Question 1

At any given quantity,the willingness to pay in the market for gasoline is reflected in the

Accepted Answer

A)  height of the demand curve at that quantity. 
B)  height of the supply curve at that quantity. 
C)  value to the producer of the last unit of gasoline sold. 
D)  total quantity of gasoline exchanged in the market. 
A)  height of the demand curve at that quantity. 
B)  height of the supply curve at that quantity. 
C)  value to the producer of the last unit of gasoline sold. 
D)  total quantity of gasoline exchanged in the market.

Question 2

Figure 10-8  
-Refer to Figure 10-8.If the government wanted to subsidize this market to achieve the socially-optimal level of output,how large would the subsidy need to be?

Accepted Answer

A)  Less than $2 
B)  $2 
C)  More than $2 
D)  The size of the subsidy cannot be determined from the figure. 
A)  Less than $2 
B)  $2 
C)  More than $2 
D)  The size of the subsidy cannot be determined from the figure.

Question 3

Suppose that Company A's railroad cars pass through Farmer B's corn fields.The railroad causes an externality to the farmer because the railroad cars emit sparks that cause $1,500 in damage to the farmer's crops.There is a special soy-based grease that the railroad could purchase that would eliminate the damaging sparks.The grease costs $1,200.Suppose that the railroad is not liable for any damage caused to the crops.Assume that there are no transaction costs.Which of the following characterizes the efficient outcome?

Accepted Answer

A)  The railroad will continue to operate but will pay the farmer $1,500 in damages. 
B)  The railroad will purchase the grease for $1,200 and pay the farmer nothing because no crop damage will occur. 
C)  The farmer will incur $1,500 in damages to his crops. 
D)  The farmer will pay the railroad $1,200 to purchase the grease so that no crop damage will occur. 
A)  The railroad will continue to operate but will pay the farmer $1,500 in damages. 
B)  The railroad will purchase the grease for $1,200 and pay the farmer nothing because no crop damage will occur. 
C)  The farmer will incur $1,500 in damages to his crops. 
D)  The farmer will pay the railroad $1,200 to purchase the grease so that no crop damage will occur.

Question 4

Which of the following statements is not correct?

Accepted Answer

A)  Private markets tend to over-produce products with negative externalities. 
B)  Private markets tend to under-produce products with positive externalities. 
C)  Private parties can bargain to efficient outcomes even in the presence of externalities. 
D)  Private parties are usually more successful in achieving efficient outcomes than government policies. 
A)  Private markets tend to over-produce products with negative externalities. 
B)  Private markets tend to under-produce products with positive externalities. 
C)  Private parties can bargain to efficient outcomes even in the presence of externalities. 
D)  Private parties are usually more successful in achieving efficient outcomes than government policies.

Question 5

The impact of one person's actions on the well-being of a bystander is called

Accepted Answer

A)  an economic dilemma. 
B)  deadweight loss. 
C)  a multi-party problem. 
D)  an externality. 
A)  an economic dilemma. 
B)  deadweight loss. 
C)  a multi-party problem. 
D)  an externality.

Question 6

In class action lawsuits interested parties to the lawsuit are not required to pay attorney fees directly.This is an example of an attempt to

Accepted Answer

A)  maximize attorney fees. 
B)  reduce the incentive of attorneys to file class action lawsuits. 
C)  reduce the transaction costs of finding a private solution to an externality. 
D)  regulate attorney fees. 
A)  maximize attorney fees. 
B)  reduce the incentive of attorneys to file class action lawsuits. 
C)  reduce the transaction costs of finding a private solution to an externality. 
D)  regulate attorney fees.

Question 7

In the case of a technology spillover,internalizing a positive externality will cause the supply curve of an industry to

Accepted Answer

A)  shift to the right. 
B)  shift to the left. 
C)  become more elastic. 
D)  remain unchanged. 
A)  shift to the right. 
B)  shift to the left. 
C)  become more elastic. 
D)  remain unchanged.

Question 8

The government can internalize externalities by taxing goods that have negative externalities and subsidizing goods that have positive externalities.

Accepted Answer

A) True 
 B)False

Question 9

Suppose that cookie producers create a positive externality equal to $2 per dozen.What is the relationship between the equilibrium quantity and the socially optimal quantity of cookies to be 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 10

A positive externality arises when a person engages in an activity that has

Accepted Answer

A)  an adverse effect on a bystander who is not compensated by the person who causes the effect. 
B)  an adverse effect on a bystander who is compensated by the person who causes the effect. 
C)  a beneficial effect on a bystander who pays the person who causes the effect. 
D)  a beneficial effect on a bystander who does not pay the person who causes the effect. 
A)  an adverse effect on a bystander who is not compensated by the person who causes the effect. 
B)  an adverse effect on a bystander who is compensated by the person who causes the effect. 
C)  a beneficial effect on a bystander who pays the person who causes the effect. 
D)  a beneficial effect on a bystander who does not pay the person who causes the effect.

Question 11

A positive externality

Accepted Answer

A)  causes the product to be overproduced. 
B)  provides an additional benefit to market participants. 
C)  benefits consumers because it results in a lower equilibrium price. 
D)  is a benefit to a market bystander. 
A)  causes the product to be overproduced. 
B)  provides an additional benefit to market participants. 
C)  benefits consumers because it results in a lower equilibrium price. 
D)  is a benefit to a market bystander.

Question 12

Which of the following is not an effective method to reduce negative externalities?

Accepted Answer

A)  relying on voluntary compliance 
B)  taxing the output of industries that pollute 
C)  creating legal environmental standards 
D)  increasing public spending on cleanup and reduction of pollution 
A)  relying on voluntary compliance 
B)  taxing the output of industries that pollute 
C)  creating legal environmental standards 
D)  increasing public spending on cleanup and reduction of pollution

Question 13

When a market is characterized by an externality,the government

Accepted Answer

A)  can correct the market failure only in the case of positive externalities. 
B)  can correct the market failure only in the case of negative externalities. 
C)  can correct the market failure in the case of both positive and negative externalities by inducing market participants to internalize the externality. 
D)  cannot correct for externalities due to the existence of patents. 
A)  can correct the market failure only in the case of positive externalities. 
B)  can correct the market failure only in the case of negative externalities. 
C)  can correct the market failure in the case of both positive and negative externalities by inducing market participants to internalize the externality. 
D)  cannot correct for externalities due to the existence of patents.

Question 14

One example of a real-world market for tradable pollution permits is the market for carbon permits in Europe.

Accepted Answer

A) True 
 B)False

Question 15

Tradable pollution permits

Accepted Answer

A)  are widely viewed as a cost-effective way to reduce pollution. 
B)  have helped reduce carbon emissions. 
C)  have helped reduce sulfur dioxide emissions. 
D)  All of the above are correct. 
A)  are widely viewed as a cost-effective way to reduce pollution. 
B)  have helped reduce carbon emissions. 
C)  have helped reduce sulfur dioxide emissions. 
D)  All of the above are correct.

Question 16

Figure 10-3  
-Refer to Figure 10-3.At the private market outcome,the equilibrium price will be

Accepted Answer

A)  P0. 
B)  P1. 
C)  P2. 
D)  None of the above is correct. 
A)  P0. 
B)  P1. 
C)  P2. 
D)  None of the above is correct.

Question 17

Which of the following statements is correct?

Accepted Answer

A)  Corrective taxes are often preferred over direct regulation because they typically reduce externalities at a lower cost. 
B)  Corrective taxes distort economic incentives. 
C)  Corrective taxes are often preferred over direct regulation because they typically reduce externalities at a faster rate. 
D)  Both a and b are correct. 
A)  Corrective taxes are often preferred over direct regulation because they typically reduce externalities at a lower cost. 
B)  Corrective taxes distort economic incentives. 
C)  Corrective taxes are often preferred over direct regulation because they typically reduce externalities at a faster rate. 
D)  Both a and b are correct.

Question 18

An externality is an example of

Accepted Answer

A)  a corrective tax. 
B)  a tradable pollution permit. 
C)  a market failure. 
D)  Both a and b are correct. 
A)  a corrective tax. 
B)  a tradable pollution permit. 
C)  a market failure. 
D)  Both a and b are correct.

Question 19

Government subsidized scholarships are an example of a government policy aimed at correcting negative externalities associated with education.

Accepted Answer

A) True 
 B)False

Question 20

The Coase theorem suggests that efficient solutions to externalities can be determined through bargaining.Under what circumstances will private bargaining fail to produce a solution?

Accepted Answer

Private parties may fail to bargain to a

Exam 10: Externalities

At any given quantity,the willingness to pay in the market for gasoline is reflected in the

Figure 10-8 -Refer to Figure 10-8.If the government wanted to subsidize this market to achieve the socially-optimal level of output,how large would the subsidy need to be?

Which of the following statements is not correct?

The impact of one person's actions on the well-being of a bystander is called

In class action lawsuits interested parties to the lawsuit are not required to pay attorney fees directly.This is an example of an attempt to

In the case of a technology spillover,internalizing a positive externality will cause the supply curve of an industry to

The government can internalize externalities by taxing goods that have negative externalities and subsidizing goods that have positive externalities.

Suppose that cookie producers create a positive externality equal to $2 per dozen.What is the relationship between the equilibrium quantity and the socially optimal quantity of cookies to be produced?

A positive externality arises when a person engages in an activity that has

A positive externality

Which of the following is not an effective method to reduce negative externalities?

When a market is characterized by an externality,the government

One example of a real-world market for tradable pollution permits is the market for carbon permits in Europe.

Tradable pollution permits

Figure 10-3 -Refer to Figure 10-3.At the private market outcome,the equilibrium price will be

Which of the following statements is correct?

An externality is an example of

Government subsidized scholarships are an example of a government policy aimed at correcting negative externalities associated with education.

The Coase theorem suggests that efficient solutions to externalities can be determined through bargaining.Under what circumstances will private bargaining fail to produce a solution?

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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