Question 1

Figure 10-9      
-Refer to Figure 10-9,Panel (b).The market equilibrium price is

Accepted Answer

A)  P2. 
B)  P3a. 
C)  P3b. 
D)  P3a - P3b. 
A)  P2. 
B)  P3a. 
C)  P3b. 
D)  P3a - P3b. C

Question 2

Suppose that a firm produces electricity by burning coal.The production process creates a negative externality of air pollution.If the firm does not internalize the cost of the externality,it will produce where

Accepted Answer

A)  the value of electricity to consumers equals the private cost of producing electricity. 
B)  the value of electricity to consumers equals the social cost of producing electricity. 
C)  the cost of the externality is maximized. 
D)  the transaction costs of private bargaining are minimized. 
A)  the value of electricity to consumers equals the private cost of producing electricity. 
B)  the value of electricity to consumers equals the social cost of producing electricity. 
C)  the cost of the externality is maximized. 
D)  the transaction costs of private bargaining are minimized. A

Question 3

Table 10-4
The following table shows the total costs for each of four firms (A,B,C,and D)to eliminate units of pollution from their production processes.For example,for Firm A to eliminate one unit of pollution,it would cost $46,and for Firm A to eliminate two units of pollution,it would cost a total of $103.
  
-Refer to Table 10-4.Suppose the government wanted to reduce pollution from 16 units to exactly 7 units.Which of the following fees per unit of pollution would achieve that goal?

Accepted Answer

A)  $58 
B)  $82 
C)  $96 
D)  $102 
A)  $58 
B)  $82 
C)  $96 
D)  $102 A

Question 4

A cost imposed on someone who is neither the consumer nor the producer is called a

Accepted Answer

A)  corrective tax. 
B)  command and control policy. 
C)  positive externality. 
D)  negative externality. 
A)  corrective tax. 
B)  command and control policy. 
C)  positive externality. 
D)  negative externality.

Question 5

Table 10-3
The following table shows the marginal costs for each of four firms (A,B,C,and D)to eliminate units of pollution from their production processes.For example,for Firm A to eliminate one unit of pollution,it would cost $54,and for Firm A to eliminate a second unit of pollution it would cost an additional $67.
  
-Refer to Table 10-3.If the government wanted to eliminate exactly 11 units of pollution,which of the following fees per unit of pollution would achieve that goal?

Accepted Answer

A)  $75 
B)  $87 
C)  $90 
D)  $106 
A)  $75 
B)  $87 
C)  $90 
D)  $106

Question 6

Figure 10-4  
-Refer to Figure 10-4.This market

Accepted Answer

A)  has no need for government intervention. 
B)  would benefit from a tax on the product. 
C)  would benefit from a subsidy for the product. 
D)  would maximize total well-being at Q3. 
A)  has no need for government intervention. 
B)  would benefit from a tax on the product. 
C)  would benefit from a subsidy for the product. 
D)  would maximize total well-being at Q3.

Question 7

Using a supply and demand diagram,demonstrate how a negative externality leads to market inefficiency.How might the government help to eliminate this inefficiency?

Accepted Answer

@#IMG-DLM& When a negative externality exists,the

Question 8

A positive externality will cause a market to produce

Accepted Answer

A)  more than is socially desirable. 
B)  less than is socially desirable. 
C)  the socially optimal equilibrium amount. 
D)  more than the same market would produce in the presence of a negative externality. 
A)  more than is socially desirable. 
B)  less than is socially desirable. 
C)  the socially optimal equilibrium amount. 
D)  more than the same market would produce in the presence of a negative externality.

Question 9

A corrective tax is also known as:

Accepted Answer

A)  a command-and-control regulation. 
B)  a Coase tax. 
C)  a Pigouvian tax. 
D)  a Smithian tax. 
A)  a command-and-control regulation. 
B)  a Coase tax. 
C)  a Pigouvian tax. 
D)  a Smithian tax.

Question 10

In many cases selling pollution permits is a better method for reducing pollution than imposing a corrective tax because

Accepted Answer

A)  it is hard to estimate the market demand curve and thus charge the "right" corrective tax. 
B)  selling pollution permits create a net increase in pollution. 
C)  Corrective taxes distort incentives. 
D)  Corrective taxes provide greater flexibility to firms that can reduce pollution at a low cost. 
A)  it is hard to estimate the market demand curve and thus charge the "right" corrective tax. 
B)  selling pollution permits create a net increase in pollution. 
C)  Corrective taxes distort incentives. 
D)  Corrective taxes provide greater flexibility to firms that can reduce pollution at a low cost.

Question 11

University researchers create a positive externality because what they discover in their research labs can easily be learned by others who haven't contributed to the research costs.If there are no subsidies,what is the relationship between the equilibrium quantity of university research and the optimal quantity of university research produced?

Accepted Answer

A)  They are equal. 
B)  The equilibrium quantity is greater than the socially optimal quantity. 
C)  The equilibrium quantity is less than the socially optimal quantity. 
D)  There is not enough information to answer the question. 
A)  They are equal. 
B)  The equilibrium quantity is greater than the socially optimal quantity. 
C)  The equilibrium quantity is less than the socially optimal quantity. 
D)  There is not enough information to answer the question.

Question 12

Government intervention is necessary to correct all externalities.

Accepted Answer

A) True 
 B)False

Question 13

Market failure can be caused by

Accepted Answer

A)  too much competition. 
B)  externalities. 
C)  low consumer demand. 
D)  scarcity. 
A)  too much competition. 
B)  externalities. 
C)  low consumer demand. 
D)  scarcity.

Question 14

Figure 10-6  
-Refer to Figure 10-6.Which quantity represents the socially-optimal quantity of output in this market?

Accepted Answer

A)  Q 
B)  Q' 
C)  Either Q or Q'.It is necessary to know whether the externality is positive or negative to determine the socially-optimal quantity. 
D)  Some quantity between Q and Q'.The socially-optimal quantity depends on the negotiating skills of the interested parties. 
A)  Q 
B)  Q' 
C)  Either Q or Q'.It is necessary to know whether the externality is positive or negative to determine the socially-optimal quantity. 
D)  Some quantity between Q and Q'.The socially-optimal quantity depends on the negotiating skills of the interested parties.

Question 15

Figure 10-2  
-Refer to Figure 10-2.Suppose that the production of plastic creates a social cost which is depicted in the graph above.Without any government regulation,what price will the firm charge per unit of plastic?

Accepted Answer

A)  $3 
B)  $3.50 
C)  $5 
D)  $8 
A)  $3 
B)  $3.50 
C)  $5 
D)  $8

Question 16

Since almost all forms of transportation produce some type of pollution,

Accepted Answer

A)  the government should ban all transportation. 
B)  the government should ban all pollution. 
C)  society has to weigh the cost and benefits when deciding how much pollution to allow. 
D)  refrain from intervening because the market can best solve this problem. 
A)  the government should ban all transportation. 
B)  the government should ban all pollution. 
C)  society has to weigh the cost and benefits when deciding how much pollution to allow. 
D)  refrain from intervening because the market can best solve this problem.

Question 17

Two firms,A and B,each currently dump 20 tons of chemicals into the local river.The government has decided to reduce the pollution and from now on will require a pollution permit for each ton of pollution dumped into the river.The government gives each firm 10 pollution permits,which it can either use or sell to the other firm.It costs Firm A $100 for each ton of pollution that it eliminates before it reaches the river,and it costs Firm B $50 for each ton of pollution that it eliminates before it reaches the river.After the two firms buy or sell pollution permits from each other,we would expect that

Accepted Answer

A)  Firm A will no longer pollute,and Firm B will not reduce its pollution at all. 
B)  Firm B will no longer pollute,and Firm A will not reduce its pollution at all. 
C)  Firm A will dump 10 tons of pollution into the river,and Firm B will dump 10 tons of pollution into the river. 
D)  Firm A will increase its pollution and Firm B will reduce its pollution. 
A)  Firm A will no longer pollute,and Firm B will not reduce its pollution at all. 
B)  Firm B will no longer pollute,and Firm A will not reduce its pollution at all. 
C)  Firm A will dump 10 tons of pollution into the river,and Firm B will dump 10 tons of pollution into the river. 
D)  Firm A will increase its pollution and Firm B will reduce its pollution.

Question 18

Which of the following is NOT a way of internalizing technology spillovers?

Accepted Answer

A)  subsidies 
B)  patent protection 
C)  industrial policy 
D)  taxes 
A)  subsidies 
B)  patent protection 
C)  industrial policy 
D)  taxes

Question 19

Figure 10-5  
-Refer to Figure 10-5.Which of the following statements is correct?

Accepted Answer

A)  To induce firms to internalize the externality in this market,the government should impose a tax measured by P2 - P0. 
B)  To induce firms to internalize the externality in this market,the government should offer a subsidy measured by P2 - P0. 
C)  To induce firms to internalize the externality in this market,the government should impose a tax measured by P2 - P1. 
D)  There is no externality in this market. 
A)  To induce firms to internalize the externality in this market,the government should impose a tax measured by P2 - P0. 
B)  To induce firms to internalize the externality in this market,the government should offer a subsidy measured by P2 - P0. 
C)  To induce firms to internalize the externality in this market,the government should impose a tax measured by P2 - P1. 
D)  There is no externality in this market.

Question 20

The best remedy for market failure is often

Accepted Answer

A)  a market-based solution. 
B)  shutdown of the market. 
C)  no government intervention. 
D)  externalizing the externalities. 
A)  a market-based solution. 
B)  shutdown of the market. 
C)  no government intervention. 
D)  externalizing the externalities.

Exam 10: Externalities

Figure 10-9 -Refer to Figure 10-9,Panel (b).The market equilibrium price is

Suppose that a firm produces electricity by burning coal.The production process creates a negative externality of air pollution.If the firm does not internalize the cost of the externality,it will produce where

A cost imposed on someone who is neither the consumer nor the producer is called a

Figure 10-4 -Refer to Figure 10-4.This market

Using a supply and demand diagram,demonstrate how a negative externality leads to market inefficiency.How might the government help to eliminate this inefficiency?

A positive externality will cause a market to produce

A corrective tax is also known as:

In many cases selling pollution permits is a better method for reducing pollution than imposing a corrective tax because

Government intervention is necessary to correct all externalities.

Market failure can be caused by

Figure 10-6 -Refer to Figure 10-6.Which quantity represents the socially-optimal quantity of output in this market?

Figure 10-2 -Refer to Figure 10-2.Suppose that the production of plastic creates a social cost which is depicted in the graph above.Without any government regulation,what price will the firm charge per unit of plastic?

Since almost all forms of transportation produce some type of pollution,

Which of the following is NOT a way of internalizing technology spillovers?

Figure 10-5 -Refer to Figure 10-5.Which of the following statements is correct?

The best remedy for market failure is often

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

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, investment, and the Financial System

The Basic Tools of Finance

Unemployment

The Monetary System

Money Growth and Inflation

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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