Question 1

Graph 10-1
  
-Refer to Graph 10-1. This graph reflects the presence of a:

Accepted Answer

A)  negative production externality 
B)  positive production externality 
C)  negative consumption externality 
D)  positive consumption externality 
A)  negative production externality 
B)  positive production externality 
C)  negative consumption externality 
D)  positive consumption externality

Question 2

If the government were to limit the release of air pollution produced by a steel mill to 10 000 units, this policy would be considered a:

Accepted Answer

A)  regulation 
B)  Pigovian tax 
C)  subsidy 
D)  market-based policy 
A)  regulation 
B)  Pigovian tax 
C)  subsidy 
D)  market-based policy

Question 3

It is impossible to prohibit all polluting activity.

Accepted Answer

A) True 
 B)False

Question 4

Graph 10-4
  
-Referring to Graph 10-4, which curve best represents a Pigovian tax?

Accepted Answer

A)  A 
B)  B 
C)  C 
D)  D 
A)  A 
B)  B 
C)  C 
D)  D

Question 5

Children can be thought of as imposing negative externalities on aeroplane passengers because:

Accepted Answer

A)  when they cry, passengers bear a portion of the cost of this discomfort 
B)  their tickets are free or obtained at reduced cost 
C)  children (and their parents) are typically isolated in the rear of the airplane 
D)  all of the above are true 
A)  when they cry, passengers bear a portion of the cost of this discomfort 
B)  their tickets are free or obtained at reduced cost 
C)  children (and their parents) are typically isolated in the rear of the airplane 
D)  all of the above are true

Question 6

Pollution:

Accepted Answer

A)  should be corrected by the subsidisation of polluting firms 
B)  is not an economic problem because it is external to the market system 
C)  is a common example of private production costs 
D)  is a common example of a negative externality 
A)  should be corrected by the subsidisation of polluting firms 
B)  is not an economic problem because it is external to the market system 
C)  is a common example of private production costs 
D)  is a common example of a negative externality

Question 7

Which of the following could be associated with positive consumption externalities? (i) child immunisations (ensuring that the general population is vaccinated against communicable diseases)
(ii) alcohol consumption
(iii) maintaining the appearance of historic buildings

Accepted Answer

A)  (i), (ii) and (iii) 
B)  (ii) and (iii) only 
C)  (i) and (iii) only 
D)  (i) and (ii) only 
A)  (i), (ii) and (iii) 
B)  (ii) and (iii) only 
C)  (i) and (iii) only 
D)  (i) and (ii) only

Question 8

Which of the following is one problem that keeps people from privately solving externalities?

Accepted Answer

A)  each party involved holds out for a better deal 
B)  an efficient bargain price is unattainable 
C)  only problems with a sufficiently large number of parties can be solved 
D)  there is a lack of government intervention 
A)  each party involved holds out for a better deal 
B)  an efficient bargain price is unattainable 
C)  only problems with a sufficiently large number of parties can be solved 
D)  there is a lack of government intervention

Question 9

Graph 10-1
  
-Refer to Graph 10-1. In the figure shown the marginal:

Accepted Answer

A)  benefit of the positive production externality is measured by P3 - P1 
B)  cost of the negative production externality is measured by P3 - P2 
C)  cost of the negative production externality is measured by P3 - P1 
D)  cost of the negative production externality cannot be measured 
A)  benefit of the positive production externality is measured by P3 - P1 
B)  cost of the negative production externality is measured by P3 - P2 
C)  cost of the negative production externality is measured by P3 - P1 
D)  cost of the negative production externality cannot be measured

Question 10

Greenhouse gas emissions are a classic example of a negative production externality.

Accepted Answer

A) True 
 B)False

Question 11

A Pigovian tax:

Accepted Answer

A)  allocates pollution to those factories that face the highest cost of reducing it 
B)  is a form of regulation 
C)  works well for all types of externalities 
D)  is deemed inferior to regulatory policy by most economists 
A)  allocates pollution to those factories that face the highest cost of reducing it 
B)  is a form of regulation 
C)  works well for all types of externalities 
D)  is deemed inferior to regulatory policy by most economists

Question 12

Which of the following are characteristics of tradeable pollution permits? (i) they are a scarce resource
(ii) they can be traded in a market governed by supply and demand
(iii) they eventually lead to an efficient elimination of all pollution

Accepted Answer

A)  (i), (ii) and (iii) 
B)  (iii) only 
C)  (i) and (iii) only 
D)  (i) and (ii) only 
A)  (i), (ii) and (iii) 
B)  (iii) only 
C)  (i) and (iii) only 
D)  (i) and (ii) only

Question 13

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

Accepted Answer

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

Question 14

Negative consumption externalities will have a socially optimal quantity that is smaller than the quantity determined by the private market.

Accepted Answer

A) True 
 B)False

Question 15

Graph 10-5
  
-Refer to Graph 10-5. Which of the graphs shown best depicts the case of a positive consumption externality?

Accepted Answer

A)  panel (a) 
B)  panel (b) 
C)  panel (c) 
D)  panel (d) 
A)  panel (a) 
B)  panel (b) 
C)  panel (c) 
D)  panel (d)

Question 16

Suppose that water pollution creates a negative production externality on a local fishing firm. This means:

Accepted Answer

A)  the fishing firm will catch as less fish than before at the same cost 
B)  it will be socially optimal for the water pollution to be eliminated 
C)  it will be socially optimal to do nothing about the water pollution 
D)  the fishing firm will catch more fish than before at the same cost 
A)  the fishing firm will catch as less fish than before at the same cost 
B)  it will be socially optimal for the water pollution to be eliminated 
C)  it will be socially optimal to do nothing about the water pollution 
D)  the fishing firm will catch more fish than before at the same cost

Question 17

Technology spillover occurs when:

Accepted Answer

A)  the firm's innovations allow it to establish monopoly power 
B)  new products by high-tech firms create harmful wastes 
C)  research by a firm creates innovations that are easily applied and used by others 
D)  patent laws are used to hinder other firms adopting new technology 
A)  the firm's innovations allow it to establish monopoly power 
B)  new products by high-tech firms create harmful wastes 
C)  research by a firm creates innovations that are easily applied and used by others 
D)  patent laws are used to hinder other firms adopting new technology

Question 18

Some economists believe that technology spillovers are pervasive and industries with the largest spillovers should be encouraged.

Accepted Answer

A) True 
 B)False

Question 19

In the absence of public policies, markets will ensure that:

Accepted Answer

A)  demand will always reflect all positive externalities in consumption 
B)  demand will always reflect all negative externalities in consumption 
C)  supply will always reflect all negative and/or positive externalities in production 
D)  none of the above holds true 
A)  demand will always reflect all positive externalities in consumption 
B)  demand will always reflect all negative externalities in consumption 
C)  supply will always reflect all negative and/or positive externalities in production 
D)  none of the above holds true

Question 20

Pigovian taxes are typically advocated to correct for the effects of:

Accepted Answer

A)  positive externalities 
B)  negative externalities 
C)  regulatory burden 
D)  all of the above 
A)  positive externalities 
B)  negative externalities 
C)  regulatory burden 
D)  all of the above

Exam 10: Externalities

Graph 10-1 -Refer to Graph 10-1. This graph reflects the presence of a:

If the government were to limit the release of air pollution produced by a steel mill to 10 000 units, this policy would be considered a:

It is impossible to prohibit all polluting activity.

Graph 10-4 -Referring to Graph 10-4, which curve best represents a Pigovian tax?

Children can be thought of as imposing negative externalities on aeroplane passengers because:

Pollution:

Which of the following could be associated with positive consumption externalities? (i) child immunisations (ensuring that the general population is vaccinated against communicable diseases) (ii) alcohol consumption (iii) maintaining the appearance of historic buildings

Which of the following is one problem that keeps people from privately solving externalities?

Graph 10-1 -Refer to Graph 10-1. In the figure shown the marginal:

Greenhouse gas emissions are a classic example of a negative production externality.

A Pigovian tax:

Which of the following are characteristics of tradeable pollution permits? (i) they are a scarce resource (ii) they can be traded in a market governed by supply and demand (iii) they eventually lead to an efficient elimination of all pollution

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

Negative consumption externalities will have a socially optimal quantity that is smaller than the quantity determined by the private market.

Graph 10-5 -Refer to Graph 10-5. Which of the graphs shown best depicts the case of a positive consumption externality?

Suppose that water pollution creates a negative production externality on a local fishing firm. This means:

Technology spillover occurs when:

Some economists believe that technology spillovers are pervasive and industries with the largest spillovers should be encouraged.

In the absence of public policies, markets will ensure that:

Pigovian taxes are typically advocated to correct for the effects of:

Ten Lessons From 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

Business Strategy

Competition Policy

Monopolistic Competition

The Markets for the Factors of Production

Earnings, Unions and Discrimination

Income Inequity and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment and the Financial System

The Natural Rate of Unemployment

The Monetary System

Inflation: Its Causes and Costs

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Trade-Off Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

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