Question 1

Emission controls on automobiles are an example of a

Accepted Answer

A)  corrective tax. 
B)  command-and-control policy to increase social efficiency. 
C)  policy that reduces pollution by allocating resources through market mechanisms. 
D)  policy to reduce congestion on urban freeways. 
A)  corrective tax. 
B)  command-and-control policy to increase social efficiency. 
C)  policy that reduces pollution by allocating resources through market mechanisms. 
D)  policy to reduce congestion on urban freeways.

Question 2

Figure 10-4  
-Refer to Figure 10-4.The socially optimal quantity would be

Accepted Answer

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

Question 3

Which of the following is true of markets characterized by positive externalities?

Accepted Answer

A)  Social value exceeds private value,and market quantity exceeds the socially optimal quantity. 
B)  Social value is less than private value,and market quantity exceeds the socially optimal quantity. 
C)  Social value exceeds private value,and market quantity is less than the socially optimal quantity. 
D)  Social value seldom exceeds private value;therefore,social quantity is less than private quantity. 
A)  Social value exceeds private value,and market quantity exceeds the socially optimal quantity. 
B)  Social value is less than private value,and market quantity exceeds the socially optimal quantity. 
C)  Social value exceeds private value,and market quantity is less than the socially optimal quantity. 
D)  Social value seldom exceeds private value;therefore,social quantity is less than private quantity.

Question 4

Private markets fail to reach a socially optimal equilibrium when positive externalities are present because the

Accepted Answer

A)  private benefit equals the social benefit at the private market solution. 
B)  private cost exceeds the private benefit at the private market solution. 
C)  social value exceeds the private value at the private market solution. 
D)  private cost exceeds the social benefit at the private market solution. 
A)  private benefit equals the social benefit at the private market solution. 
B)  private cost exceeds the private benefit at the private market solution. 
C)  social value exceeds the private value at the private market solution. 
D)  private cost exceeds the social benefit at the private market solution.

Question 5

Corrective taxes are typically advocated to correct for the effects of

Accepted Answer

A)  positive externalities. 
B)  negative externalities. 
C)  patents. 
D)  All of the above are correct. 
A)  positive externalities. 
B)  negative externalities. 
C)  patents. 
D)  All of the above are correct.

Question 6

Dick owns a dog whose barking annoys Dick's neighbor Jane.Suppose that the benefit of owning the dog is worth $700 to Dick and that Jane bears a cost of $500 from the barking.Assuming Dick has the legal right to keep the dog,a possible private solution to this problem is that

Accepted Answer

A)  Dick pays Jane $600 for her inconvenience. 
B)  Jane pays Dick $650 to give the dog to his parents who live on an isolated farm. 
C)  Jane pays Dick $800 to give the dog to his parents who live on an isolated farm. 
D)  The current situation is efficient. 
A)  Dick pays Jane $600 for her inconvenience. 
B)  Jane pays Dick $650 to give the dog to his parents who live on an isolated farm. 
C)  Jane pays Dick $800 to give the dog to his parents who live on an isolated farm. 
D)  The current situation is efficient.

Question 7

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,a government policy that internalized the externality would move the quantity of antibiotics used from point

Accepted Answer

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

Question 8

When a market experiences a positive externality,

Accepted Answer

A)  the demand curve does not reflect the value to society of the good. 
B)  too much of the good is being produced. 
C)  the government can internalize the externality by imposing a tax on the product. 
D)  the private value is greater than the social value. 
A)  the demand curve does not reflect the value to society of the good. 
B)  too much of the good is being produced. 
C)  the government can internalize the externality by imposing a tax on the product. 
D)  the private value is greater than the social value.

Question 9

Table 10-1
The following table shows the private value,private cost,and external cost for various quantities of output in a market.
  
-Refer to Table 10-1.What is the equilibrium quantity of output in the market?

Accepted Answer

A)  2 units 
B)  3 units 
C)  4 units 
D)  5 units 
A)  2 units 
B)  3 units 
C)  4 units 
D)  5 units

Question 10

When the government uses a command-and-control policy to solve an externality,it

Accepted Answer

A)  is usually the most effective policy option available. 
B)  creates policies that directly regulate behavior. 
C)  usually involves taxing the consumption of a commodity. 
D)  typically refers to the Coase theorem to structure the policy. 
A)  is usually the most effective policy option available. 
B)  creates policies that directly regulate behavior. 
C)  usually involves taxing the consumption of a commodity. 
D)  typically refers to the Coase theorem to structure the policy.

Question 11

Table 10-2
The following table shows the private value,private cost,and social value for a market with a positive externality.
  
-Refer to Table 10-2.How large would a subsidy need to be in this market to move the market from the equilibrium level of output to the socially-optimal level of output?

Accepted Answer

A)  $3 
B)  $5 
C)  $7 
D)  $9 
A)  $3 
B)  $5 
C)  $7 
D)  $9

Question 12

If a market is characterized by a positive externality that is not the result of a technology spillover,

Accepted Answer

A)  the socially optimal level of output is less than the equilibrium level of output,and the optimal price is greater than the equilibrium price. 
B)  the socially optimal level of output is greater than the equilibrium level of output,and the socially optimal price is less than the equilibrium price. 
C)  the socially optimal level of output is greater than the equilibrium level of output,and the socially optimal price is greater than the equilibrium price. 
D)  the socially optimal level of output is less than the equilibrium level of output,and the socially optimal price is less than the equilibrium price. 
A)  the socially optimal level of output is less than the equilibrium level of output,and the optimal price is greater than the equilibrium price. 
B)  the socially optimal level of output is greater than the equilibrium level of output,and the socially optimal price is less than the equilibrium price. 
C)  the socially optimal level of output is greater than the equilibrium level of output,and the socially optimal price is greater than the equilibrium price. 
D)  the socially optimal level of output is less than the equilibrium level of output,and the socially optimal price is less than the equilibrium price.

Question 13

Corrective taxes differ from most taxes in that corrective taxes

Accepted Answer

A)  enhance economic efficiency. 
B)  do not raise revenue for the government. 
C)  cause deadweight loss. 
D)  cannot be divided between the buyer and seller. 
A)  enhance economic efficiency. 
B)  do not raise revenue for the government. 
C)  cause deadweight loss. 
D)  cannot be divided between the buyer and seller.

Question 14

Which of the following statements is not correct?

Accepted Answer

A)  Patents help internalize the externalities associated with technological advances. 
B)  Economists typically prefer regulations to corrective taxes because regulations provide more incentives for firms to seek continued reductions in pollution. 
C)  Allowing firms to trade pollution permits will lower the total cost of reducing pollution. 
D)  A big impediment to implementing the Coase theorem in many cases is high transactions costs. 
A)  Patents help internalize the externalities associated with technological advances. 
B)  Economists typically prefer regulations to corrective taxes because regulations provide more incentives for firms to seek continued reductions in pollution. 
C)  Allowing firms to trade pollution permits will lower the total cost of reducing pollution. 
D)  A big impediment to implementing the Coase theorem in many cases is high transactions costs.

Question 15

Employing a lawyer to draft and enforce a private contract between parties wishing to solve an externality problem is an example of

Accepted Answer

A)  an opportunity cost. 
B)  an implicit cost. 
C)  a sunk cost. 
D)  a transaction cost. 
A)  an opportunity cost. 
B)  an implicit cost. 
C)  a sunk cost. 
D)  a transaction cost.

Question 16

When externalities are present in a market,the well-being of market participants

Accepted Answer

A)  and market bystanders are both directly affected. 
B)  and market bystanders are both indirectly affected. 
C)  is directly affected,and market bystanders are indirectly affected. 
D)  is indirectly affected,and market bystanders are directly affected. 
A)  and market bystanders are both directly affected. 
B)  and market bystanders are both indirectly affected. 
C)  is directly affected,and market bystanders are indirectly affected. 
D)  is indirectly affected,and market bystanders are directly affected.

Question 17

When externalities cause markets to be inefficient,

Accepted Answer

A)  government action is always needed to solve the problem. 
B)  private solutions can be developed to solve the problem. 
C)  given enough time,externalities can be solved through normal market adjustments. 
D)  there is no way to eliminate the problem of externalities in a market. 
A)  government action is always needed to solve the problem. 
B)  private solutions can be developed to solve the problem. 
C)  given enough time,externalities can be solved through normal market adjustments. 
D)  there is no way to eliminate the problem of externalities in a market.

Question 18

John lives in an apartment building and gets a benefit from playing his stereo.Mary,who lives next door to John and often loses sleep due to the loud music coming from John's stereo,bears a cost from the noise.Mary is threatening to call the police to force John to turn down his stereo.Under which of the following conditions would John be able to offer Mary some amount of money to keep her from calling the police and to allow him to continue to play his stereo loudly?

Accepted Answer

A)  The cost of the noise to Mary must exceed the benefit of the music to John. 
B)  The benefit of the music to John must exceed the cost of the noise to Mary. 
C)  The Coase Theorem guarantees that Mary and John will always be able to come to an agreement that keeps Mary from calling the police regardless of the individual benefits and costs. 
D)  The cost of the noise to Mary must exceed the benefit of the music to John by an amount greater than the transaction costs associated with the agreement. 
A)  The cost of the noise to Mary must exceed the benefit of the music to John. 
B)  The benefit of the music to John must exceed the cost of the noise to Mary. 
C)  The Coase Theorem guarantees that Mary and John will always be able to come to an agreement that keeps Mary from calling the police regardless of the individual benefits and costs. 
D)  The cost of the noise to Mary must exceed the benefit of the music to John by an amount greater than the transaction costs associated with the agreement.

Question 19

Figure 10-9      
-Refer to Figure 10-9,Panel (b)and Panel (c).The installation of a scrubber in a smokestack reduces the emission of harmful chemicals from the smokestack.Therefore,a government policy that internalized the externality would move the quantity of smokestack scrubbers installed from point

Accepted Answer

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

Question 20

When a transaction between a buyer and seller directly affects a third party,the effect is called an externality.

Accepted Answer

A) True 
 B)False

Exam 10: Externalities

Emission controls on automobiles are an example of a

Figure 10-4 -Refer to Figure 10-4.The socially optimal quantity would be

Which of the following is true of markets characterized by positive externalities?

Private markets fail to reach a socially optimal equilibrium when positive externalities are present because the

Corrective taxes are typically advocated to correct for the effects of

Dick owns a dog whose barking annoys Dick's neighbor Jane.Suppose that the benefit of owning the dog is worth $700 to Dick and that Jane bears a cost of $500 from the barking.Assuming Dick has the legal right to keep the dog,a possible private solution to this problem is that

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,a government policy that internalized the externality would move the quantity of antibiotics used from point

When a market experiences a positive externality,

Table 10-1 The following table shows the private value,private cost,and external cost for various quantities of output in a market. -Refer to Table 10-1.What is the equilibrium quantity of output in the market?

When the government uses a command-and-control policy to solve an externality,it

Table 10-2 The following table shows the private value,private cost,and social value for a market with a positive externality. -Refer to Table 10-2.How large would a subsidy need to be in this market to move the market from the equilibrium level of output to the socially-optimal level of output?

If a market is characterized by a positive externality that is not the result of a technology spillover,

Corrective taxes differ from most taxes in that corrective taxes

Which of the following statements is not correct?

Employing a lawyer to draft and enforce a private contract between parties wishing to solve an externality problem is an example of

When externalities are present in a market,the well-being of market participants

When externalities cause markets to be inefficient,

Figure 10-9 -Refer to Figure 10-9,Panel (b)and Panel (c).The installation of a scrubber in a smokestack reduces the emission of harmful chemicals from the smokestack.Therefore,a government policy that internalized the externality would move the quantity of smokestack scrubbers installed from point

When a transaction between a buyer and seller directly affects a third party,the effect is called an 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

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

Filters