Question 1

Figure 10-5  
-Refer to Figure 10-5.Which price and quantity combination represents the social optimum?

Accepted Answer

A)  P0 and Q1. 
B)  P2 and Q1. 
C)  P1 and Q0. 
D)  P2 and Q0. 
A)  P0 and Q1. 
B)  P2 and Q1. 
C)  P1 and Q0. 
D)  P2 and Q0.

Question 2

Figure 10-1  
-Refer to Figure 10-1.This graph represents the tobacco industry.The industry creates

Accepted Answer

A)  positive externalities. 
B)  negative externalities. 
C)  no externalities. 
D)  no equilibrium in the market. 
A)  positive externalities. 
B)  negative externalities. 
C)  no externalities. 
D)  no equilibrium in the market.

Question 3

The social cost of pollution includes the private costs of the producers plus the costs to those bystanders adversely affected by the pollution.

Accepted Answer

A) True 
 B)False

Question 4

Externalities tend to cause markets to be

Accepted Answer

A)  inefficient. 
B)  unequal. 
C)  unnecessary. 
D)  overwhelmed. 
A)  inefficient. 
B)  unequal. 
C)  unnecessary. 
D)  overwhelmed.

Question 5

Markets sometimes fail to allocate resources efficiently.

Accepted Answer

A) True 
 B)False

Question 6

Suppose that electricity producers create a negative externality equal to $5 per unit.Further suppose that the government gives a $5 per-unit subsidy to producers.What is the relationship between the equilibrium quantity and the socially optimal quantity of electricity 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 7

Why can't private individuals always internalize an externality without the help of government?

Accepted Answer

A)  Legal restrictions prevent side payments between individuals. 
B)  Transactions costs may be too high. 
C)  Side payments between individuals are inefficient. 
D)  Side payments between individuals are insufficient. 
A)  Legal restrictions prevent side payments between individuals. 
B)  Transactions costs may be too high. 
C)  Side payments between individuals are inefficient. 
D)  Side payments between individuals are insufficient.

Question 8

A command-and-control policy is another term for a

Accepted Answer

A)  pollution permit. 
B)  government regulation. 
C)  corrective tax. 
D)  Both a and b are correct. 
A)  pollution permit. 
B)  government regulation. 
C)  corrective tax. 
D)  Both a and b are correct.

Question 9

Which of the following statements is not correct?

Accepted Answer

A)  A patent is a way for the government to encourage the production of a good with technology spillovers. 
B)  A tax is a way for the government to reduce the production of a good with a negative externality. 
C)  A tax that accurately reflects social costs produces the socially optimal outcome. 
D)  Government policies cannot improve upon private market outcomes. 
A)  A patent is a way for the government to encourage the production of a good with technology spillovers. 
B)  A tax is a way for the government to reduce the production of a good with a negative externality. 
C)  A tax that accurately reflects social costs produces the socially optimal outcome. 
D)  Government policies cannot improve upon private market outcomes.

Question 10

Government intervention in the economy with the goal of promoting technology-producing industries is known as patent policy.

Accepted Answer

A) True 
 B)False

Question 11

Figure 10-7  
-Refer to Figure 10-7.To internalize the externality in this market,the government should

Accepted Answer

A)  impose a tax on this product. 
B)  provide a subsidy for this product. 
C)  forbid production. 
D)  produce the product itself. 
A)  impose a tax on this product. 
B)  provide a subsidy for this product. 
C)  forbid production. 
D)  produce the product itself.

Question 12

If it is illegal for a biochemical manufacturer to release its waste into a nearby stream,then this is an example of

Accepted Answer

A)  a market-based policy. 
B)  a command-and-control policy. 
C)  tradable pollution permits. 
D)  transaction costs. 
A)  a market-based policy. 
B)  a command-and-control policy. 
C)  tradable pollution permits. 
D)  transaction costs.

Question 13

Suppose that a negative externality is created by the production of good X.Which of the following statements is correct?

Accepted Answer

A)  The social cost of producing good X includes the private cost plus the cost to bystanders of the externality. 
B)  The increased social cost can be graphed as a decrease in demand. 
C)  The market equilibrium quantity will be the socially optimal quantity as long as the government does not interfere. 
D)  Both a and b are correct. 
A)  The social cost of producing good X includes the private cost plus the cost to bystanders of the externality. 
B)  The increased social cost can be graphed as a decrease in demand. 
C)  The market equilibrium quantity will be the socially optimal quantity as long as the government does not interfere. 
D)  Both a and b are correct.

Question 14

Which of the following is an example of a positive externality?

Accepted Answer

A)  A college student buys a new car when she graduates. 
B)  The mayor of a small town plants flowers in the city park. 
C)  Local high school teachers have pizza delivered every Friday for lunch. 
D)  An avid fisherman buys new fishing gear for his next fishing trip. 
A)  A college student buys a new car when she graduates. 
B)  The mayor of a small town plants flowers in the city park. 
C)  Local high school teachers have pizza delivered every Friday for lunch. 
D)  An avid fisherman buys new fishing gear for his next fishing trip.

Question 15

Which of the following is a problem that keeps people from privately solving externality problems?

Accepted Answer

A)  Each party involved holds out for a better deal. 
B)  The externality is large. 
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)  The externality is large. 
C)  Only problems with a sufficiently large number of parties can be solved. 
D)  There is a lack of government intervention.

Question 16

Negative externalities lead markets to produce

Accepted Answer

A)  greater than efficient output levels and positive externalities lead markets to produce smaller than efficient output levels. 
B)  smaller than efficient output levels and positive externalities lead markets to produce greater than efficient output levels. 
C)  greater than efficient output levels and positive externalities lead markets to produce efficient output levels. 
D)  efficient output levels and positive externalities lead markets to produce greater than efficient output levels. 
A)  greater than efficient output levels and positive externalities lead markets to produce smaller than efficient output levels. 
B)  smaller than efficient output levels and positive externalities lead markets to produce greater than efficient output levels. 
C)  greater than efficient output levels and positive externalities lead markets to produce efficient output levels. 
D)  efficient output levels and positive externalities lead markets to produce greater than efficient output levels.

Question 17

The Coase theorem states that

Accepted Answer

A)  taxes are an efficient way for governments to remedy negative externalities. 
B)  subsidies are an efficient way for governments to remedy positive externalities. 
C)  industrial policies encourage technology spillovers. 
D)  in the absence of transaction costs,private parties can solve the problem of externalities on their own. 
A)  taxes are an efficient way for governments to remedy negative externalities. 
B)  subsidies are an efficient way for governments to remedy positive externalities. 
C)  industrial policies encourage technology spillovers. 
D)  in the absence of transaction costs,private parties can solve the problem of externalities on their own.

Question 18

Figure 10-6  
-Refer to Figure 10-6.How large would a corrective tax need to be to move this market from the equilibrium outcome to the socially-optimal outcome?

Accepted Answer

A)  An amount equal to P' minus P. 
B)  An amount equal to P'. 
C)  An amount equal to P. 
D)  An amount equal to the external cost. 
A)  An amount equal to P' minus P. 
B)  An amount equal to P'. 
C)  An amount equal to P. 
D)  An amount equal to the external cost.

Question 19

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.What is the equilibrium quantity of output in this market?

Accepted Answer

A)  3 units 
B)  4 units 
C)  5 units 
D)  6 units 
A)  3 units 
B)  4 units 
C)  5 units 
D)  6 units

Question 20

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,the external benefit of smokestack scrubber installation is represented by

Accepted Answer

A)  Q3 - Q2. 
B)  Q5 - Q4. 
C)  P3a - P3b. 
D)  P4a - P4b. 
A)  Q3 - Q2. 
B)  Q5 - Q4. 
C)  P3a - P3b. 
D)  P4a - P4b.

Exam 10: Externalities

Figure 10-5 -Refer to Figure 10-5.Which price and quantity combination represents the social optimum?

Figure 10-1 -Refer to Figure 10-1.This graph represents the tobacco industry.The industry creates

The social cost of pollution includes the private costs of the producers plus the costs to those bystanders adversely affected by the pollution.

Externalities tend to cause markets to be

Markets sometimes fail to allocate resources efficiently.

Suppose that electricity producers create a negative externality equal to $5 per unit.Further suppose that the government gives a $5 per-unit subsidy to producers.What is the relationship between the equilibrium quantity and the socially optimal quantity of electricity to be produced?

Why can't private individuals always internalize an externality without the help of government?

A command-and-control policy is another term for a

Which of the following statements is not correct?

Government intervention in the economy with the goal of promoting technology-producing industries is known as patent policy.

Figure 10-7 -Refer to Figure 10-7.To internalize the externality in this market,the government should

If it is illegal for a biochemical manufacturer to release its waste into a nearby stream,then this is an example of

Suppose that a negative externality is created by the production of good X.Which of the following statements is correct?

Which of the following is an example of a positive externality?

Which of the following is a problem that keeps people from privately solving externality problems?

Negative externalities lead markets to produce

The Coase theorem states that

Figure 10-6 -Refer to Figure 10-6.How large would a corrective tax need to be to move this market from the equilibrium outcome to the socially-optimal outcome?

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.What is the equilibrium quantity of output in this market?

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,the external benefit of smokestack scrubber installation is represented by

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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