Question 1

A technology spillover is a type of negative externality.

Accepted Answer

A) True 
 B)False

Question 2

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.If the government charged a fee of $101 per unit of pollution,how many units of pollution would the firms eliminate altogether?

Accepted Answer

A)  9 
B)  12 
C)  15 
D)  16 
A)  9 
B)  12 
C)  15 
D)  16

Question 3

According to the Coase theorem,whatever the initial distribution of rights,the interested parties can bargain to an efficient outcome.

Accepted Answer

A) True 
 B)False

Question 4

Honey producers provide a positive externality to orchards because

Accepted Answer

A)  the honey producers get more honey. 
B)  the orchard owner frequently gets stung by the honey producer's bees. 
C)  the orchard owner does not have to purchase bees to pollinate his flowers. 
D)  the honey producers have to rent access to the orchard grounds. 
A)  the honey producers get more honey. 
B)  the orchard owner frequently gets stung by the honey producer's bees. 
C)  the orchard owner does not have to purchase bees to pollinate his flowers. 
D)  the honey producers have to rent access to the orchard grounds.

Question 5

Corrective taxes are more efficient than regulations for keeping the environment clean.

Accepted Answer

A) True 
 B)False

Question 6

Figure 10-9      
-Refer to Figure 10-9,Panel (b)and Panel (c).The overuse of antibiotics leads to the development of antibiotic-resistant diseases.Therefore,the socially optimal quantity of antibiotics is represented by point

Accepted Answer

A)  Q2. 
B)  Q3. 
C)  Q4. 
D)  Q5. 
A)  Q2. 
B)  Q3. 
C)  Q4. 
D)  Q5.

Question 7

Externalities can be corrected by each of the following except

Accepted Answer

A)  self-interest. 
B)  moral codes and social sanctions. 
C)  charity. 
D)  normal market adjustments. 
A)  self-interest. 
B)  moral codes and social sanctions. 
C)  charity. 
D)  normal market adjustments.

Question 8

A paper plant produces water pollution during the production process.If the government forces the plant to internalize the negative externality,then the

Accepted Answer

A)  supply curve for paper would shift to the right. 
B)  supply curve for paper would shift to the left. 
C)  demand curve for paper would shift to the right. 
D)  demand curve for paper would shift to the left. 
A)  supply curve for paper would shift to the right. 
B)  supply curve for paper would shift to the left. 
C)  demand curve for paper would shift to the right. 
D)  demand curve for paper would shift to the left.

Question 9

Private parties may choose not to solve an externality problem if the transaction costs are large enough.

Accepted Answer

A) True 
 B)False

Question 10

According to the Coase theorem,the private market will need government intervention in order to reach an efficient outcome.

Accepted Answer

A) True 
 B)False

Question 11

If education produces positive externalities,we would expect

Accepted Answer

A)  the government to tax education. 
B)  the government to subsidize education. 
C)  people to realize the benefits,which would increase the demand for education. 
D)  colleges to relax admission requirements. 
A)  the government to tax education. 
B)  the government to subsidize education. 
C)  people to realize the benefits,which would increase the demand for education. 
D)  colleges to relax admission requirements.

Question 12

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 charged a fee of $84 per unit of pollution,how many units of pollution would the firms eliminate altogether?

Accepted Answer

A)  7 
B)  8 
C)  9 
D)  10 
A)  7 
B)  8 
C)  9 
D)  10

Question 13

When one firm sells its pollution permit to another firm,

Accepted Answer

A)  both firms benefit. 
B)  the total amount of pollution remains the same. 
C)  the total amount of pollution decreases. 
D)  Both a and b are correct. 
A)  both firms benefit. 
B)  the total amount of pollution remains the same. 
C)  the total amount of pollution decreases. 
D)  Both a and b are correct.

Question 14

If the production of computer chips yields greater technology spillovers than the production of potato chips,the government should

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 taxes. 
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 taxes.

Question 15

Figure 10-9      
-Refer to Figure 10-9.Which graph represents a market with a positive externality?

Accepted Answer

A)  Panel (a) 
B)  Panel (b) 
C)  Panel (c) 
D)  Both (b)and (c)are correct. 
A)  Panel (a) 
B)  Panel (b) 
C)  Panel (c) 
D)  Both (b)and (c)are correct.

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

Which of the following require firms to pay to pollute?

Accepted Answer

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

Question 18

An externality exists whenever

Accepted Answer

A)  the economy cannot benefit from government intervention. 
B)  markets are not able to reach equilibrium. 
C)  a firm sells its product in a foreign market. 
D)  a person engages in an activity that influences the well-being of a bystander and yet neither pays nor receives payment for that effect. 
A)  the economy cannot benefit from government intervention. 
B)  markets are not able to reach equilibrium. 
C)  a firm sells its product in a foreign market. 
D)  a person engages in an activity that influences the well-being of a bystander and yet neither pays nor receives payment for that effect.

Question 19

Suppose that smoking creates a negative externality.If the government does not interfere in the cigarette market,then

Accepted Answer

A)  the equilibrium quantity of cigarettes smoked will equal the socially optimal quantity of cigarettes smoked. 
B)  the equilibrium quantity of cigarettes smoked will be greater than the socially optimal quantity of cigarettes smoked. 
C)  the equilibrium quantity of cigarettes smoked will be less than the socially optimal quantity of cigarettes smoked. 
D)  There is not enough information to answer the question. 
A)  the equilibrium quantity of cigarettes smoked will equal the socially optimal quantity of cigarettes smoked. 
B)  the equilibrium quantity of cigarettes smoked will be greater than the socially optimal quantity of cigarettes smoked. 
C)  the equilibrium quantity of cigarettes smoked will be less than the socially optimal quantity of cigarettes smoked. 
D)  There is not enough information to answer the question.

Question 20

Since externalities tend to keep markets from reaching a socially optimal equilibrium,government action

Accepted Answer

A)  is always needed because private solutions can never be attained. 
B)  is needed when private solutions fail to arise. 
C)  will be needed only to correct for positive externalities. 
D)  will be needed only to correct for negative externalities. 
A)  is always needed because private solutions can never be attained. 
B)  is needed when private solutions fail to arise. 
C)  will be needed only to correct for positive externalities. 
D)  will be needed only to correct for negative externalities.

Exam 10: Externalities

A technology spillover is a type of negative externality.

According to the Coase theorem,whatever the initial distribution of rights,the interested parties can bargain to an efficient outcome.

Honey producers provide a positive externality to orchards because

Corrective taxes are more efficient than regulations for keeping the environment clean.

Figure 10-9 -Refer to Figure 10-9,Panel (b)and Panel (c).The overuse of antibiotics leads to the development of antibiotic-resistant diseases.Therefore,the socially optimal quantity of antibiotics is represented by point

Externalities can be corrected by each of the following except

A paper plant produces water pollution during the production process.If the government forces the plant to internalize the negative externality,then the

Private parties may choose not to solve an externality problem if the transaction costs are large enough.

According to the Coase theorem,the private market will need government intervention in order to reach an efficient outcome.

If education produces positive externalities,we would expect

When one firm sells its pollution permit to another firm,

If the production of computer chips yields greater technology spillovers than the production of potato chips,the government should

Figure 10-9 -Refer to Figure 10-9.Which graph represents a market with a positive externality?

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

Which of the following require firms to pay to pollute?

An externality exists whenever

Suppose that smoking creates a negative externality.If the government does not interfere in the cigarette market,then

Since externalities tend to keep markets from reaching a socially optimal equilibrium,government action

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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