Question 1

According to the Coase theorem,how is an efficient outcome reached

Accepted Answer

A) Interested parties can reach an outcome in which everyone is better off through private bargaining. 
B) The outcome reached through private bargaining will be inefficient. 
C) Interested parties will need an arbitrator in order to reach an agreement that is efficient. 
D) The government will need to participate in the bargaining process. 
A) Interested parties can reach an outcome in which everyone is better off through private bargaining. 
B) The outcome reached through private bargaining will be inefficient. 
C) Interested parties will need an arbitrator in order to reach an agreement that is efficient. 
D) The government will need to participate in the bargaining process.

Question 2

Under what condition does a negative production externality occur

Accepted Answer

A) The equilibrium quantity of output is equal to the socially optimal quantity. 
B) The equilibrium quantity of output is greater than the socially optimal quantity. 
C) The cost to the consumer exceeds the cost to society. 
D) The cost to the producer exceeds the cost to society. 
A) The equilibrium quantity of output is equal to the socially optimal quantity. 
B) The equilibrium quantity of output is greater than the socially optimal quantity. 
C) The cost to the consumer exceeds the cost to society. 
D) The cost to the producer exceeds the cost to society.

Question 3

Almost all forms of transportation produce some type of pollution.What should be done about this situation

Accepted Answer

A) The government should ban all transportation. 
B) Society has to weigh the costs and benefits and decide how much pollution to allow. 
C) Corporations should voluntarily reduce pollution levels with new car models. 
D) The government should tax the types of transportation that pollute most. 
A) The government should ban all transportation. 
B) Society has to weigh the costs and benefits and decide how much pollution to allow. 
C) Corporations should voluntarily reduce pollution levels with new car models. 
D) The government should tax the types of transportation that pollute most.

Question 4

What happens when parties who are bargaining to eliminate an externality problem hold out for a better deal

Accepted Answer

A) Bargaining breaks down and the inefficient outcome persists. 
B) The eventual outcome will maximize total well-being. 
C) Transaction costs must be reduced as part of the bargain. 
D) One party will gain more than the other party. 
A) Bargaining breaks down and the inefficient outcome persists. 
B) The eventual outcome will maximize total well-being. 
C) Transaction costs must be reduced as part of the bargain. 
D) One party will gain more than the other party.

Question 5

What can the Golden Rule be used as a private solution for

Accepted Answer

A) reducing crime 
B) internalizing externalities 
C) coping with overproduction 
D) coping with scarcity 
A) reducing crime 
B) internalizing externalities 
C) coping with overproduction 
D) coping with scarcity

Question 6

Under what conditions is a market affected by a positive externality

Accepted Answer

A) The optimum level of output is less than the free market level of output, and the optimum price is greater than the free market price. 
B) The optimum level of output is greater than the free market level of output, and the optimum price is less than the free market price. 
C) The optimum level of output is greater than the free market level of output, and the optimum price is greater than the free market price. 
D) The optimum level of output is less than the free market level of output, and the optimum price is less than the free market price. 
A) The optimum level of output is less than the free market level of output, and the optimum price is greater than the free market price. 
B) The optimum level of output is greater than the free market level of output, and the optimum price is less than the free market price. 
C) The optimum level of output is greater than the free market level of output, and the optimum price is greater than the free market price. 
D) The optimum level of output is less than the free market level of output, and the optimum price is less than the free market price.

Question 7

Which policy is government most inclined to use when faced with a positive externality

Accepted Answer

A) taxation 
B) permits 
C) subsidies 
D) usage fees 
A) taxation 
B) permits 
C) subsidies 
D) usage fees

Question 8

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

Accepted Answer

A) to pay your roommate $99.99 to clean up after herself 
B) to pay your roommate at least $100 but no more than $200 to clean up after herself 
C) to pay your roommate at least $201 to clean up after herself 
D) to charge your roommate at least $100 to have you clean up after her 
A) to pay your roommate $99.99 to clean up after herself 
B) to pay your roommate at least $100 but no more than $200 to clean up after herself 
C) to pay your roommate at least $201 to clean up after herself 
D) to charge your roommate at least $100 to have you clean up after her

Question 9

Air pollution creates a negative externality.Which of the following results

Accepted Answer

A) Welfare will be enhanced when some air pollution is eliminated. 
B) Social welfare is optimal when all air pollution is eliminated. 
C) Governments can regulate the market to eliminate all pollution. 
D) The free market result maximizes social welfare. 
A) Welfare will be enhanced when some air pollution is eliminated. 
B) Social welfare is optimal when all air pollution is eliminated. 
C) Governments can regulate the market to eliminate all pollution. 
D) The free market result maximizes social welfare.

Question 10

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

Accepted Answer

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

Question 11

When the government intervenes in markets with externalities,why does it do so

Accepted Answer

A) to increase production when negative externalities are present 
B) to protect the interests of bystanders 
C) to make certain all benefits are received by market participants 
D) to better coordinate the actions of buyers and sellers 
A) to increase production when negative externalities are present 
B) to protect the interests of bystanders 
C) to make certain all benefits are received by market participants 
D) to better coordinate the actions of buyers and sellers

Question 12

When a market experiences a positive externality,what can be said

Accepted Answer

A) The demand curve does not reflect the value to society of the good. 
B) Too much of the good is being produced. 
C) The government can internalize the externality by imposing a tax on the product. 
D) The private value is greater than the social value. 
A) The demand curve does not reflect the value to society of the good. 
B) Too much of the good is being produced. 
C) The government can internalize the externality by imposing a tax on the product. 
D) The private value is greater than the social value.

Question 13

The patent system gives firms greater incentive to engage in research and other activities that advance technology.

Accepted Answer

A) True 
 B)False

Question 14

A negative externality causes a private market to produce which of the following quantities

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 15

What is the belief with industrial policy

Accepted Answer

A) Industries yielding the largest positive externalities should receive the biggest subsidies. 
B) Any industry that produces negative externalities should be heavily taxed. 
C) Industries with the largest political clout should receive the biggest subsidies. 
D) Any industry that produces a positive externality should be encouraged with subsidies. 
A) Industries yielding the largest positive externalities should receive the biggest subsidies. 
B) Any industry that produces negative externalities should be heavily taxed. 
C) Industries with the largest political clout should receive the biggest subsidies. 
D) Any industry that produces a positive externality should be encouraged with subsidies.

Question 16

What is meant by “internalizing” an externality? How can a negative externality be internalized?

Accepted Answer

Internalizing an externality means that

Question 17

Figure 10-2
  
-Refer to Figure 10-2.What is the socially optimal outcome for this market

Accepted Answer

A) it would optimize total well-being at Q₂. 
B) it would benefit from a tax on the product. 
C) it would benefit from a subsidy placed on the product. 
D) it would optimize total well-being at Q₃. 
A) it would optimize total well-being at Q₂. 
B) it would benefit from a tax on the product. 
C) it would benefit from a subsidy placed on the product. 
D) it would optimize total well-being at Q₃.

Question 18

What is the tax on gasoline an example of

Accepted Answer

A) a consumption tax 
B) a corrective tax 
C) an income tax 
D) a luxury tax 
A) a consumption tax 
B) a corrective tax 
C) an income tax 
D) a luxury tax

Question 19

With a corrective tax,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 20

What are two ways that private markets can solve the problem of externalities

Accepted Answer

A) integrating businesses and subsidies 
B) contracts and patents 
C) integrating businesses and contracts 
D) subsidies and patents 
A) integrating businesses and subsidies 
B) contracts and patents 
C) integrating businesses and contracts 
D) subsidies and patents

Exam 10: Externalities

According to the Coase theorem,how is an efficient outcome reached

Under what condition does a negative production externality occur

Almost all forms of transportation produce some type of pollution.What should be done about this situation

What happens when parties who are bargaining to eliminate an externality problem hold out for a better deal

What can the Golden Rule be used as a private solution for

Under what conditions is a market affected by a positive externality

Which policy is government most inclined to use when faced with a positive externality

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

Air pollution creates a negative externality.Which of the following results

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

When the government intervenes in markets with externalities,why does it do so

When a market experiences a positive externality,what can be said

The patent system gives firms greater incentive to engage in research and other activities that advance technology.

A negative externality causes a private market to produce which of the following quantities

What is the belief with industrial policy

What is meant by “internalizing” an externality? How can a negative externality be internalized?

Figure 10-2 -Refer to Figure 10-2.What is the socially optimal outcome for this market

What is the tax on gasoline an example of

With a corrective tax,what is the nature of the supply curve for pollution rights

What are two ways that private markets can solve the problem of externalities

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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