Question 1

How are tradable pollution permits used

Accepted Answer

A) They are permits bought by firms where prices are set by the government. 
B) They will be bought by firms that can reduce pollution only at high costs. 
C) They will be bought by firms that can reduce pollution at low costs. 
D) They will be used in reducing pollution when corrective taxes cannot be used. 
A) They are permits bought by firms where prices are set by the government. 
B) They will be bought by firms that can reduce pollution only at high costs. 
C) They will be bought by firms that can reduce pollution at low costs. 
D) They will be used in reducing pollution when corrective taxes cannot be used.

Question 2

Why are too few resources generally devoted to research in new technologies in developing countries

Accepted Answer

A) New technologies cannot be patented. 
B) Government research grants are not easily obtainable. 
C) Negative externalities are created from some research. 
D) Inventors cannot capture the full benefits of their inventions. 
A) New technologies cannot be patented. 
B) Government research grants are not easily obtainable. 
C) Negative externalities are created from some research. 
D) Inventors cannot capture the full benefits of their inventions.

Question 3

In a market economy,what guides economic activity

Accepted Answer

A) the government 
B) businesses 
C) central planners 
D) prices 
A) the government 
B) businesses 
C) central planners 
D) prices

Question 4

Equal reduction in pollution,among all firms,is the least expensive way to clean up the environment.

Accepted Answer

A) True 
 B)False

Question 5

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

Question 6

Often,private solutions are not possible due to the costs of negotiating and enforcing these solutions.What are such costs called

Accepted Answer

A) transaction costs 
B) opportunity costs 
C) deadweight loss 
D) corrective taxes 
A) transaction costs 
B) opportunity costs 
C) deadweight loss 
D) corrective taxes

Question 7

According to the Coase theorem,under which conditions can private parties solve the problem of externalities

Accepted Answer

A) if the cost of bargaining is small 
B) if the initial distribution of rights favours the person being adversely affected by the externality 
C) if the number of parties involved is sufficiently large 
D) if the number of parties involved is sufficiently small 
A) if the cost of bargaining is small 
B) if the initial distribution of rights favours the person being adversely affected by the externality 
C) if the number of parties involved is sufficiently large 
D) if the number of parties involved is sufficiently small

Question 8

Why are corrective taxes preferred over regulations to deal with pollution

Accepted Answer

A) They reduce pollution at a lower cost to society than regulations. 
B) They raise revenue and reduce pollution simultaneously, although efficiency is reduced. 
C) They obtain faster results than regulations. 
D) They allow for an accurate monitoring of pollution levels. 
A) They reduce pollution at a lower cost to society than regulations. 
B) They raise revenue and reduce pollution simultaneously, although efficiency is reduced. 
C) They obtain faster results than regulations. 
D) They allow for an accurate monitoring of pollution levels.

Question 9

Figure 10-1
This figure reflects the market for outdoor concerts in a public park surrounded by residential neighbourhoods.
  
-Refer to Figure 10-1.Assume that the concert organizers must purchase a concert permit (the cost for the permit is included in private cost) before organizing the concert.What criterion should the city use in determining whether or not to issue a permit

Accepted Answer

A) The majority vote of the residents in surrounding neighbourhoods should determine whether a permit is issued. 
B) As long as the value to consumers of concerts exceeds the cost of concerts (including the external costs), the permit should be issued. 
C) As long as concert organizers are willing to return the park to its original condition after the concert, the permit should be issued. 
D) The permit should not be issued as long as there are identifiable external costs imposed on residents in surrounding neighbourhoods. 
A) The majority vote of the residents in surrounding neighbourhoods should determine whether a permit is issued. 
B) As long as the value to consumers of concerts exceeds the cost of concerts (including the external costs), the permit should be issued. 
C) As long as concert organizers are willing to return the park to its original condition after the concert, the permit should be issued. 
D) The permit should not be issued as long as there are identifiable external costs imposed on residents in surrounding neighbourhoods.

Question 10

Nancy loves to landscape her yard,but her neighbour,Lee,places a low value on his landscaping.When Lee's grass is neglected and gets long,Nancy will mow it for Lee.What is this an example of

Accepted Answer

A) a situation in which the Coase theorem fails to explain the lawn mowing arrangement 
B) improper allocation of resources 
C) a private solution to a negative externality problem 
D) an exploitation of a common resource 
A) a situation in which the Coase theorem fails to explain the lawn mowing arrangement 
B) improper allocation of resources 
C) a private solution to a negative externality problem 
D) an exploitation of a common resource

Question 11

Figure 10-5
  
-Refer to Figure 10-5.Which price and quantity combination represents the social optimum for this market

Accepted Answer

A) P₁ and Q₁ 
B) P₂ and Q₁ 
C) P₂ and Q₂ 
D) P₃ and Q₁ 
A) P₁ and Q₁ 
B) P₂ and Q₁ 
C) P₂ and Q₂ 
D) P₃ and Q₁

Question 12

Why are markets often inefficient when negative externalities are present

Accepted Answer

A) Private costs exceed social costs at the private market solution. 
B) Externalities can never be corrected without government regulation. 
C) Social costs exceed private costs at the private market solution. 
D) Production externalities lead to consumption externalities. 
A) Private costs exceed social costs at the private market solution. 
B) Externalities can never be corrected without government regulation. 
C) Social costs exceed private costs at the private market solution. 
D) Production externalities lead to consumption externalities.

Question 13

Anita enjoys growing flowers in her yard and has a lot of spare time,but she can't afford the $100 it costs to buy flower seeds,fertilizer,and water.Sally,who has a good view of Anita's yard,would also enjoy Anita's flowers.Sally has plenty of money but has no time to plant flowers.According to the Coase theorem,which of the following is most likely

Accepted Answer

A) The city government should give Anita the $100 needed to grow flowers. 
B) The city government should require Anita to grow flowers. 
C) Sally and Anita might both be better off if Sally gave $100 to Anita to plant flowers. 
D) Sally and Anita would definitely both be better off if Sally gave $100 to Anita to plant flowers. 
A) The city government should give Anita the $100 needed to grow flowers. 
B) The city government should require Anita to grow flowers. 
C) Sally and Anita might both be better off if Sally gave $100 to Anita to plant flowers. 
D) Sally and Anita would definitely both be better off if Sally gave $100 to Anita to plant flowers.

Question 14

If the social cost of producing robots is more than the private cost of producing robots,the private market produces too many robots.

Accepted Answer

A) True 
 B)False

Question 15

Figure 10-2
  
-Refer to Figure 10-2.What is the optimum amount of this product from society's standpoint

Accepted Answer

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

Question 16

Figure 10-2
  
-Refer to Figure 10-2.How could externalities in this market be internalized

Accepted Answer

A) if there were a tax on the product 
B) if there were a subsidy on the product 
C) if production were stopped 
D) if the Coase theorem failed 
A) if there were a tax on the product 
B) if there were a subsidy on the product 
C) if production were stopped 
D) if the Coase theorem failed

Question 17

Which action should government take in order to internalize externalities

Accepted Answer

A) Government should tax goods with negative externalities and subsidize goods with positive externalities. 
B) Government should tax goods with either positive or negative externalities. 
C) Government should subsidize goods with either positive or negative externalities. 
D) Government should tax goods with positive externalities and subsidize goods with negative externalities. 
A) Government should tax goods with negative externalities and subsidize goods with positive externalities. 
B) Government should tax goods with either positive or negative externalities. 
C) Government should subsidize goods with either positive or negative externalities. 
D) Government should tax goods with positive externalities and subsidize goods with negative externalities.

Question 18

What does a corrective tax do

Accepted Answer

A) It places a price on the right to pollute. 
B) It assigns a legal pollution limit for firms. 
C) It causes each factory to reduce pollution by the same amount. 
D) It causes a higher cost to society than pollution regulations. 
A) It places a price on the right to pollute. 
B) It assigns a legal pollution limit for firms. 
C) It causes each factory to reduce pollution by the same amount. 
D) It causes a higher cost to society than pollution regulations.

Question 19

Suppose that at present there are no laws to restrict pollution produced by the widget industry.The market price of a widget is $20.If the government imposes a tax equal in value to the cost of the pollution,under which circumstances would firms continue to produce widgets

Accepted Answer

A) if the cost imposed by the pollution is less than $20 per widget produced 
B) if the private cost of producing a widget equals the cost of the pollution generated per widget 
C) if $20 minus the private cost of producing a widget is greater than the cost of the pollution generated per widget 
D) if $20 minus the private cost of producing a widget is less than the cost of the pollution generated per widget 
A) if the cost imposed by the pollution is less than $20 per widget produced 
B) if the private cost of producing a widget equals the cost of the pollution generated per widget 
C) if $20 minus the private cost of producing a widget is greater than the cost of the pollution generated per widget 
D) if $20 minus the private cost of producing a widget is less than the cost of the pollution generated per widget

Question 20

Why is dioxin emission that results from the production of paper a good example of a negative externality

Accepted Answer

A) Self-interested paper firms are generally unaware of environmental regulations. 
B) There are fines for producing too much dioxin. 
C) Self-interested paper producers will not consider the full cost of the dioxin pollution they create. 
D) Toxic emissions are the only form of an externality. 
A) Self-interested paper firms are generally unaware of environmental regulations. 
B) There are fines for producing too much dioxin. 
C) Self-interested paper producers will not consider the full cost of the dioxin pollution they create. 
D) Toxic emissions are the only form of an externality.

How are tradable pollution permits used

Why are too few resources generally devoted to research in new technologies in developing countries

In a market economy,what guides economic activity

Equal reduction in pollution,among all firms,is the least expensive way to clean up the environment.

What is an example of a positive externality

Often,private solutions are not possible due to the costs of negotiating and enforcing these solutions.What are such costs called

According to the Coase theorem,under which conditions can private parties solve the problem of externalities

Why are corrective taxes preferred over regulations to deal with pollution

Nancy loves to landscape her yard,but her neighbour,Lee,places a low value on his landscaping.When Lee's grass is neglected and gets long,Nancy will mow it for Lee.What is this an example of

Figure 10-5 -Refer to Figure 10-5.Which price and quantity combination represents the social optimum for this market

Why are markets often inefficient when negative externalities are present

If the social cost of producing robots is more than the private cost of producing robots,the private market produces too many robots.

Figure 10-2 -Refer to Figure 10-2.What is the optimum amount of this product from society's standpoint

Figure 10-2 -Refer to Figure 10-2.How could externalities in this market be internalized

Which action should government take in order to internalize externalities

What does a corrective tax do

Suppose that at present there are no laws to restrict pollution produced by the widget industry.The market price of a widget is $20.If the government imposes a tax equal in value to the cost of the pollution,under which circumstances would firms continue to produce widgets

Why is dioxin emission that results from the production of paper a good example of a negative externality

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

Filters

Exam 10: Externalities

How are tradable pollution permits used

Why are too few resources generally devoted to research in new technologies in developing countries

In a market economy,what guides economic activity

Equal reduction in pollution,among all firms,is the least expensive way to clean up the environment.

What is an example of a positive externality

Often,private solutions are not possible due to the costs of negotiating and enforcing these solutions.What are such costs called

According to the Coase theorem,under which conditions can private parties solve the problem of externalities

Why are corrective taxes preferred over regulations to deal with pollution

Nancy loves to landscape her yard,but her neighbour,Lee,places a low value on his landscaping.When Lee's grass is neglected and gets long,Nancy will mow it for Lee.What is this an example of

Figure 10-5 -Refer to Figure 10-5.Which price and quantity combination represents the social optimum for this market

Why are markets often inefficient when negative externalities are present

If the social cost of producing robots is more than the private cost of producing robots,the private market produces too many robots.

Figure 10-2 -Refer to Figure 10-2.What is the optimum amount of this product from society's standpoint

Figure 10-2 -Refer to Figure 10-2.How could externalities in this market be internalized

Which action should government take in order to internalize externalities

What does a corrective tax do

Suppose that at present there are no laws to restrict pollution produced by the widget industry.The market price of a widget is $20.If the government imposes a tax equal in value to the cost of the pollution,under which circumstances would firms continue to produce widgets

Why is dioxin emission that results from the production of paper a good example of a negative externality

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

Filters