Question 1

Private parties may choose to leave an externality problem unsolved if the transaction costs are large enough.

Accepted Answer

A) True 
 B)False

Question 2

If making computer chips yields greater spillovers than making potato chips,what do some economists argue that government should do

Accepted Answer

A) encourage the production of computer chips with subsidies 
B) discourage the production of potato chips with taxes 
C) encourage the production of potato chips with subsidies 
D) discourage the production of computer chips with regulations 
A) encourage the production of computer chips with subsidies 
B) discourage the production of potato chips with taxes 
C) encourage the production of potato chips with subsidies 
D) discourage the production of computer chips with regulations

Question 3

In which case is the Coase theorem most likely to work to solve an externality

Accepted Answer

A) Richard is annoyed because his roommate smokes. 
B) Chemicals from farms in the Mississippi Valley are polluting the Gulf of Mexico. 
C) Car exhaust in a small town is making one of its residents ill. 
D) Industrialization around the world is causing global warming. 
A) Richard is annoyed because his roommate smokes. 
B) Chemicals from farms in the Mississippi Valley are polluting the Gulf of Mexico. 
C) Car exhaust in a small town is making one of its residents ill. 
D) Industrialization around the world is causing global warming.

Question 4

What effect are corrective taxes typically advocated to correct

Accepted Answer

A) positive externalities 
B) negative externalities 
C) spillover technology 
D) overproduction of goods with high social value 
A) positive externalities 
B) negative externalities 
C) spillover technology 
D) overproduction of goods with high social value

Question 5

When dealing with externalities,how can we correct market failure

Accepted Answer

A) In the case of positive externalities, the market can correct it, but in the case of negative externalities, government regulation is necessary. 
B) In the case of negative externalities, the market can correct it, but in the case of positive externalities, government regulation is necessary 
C) In the case of both positive and negative externalities, government regulation is often necessary to induce market participants to internalize the externality. 
D) In the case of both positive and negative externalities, market can correct all market failures. 
A) In the case of positive externalities, the market can correct it, but in the case of negative externalities, government regulation is necessary. 
B) In the case of negative externalities, the market can correct it, but in the case of positive externalities, government regulation is necessary 
C) In the case of both positive and negative externalities, government regulation is often necessary to induce market participants to internalize the externality. 
D) In the case of both positive and negative externalities, market can correct all market failures.

Question 6

When externalities cause markets to be inefficient,what can solve the problem

Accepted Answer

A) Government action is always needed to solve the problem. 
B) Private solutions can always be developed to solve the problem. 
C) Given enough time, externalities can be solved through normal market adjustments. 
D) Both private parties and government can provide solutions to the problem. 
A) Government action is always needed to solve the problem. 
B) Private solutions can always be developed to solve the problem. 
C) Given enough time, externalities can be solved through normal market adjustments. 
D) Both private parties and government can provide solutions to the problem.

Question 7

What result could private contracts between parties with mutual interests lead to

Accepted Answer

A) They can only reduce the well-being of society. 
B) They will always lead to market outcomes in which the public interest is sacrificed for personal gain. 
C) They can solve some inefficiencies associated with positive externalities. 
D) They will always cause negative externalities to arise. 
A) They can only reduce the well-being of society. 
B) They will always lead to market outcomes in which the public interest is sacrificed for personal gain. 
C) They can solve some inefficiencies associated with positive externalities. 
D) They will always cause negative externalities to arise.

Question 8

What are the benefits of using corrective taxes

Accepted Answer

A) They encourage consumers to avoid sales taxes by shopping online. 
B) They are frequently used to discourage imports. 
C) They protect property rights. 
D) They give factory owners an economic incentive to reduce pollution. 
A) They encourage consumers to avoid sales taxes by shopping online. 
B) They are frequently used to discourage imports. 
C) They protect property rights. 
D) They give factory owners an economic incentive to reduce pollution.

Question 9

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

Accepted Answer

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

Question 10

What is one reason that some firms are involved in multiple types of businesses

Accepted Answer

A) to increase private profit at the expense of consumers 
B) to internalize some forms of positive externalities 
C) to internalize some forms of negative externalities 
D) to reduce the impact of government regulation on their business 
A) to increase private profit at the expense of consumers 
B) to internalize some forms of positive externalities 
C) to internalize some forms of negative externalities 
D) to reduce the impact of government regulation on their business

Question 11

Despite the appealing logic of the Coase theorem,private actors often fail to resolve the problems caused by externalities on their own.

Accepted Answer

A) True 
 B)False

Question 12

If the government were to impose a fee of $10,000 for each unit of air pollution released by a steel mill,what term would be used for this policy

Accepted Answer

A) subsidy 
B) regulation 
C) corrective tax 
D) command-and-control policy 
A) subsidy 
B) regulation 
C) corrective tax 
D) command-and-control policy

Question 13

Suppose that a steel factory emits a certain amount of air pollution.If this market is NOT required to internalize this externality,what will happen

Accepted Answer

A) The supply curve would adequately reflect the marginal social cost of production. 
B) Consumers will be required to pay a higher price for steel than they would have if the externality were internalized. 
C) The market equilibrium would not be the socially optimal quantity. 
D) Producers will produce less steel than they otherwise would have if the externality were internalized. 
A) The supply curve would adequately reflect the marginal social cost of production. 
B) Consumers will be required to pay a higher price for steel than they would have if the externality were internalized. 
C) The market equilibrium would not be the socially optimal quantity. 
D) Producers will produce less steel than they otherwise would have if the externality were internalized.

Question 14

Figure 10-1
This figure reflects the market for outdoor concerts in a public park surrounded by residential neighbourhoods.
  
-Refer to Figure 10-1.At the private market outcome,what will the equilibrium price be

Accepted Answer

A) P₀ 
B) P₁ 
C) P₂ 
D) either P₁ or P₂ 
A) P₀ 
B) P₁ 
C) P₂ 
D) either P₁ or P₂

Question 15

A fertilizer plant emits a very foul odour during the production process.If the government forces the plant to internalize this negative externality,what would result

Accepted Answer

A) The supply curve for fertilizer would shift to the right (down). 
B) The supply curve for fertilizer would shift to the left (up). 
C) The demand curve for fertilizer would shift to the right (down). 
D) The demand curve for fertilizer would shift to the left (up). 
A) The supply curve for fertilizer would shift to the right (down). 
B) The supply curve for fertilizer would shift to the left (up). 
C) The demand curve for fertilizer would shift to the right (down). 
D) The demand curve for fertilizer would shift to the left (up).

Question 16

When producers operate in a market characterized by negative externalities,what will a tax do that forces them to internalize the externality

Accepted Answer

A) It will give sellers an economic incentive to account for the external effects of their actions. 
B) It will have an offsetting effect that reduces the producers' private production costs. 
C) It will increase the amount of the commodity exchanged in market equilibrium. 
D) It will dictate to the producer how much is an acceptable level of the negative externality 
A) It will give sellers an economic incentive to account for the external effects of their actions. 
B) It will have an offsetting effect that reduces the producers' private production costs. 
C) It will increase the amount of the commodity exchanged in market equilibrium. 
D) It will dictate to the producer how much is an acceptable level of the negative externality

Question 17

To ensure the market reaches the social optimum in presence of a technology spillover,how should the government subsidize producers

Accepted Answer

A) by use of a corrective tax 
B) by an amount equal to the value of the technology spillover 
C) by helping those companies that are adversely affected by the new technology 
D) by transferring income to the low-income portion of the population 
A) by use of a corrective tax 
B) by an amount equal to the value of the technology spillover 
C) by helping those companies that are adversely affected by the new technology 
D) by transferring income to the low-income portion of the population

Question 18

Brennan owns a dog whose barking annoys Brennan's neighbour Emily.Brennan receives personal benefit from owning the dog,and Emily bears a cost of Brennan's ownership of the dog.Assuming Brennan has the legal right to keep the dog,when can a private solution be arranged

Accepted Answer

A) A private solution can always be arranged. 
B) A private solution can be arranged only if the cost Emily bears exceeds the benefit Brennan gets from his dog. 
C) A private solution can be arranged only if Emily's cost equals Brennan's benefit from the dog. 
D) A private solution can be arranged only if Brennan's benefit from his dog exceeds Emily's cost. 
A) A private solution can always be arranged. 
B) A private solution can be arranged only if the cost Emily bears exceeds the benefit Brennan gets from his dog. 
C) A private solution can be arranged only if Emily's cost equals Brennan's benefit from the dog. 
D) A private solution can be arranged only if Brennan's benefit from his dog exceeds Emily's cost.

Question 19

Figure 10-2
  
-Refer to Figure 10-2.If this market currently produces Q₃,how would total economic well-being be increased

Accepted Answer

A) if production decreased to 0 
B) if production decreased to Q₁ 
C) if production decreased to Q₂ 
D) if production increased to Q₄ 
A) if production decreased to 0 
B) if production decreased to Q₁ 
C) if production decreased to Q₂ 
D) if production increased to Q₄

Question 20

Two firms,A and B,each currently dump 50 tonnes of chemicals into the local river.From now on both firms will require a pollution permit for each tonne of pollution dumped into the river.The government gives each firm 20 tonnes' worth of pollution permits,which it can either use or sell to the other firm.It costs Firm A $100 for each tonne of pollution that it eliminates before it reaches the river,and it costs Firm B $50 for each tonne of pollution that it eliminates before it reaches the river.What is likely to happen

Accepted Answer

A) Firm A will buy all of Firm B's pollution permits.Each one will cost less than $50. 
B) Firm A will buy all of Firm B's pollution permits.Each one will cost between $50 and $100. 
C) Firm B will buy all of Firm A's pollution permits.Each one will cost between $50 and $100. 
D) Firm B will buy all of Firm A's pollution permits.Each one will cost less than $50. 
A) Firm A will buy all of Firm B's pollution permits.Each one will cost less than $50. 
B) Firm A will buy all of Firm B's pollution permits.Each one will cost between $50 and $100. 
C) Firm B will buy all of Firm A's pollution permits.Each one will cost between $50 and $100. 
D) Firm B will buy all of Firm A's pollution permits.Each one will cost less than $50.

Exam 10: Externalities

Private parties may choose to leave an externality problem unsolved if the transaction costs are large enough.

If making computer chips yields greater spillovers than making potato chips,what do some economists argue that government should do

In which case is the Coase theorem most likely to work to solve an externality

What effect are corrective taxes typically advocated to correct

When dealing with externalities,how can we correct market failure

When externalities cause markets to be inefficient,what can solve the problem

What result could private contracts between parties with mutual interests lead to

What are the benefits of using corrective taxes

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

What is one reason that some firms are involved in multiple types of businesses

Despite the appealing logic of the Coase theorem,private actors often fail to resolve the problems caused by externalities on their own.

If the government were to impose a fee of $10,000 for each unit of air pollution released by a steel mill,what term would be used for this policy

Suppose that a steel factory emits a certain amount of air pollution.If this market is NOT required to internalize this externality,what will happen

Figure 10-1 This figure reflects the market for outdoor concerts in a public park surrounded by residential neighbourhoods. -Refer to Figure 10-1.At the private market outcome,what will the equilibrium price be

A fertilizer plant emits a very foul odour during the production process.If the government forces the plant to internalize this negative externality,what would result

When producers operate in a market characterized by negative externalities,what will a tax do that forces them to internalize the externality

To ensure the market reaches the social optimum in presence of a technology spillover,how should the government subsidize producers

Brennan owns a dog whose barking annoys Brennan's neighbour Emily.Brennan receives personal benefit from owning the dog,and Emily bears a cost of Brennan's ownership of the dog.Assuming Brennan has the legal right to keep the dog,when can a private solution be arranged

Figure 10-2 -Refer to Figure 10-2.If this market currently produces Q₃,how would 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

Filters