C) Demand will be too high. 
D) The market will still maximize total benefits. 
A) Producers will be affected, but not consumers. 
B) Overproduction will occur. 
C) Demand will be too high. 
D) The market will still maximize total benefits.

Question 10

With pollution permits,what is the nature of the supply curve for pollution rights

Accepted Answer

A) elastic 
B) perfectly elastic 
C) inelastic 
D) perfectly inelastic 
A) elastic 
B) perfectly elastic 
C) inelastic 
D) perfectly inelastic

Question 11

Why are public policy solutions such as corrective taxes and subsidies preferred over regulatory policies?

Accepted Answer

The preference for corrective

Question 12

According to the Coase theorem,whatever the initial distribution of rights,the interested parties can reach a bargain in which everyone is better off and the outcome is efficient.

Accepted Answer

A) True 
 B)False

Question 13

A local pub that allowed patrons to smoke was recently forced to close its doors because it did not comply with local clean air standards.What example is provided by this decision

Accepted Answer

A) direct regulation of an externality 
B) corrective taxes 
C) a Coase theorem solution to an externality 
D) unjustified discrimination against smokers 
A) direct regulation of an externality 
B) corrective taxes 
C) a Coase theorem solution to an externality 
D) unjustified discrimination against smokers

Question 14

What does the height of the demand curve show

Accepted Answer

A) how much each seller in the market is ultimately willing to supply 
B) the willingness of the marginal buyer to pay 
C) the maximum price all buyers will pay for a product 
D) the lowest price buyers will pay for a product 
A) how much each seller in the market is ultimately willing to supply 
B) the willingness of the marginal buyer to pay 
C) the maximum price all buyers will pay for a product 
D) the lowest price buyers will pay for a product

Question 15

Figure 10-2
  
-Refer to Figure 10-2.If all external costs were internalized,what would be the market's equilibrium output

Accepted Answer

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

Question 16

Figure 10-4
  
-Refer to Figure 10-4.To internalize the externality in this market,what should the government do

Accepted Answer

A) impose a tax on this product 
B) provide a subsidy for this product 
C) encourage firms to supply more of this product by taxing them 
D) encourage firms to supply less of this product by regulating them 
A) impose a tax on this product 
B) provide a subsidy for this product 
C) encourage firms to supply more of this product by taxing them 
D) encourage firms to supply less of this product by regulating them

Question 17

What is an externality

Accepted Answer

A) the impact of society's decisions on the well-being of society 
B) the impact of a person's actions on that person's well-being 
C) the impact of a person's actions on the well-being of a bystander 
D) the impact of society's decisions on the well-being of an individual in that society 
A) the impact of society's decisions on the well-being of society 
B) the impact of a person's actions on that person's well-being 
C) the impact of a person's actions on the well-being of a bystander 
D) the impact of society's decisions on the well-being of an individual in that society

Question 18

Figure 10-3
  
-Refer to Figure 10-3.Which price and quantity combination represents the social optimum

Accepted Answer

A) P₀ and Q₁ 
B) P₁ and Q₀ 
C) P₂ and Q₁ 
D) P₂ and Q₀ 
A) P₀ and Q₁ 
B) P₁ and Q₀ 
C) P₂ and Q₁ 
D) P₂ and Q₀

Question 19

How do corrective taxes differ from most taxes

Accepted Answer

A) Corrective taxes enhance economic efficiency. 
B) Corrective taxes do not raise revenue from the government. 
C) Corrective taxes cause deadweight loss. 
D) Corrective taxes cannot be divided between the buyer and seller. 
A) Corrective taxes enhance economic efficiency. 
B) Corrective taxes do not raise revenue from the government. 
C) Corrective taxes cause deadweight loss. 
D) Corrective taxes cannot be divided between the buyer and seller.

Question 20

Figure 10-2
  
-Refer to Figure 10-2.If this market is currently producing at Q₁,how could total economic well-being be increased

Accepted Answer

A) if output stayed at Q₁ 
B) if output increased to Q₂ 
C) if output increased to Q₃ 
D) if output increased to Q₄ 
A) if output stayed at Q₁ 
B) if output increased to Q₂ 
C) if output increased to Q₃ 
D) if output increased to Q₄

Exam 10: Externalities

What are two ways to reduce pollution that require firms to pay to pollute

Which of the following would NOT likely be considered a negative externality

When externalities exist,what do buyers and sellers do and how do their actions affect market equilibrium

What does the supply curve for a product reflect

In some cases,why might pollution permits be better than a corrective tax

If a sawmill creates too much noise for local residents,what will result

Figure 10-2 -Refer to Figure 10-2.If this market is currently producing at Q₄,how could total economic well-being be increased

If there are no externalities,what does the invisible hand lead a market to maximize

When negative externalities are present in a market,what will result

With pollution permits,what is the nature of the supply curve for pollution rights

Why are public policy solutions such as corrective taxes and subsidies preferred over regulatory policies?

According to the Coase theorem,whatever the initial distribution of rights,the interested parties can reach a bargain in which everyone is better off and the outcome is efficient.

A local pub that allowed patrons to smoke was recently forced to close its doors because it did not comply with local clean air standards.What example is provided by this decision

What does the height of the demand curve show

Figure 10-2 -Refer to Figure 10-2.If all external costs were internalized,what would be the market's equilibrium output

Figure 10-4 -Refer to Figure 10-4.To internalize the externality in this market,what should the government do

What is an externality

Figure 10-3 -Refer to Figure 10-3.Which price and quantity combination represents the social optimum

How do corrective taxes differ from most taxes

Figure 10-2 -Refer to Figure 10-2.If this market is currently producing at Q₁,how could total economic well-being be increased

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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