Question 1

Positive externalities

Accepted Answer

A)  result in a larger than efficient equilibrium quantity. 
B)  result in smaller than efficient equilibrium quantity. 
C)  result in an efficient equilibrium quantity. 
D)  can be internalized with a corrective tax. 
A)  result in a larger than efficient equilibrium quantity. 
B)  result in smaller than efficient equilibrium quantity. 
C)  result in an efficient equilibrium quantity. 
D)  can be internalized with a corrective tax.

Question 2

Which of the following statements is not correct?

Accepted Answer

A)  Government policies may improve the market's allocation of resources when negative externalities are present. 
B)  Government policies may improve the market's allocation of resources when positive externalities are present. 
C)  A positive externality is an example of a market failure. 
D)  Without government intervention,the market will tend to undersupply products that produce negative externalities. 
A)  Government policies may improve the market's allocation of resources when negative externalities are present. 
B)  Government policies may improve the market's allocation of resources when positive externalities are present. 
C)  A positive externality is an example of a market failure. 
D)  Without government intervention,the market will tend to undersupply products that produce negative externalities.

Question 3

Technology spillover is one type of

Accepted Answer

A)  negative externality. 
B)  positive externality. 
C)  subsidy. 
D)  producer surplus. 
A)  negative externality. 
B)  positive externality. 
C)  subsidy. 
D)  producer surplus.

Question 4

The Coase theorem suggests that private markets may not be able to solve the problem of externalities

Accepted Answer

A)  if the government does not become involved in the process. 
B)  when the number of interested parties is large and bargaining costs are high. 
C)  if the firm in the market is a monopoly. 
D)  if some people benefit from the externality. 
A)  if the government does not become involved in the process. 
B)  when the number of interested parties is large and bargaining costs are high. 
C)  if the firm in the market is a monopoly. 
D)  if some people benefit from the externality.

Question 5

Which of the following would not be considered a negative externality?

Accepted Answer

A)  Smelter,Inc.creates steel and pollution. 
B)  Your friend buys a new puppy that barks every night. 
C)  You have an adverse reaction to a medication your doctor prescribed for you. 
D)  Your neighbor plays loud music that you dislike through stereo speakers set up on his deck. 
A)  Smelter,Inc.creates steel and pollution. 
B)  Your friend buys a new puppy that barks every night. 
C)  You have an adverse reaction to a medication your doctor prescribed for you. 
D)  Your neighbor plays loud music that you dislike through stereo speakers set up on his deck.

Question 6

Which of the following is not an advantage of corrective taxes?

Accepted Answer

A)  They raise revenues for the government. 
B)  They enhance economic efficiency. 
C)  They subsidize the production of goods with positive externalities. 
D)  They move the allocation of resources closer to the social optimum. 
A)  They raise revenues for the government. 
B)  They enhance economic efficiency. 
C)  They subsidize the production of goods with positive externalities. 
D)  They move the allocation of resources closer to the social optimum.

Question 7

When Lisa drives to work every morning,she drives on a congested highway.What Lisa does not realize is that when she enters the highway each morning she increases the travel time of all other drivers on the highway.In this case,the external cost of Lisa's highway trip

Accepted Answer

A)  increases the social cost above the private cost. 
B)  lowers the social cost below the private cost. 
C)  increases the social value above the private benefit. 
D)  decreases the social value below the private benefit. 
A)  increases the social cost above the private cost. 
B)  lowers the social cost below the private cost. 
C)  increases the social value above the private benefit. 
D)  decreases the social value below the private benefit.

Question 8

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.If the government wanted to force the firm to internalize the cost of the externality,what action should it take?

Accepted Answer

A)  Impose a tax of $1.50 per unit of plastic. 
B)  Impose a tax of $2 per unit of plastic. 
C)  Impose a tax of $6 per unit of plastic. 
D)  Offer a subsidy of $1.50 per unit of plastic. 
A)  Impose a tax of $1.50 per unit of plastic. 
B)  Impose a tax of $2 per unit of plastic. 
C)  Impose a tax of $6 per unit of plastic. 
D)  Offer a subsidy of $1.50 per unit of plastic.

Question 9

An externality

Accepted Answer

A)  results in an equilibrium that does not maximize the total benefits to society. 
B)  causes demand to exceed supply. 
C)  strengthens the role of the "invisible hand" in the marketplace. 
D)  affects buyers but not sellers. 
A)  results in an equilibrium that does not maximize the total benefits to society. 
B)  causes demand to exceed supply. 
C)  strengthens the role of the "invisible hand" in the marketplace. 
D)  affects buyers but not sellers.

Question 10

Organizers of an outdoor concert in a park surrounded by residential neighborhoods are likely to consider the noise and traffic cost to residential neighborhoods when they assess the financial viability of the concert venture.

Accepted Answer

A) True 
 B)False

Question 11

Nancy loves to landscape her yard,but her neighbor Lee places a low value on his landscaping.When Lee's grass is neglected and gets long,Nancy will mow it for Lee.This is an example of

Accepted Answer

A)  a situation in which the Coase theorem fails to explain the lawn mowing arrangement. 
B)  an improper allocation of resources. 
C)  a private solution to a negative externality problem. 
D)  an exploitation of a common resource. 
A)  a situation in which the Coase theorem fails to explain the lawn mowing arrangement. 
B)  an improper allocation of resources. 
C)  a private solution to a negative externality problem. 
D)  an exploitation of a common resource.

Question 12

Figure 10-4  
-Refer to Figure 10-4.Externalities in this market could be internalized if

Accepted Answer

A)  there were a tax on the product. 
B)  there were a subsidy for the product. 
C)  production were stopped. 
D)  the Coase theorem failed. 
A)  there were a tax on the product. 
B)  there were a subsidy for the product. 
C)  production were stopped. 
D)  the Coase theorem failed.

Question 13

Which of the following is not a characteristic of pollution permits?

Accepted Answer

A)  Prices are set by supply and demand. 
B)  Allowing firms to trade their permits reduces the total quantity of pollution beyond the initial allocation. 
C)  Real-world markets for pollution permits include sulfur dioxide and carbon. 
D)  Firms for whom pollution reduction is very expensive are willing to pay more for permits than firms for whom pollution reduction is less expensive. 
A)  Prices are set by supply and demand. 
B)  Allowing firms to trade their permits reduces the total quantity of pollution beyond the initial allocation. 
C)  Real-world markets for pollution permits include sulfur dioxide and carbon. 
D)  Firms for whom pollution reduction is very expensive are willing to pay more for permits than firms for whom pollution reduction is less expensive.

Question 14

One drawback to industrial policy is that

Accepted Answer

A)  technology spillovers are too expensive to control. 
B)  measuring the size of spillovers from different markets is difficult. 
C)  spillovers often occur in industries that produce undesirable products for society. 
D)  positive side effects are often outweighed by negative side effects. 
A)  technology spillovers are too expensive to control. 
B)  measuring the size of spillovers from different markets is difficult. 
C)  spillovers often occur in industries that produce undesirable products for society. 
D)  positive side effects are often outweighed by negative side effects.

Question 15

Which of the following statements is correct?

Accepted Answer

A)  Government should tax goods with either positive or negative externalities. 
B)  Government should tax goods with negative externalities and subsidize goods with positive externalities. 
C)  Government should subsidize goods with either positive or negative externalities. 
D)  Government should tax goods with positive externalities and subsidize goods with negative externalities. 
A)  Government should tax goods with either positive or negative externalities. 
B)  Government should tax goods with negative externalities and subsidize goods with positive externalities. 
C)  Government should subsidize goods with either positive or negative externalities. 
D)  Government should tax goods with positive externalities and subsidize goods with negative externalities.

Question 16

According to the Coase theorem,in the presence of externalities

Accepted Answer

A)  private parties can bargain to reach an efficient outcome. 
B)  government assistance is necessary to reach an efficient outcome. 
C)  the assignment of legal rights can prevent externalities. 
D)  the initial distribution of property rights will determine the efficient outcome. 
A)  private parties can bargain to reach an efficient outcome. 
B)  government assistance is necessary to reach an efficient outcome. 
C)  the assignment of legal rights can prevent externalities. 
D)  the initial distribution of property rights will determine the efficient outcome.

Question 17

Suppose that smoking creates a negative externality.If the government imposes a per-cigarette tax equal to the per-cigarette externality,then

Accepted Answer

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

Question 18

Government intervention that aims to promote technology-enhancing industries is called

Accepted Answer

A)  assisted technology. 
B)  intervention policy. 
C)  industrial technology assistance. 
D)  industrial policy. 
A)  assisted technology. 
B)  intervention policy. 
C)  industrial technology assistance. 
D)  industrial policy.

Question 19

Suppose that a steel factory emits a certain amount of air pollution,which constitutes a negative externality.If the market does not internalize the externality,

Accepted Answer

A)  the supply curve would adequately reflect the marginal social cost of production. 
B)  consumers will be required to pay a higher price for steel than they would have if the externality were internalized. 
C)  the market equilibrium quantity will not be the socially optimal quantity. 
D)  producers will produce less steel than they otherwise would if the externality were internalized. 
A)  the supply curve would adequately reflect the marginal social cost of production. 
B)  consumers will be required to pay a higher price for steel than they would have if the externality were internalized. 
C)  the market equilibrium quantity will not be the socially optimal quantity. 
D)  producers will produce less steel than they otherwise would if the externality were internalized.

Question 20

A congestion toll imposed on a highway driver to force the driver to take into account the increase in travel time she imposes on all other drivers is an example of internalizing the externality.

Accepted Answer

A) True 
 B)False

Exam 10: Externalities

Positive externalities

Which of the following statements is not correct?

Technology spillover is one type of

The Coase theorem suggests that private markets may not be able to solve the problem of externalities

Which of the following would not be considered a negative externality?

Which of the following is not an advantage of corrective taxes?

When Lisa drives to work every morning,she drives on a congested highway.What Lisa does not realize is that when she enters the highway each morning she increases the travel time of all other drivers on the highway.In this case,the external cost of Lisa's highway trip

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.If the government wanted to force the firm to internalize the cost of the externality,what action should it take?

An externality

Organizers of an outdoor concert in a park surrounded by residential neighborhoods are likely to consider the noise and traffic cost to residential neighborhoods when they assess the financial viability of the concert venture.

Nancy loves to landscape her yard,but her neighbor Lee places a low value on his landscaping.When Lee's grass is neglected and gets long,Nancy will mow it for Lee.This is an example of

Figure 10-4 -Refer to Figure 10-4.Externalities in this market could be internalized if

Which of the following is not a characteristic of pollution permits?

One drawback to industrial policy is that

Which of the following statements is correct?

According to the Coase theorem,in the presence of externalities

Suppose that smoking creates a negative externality.If the government imposes a per-cigarette tax equal to the per-cigarette externality,then

Government intervention that aims to promote technology-enhancing industries is called

Suppose that a steel factory emits a certain amount of air pollution,which constitutes a negative externality.If the market does not internalize the externality,

A congestion toll imposed on a highway driver to force the driver to take into account the increase in travel time she imposes on all other drivers is an example of internalizing the 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

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