Question 1

A market for pollution permits can efficiently allocate the right to pollute by using the forces of supply and demand.

Accepted Answer

A) True 
 B)False

Question 2

A corrective tax

Accepted Answer

A)  causes each factory to reduce pollution by the same amount. 
B)  assigns a legal pollution limit for firms. 
C)  places a price on the right to pollute. 
D)  costs society more than pollution regulations. 
A)  causes each factory to reduce pollution by the same amount. 
B)  assigns a legal pollution limit for firms. 
C)  places a price on the right to pollute. 
D)  costs society more than pollution regulations.

Question 3

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 $69 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 4

Figure 10-8  
-Refer to Figure 10-8.What is the socially-optimal quantity of output in this market?

Accepted Answer

A)  8 units 
B)  Between 8 and 10 units 
C)  10 units 
D)  More than 10 units 
A)  8 units 
B)  Between 8 and 10 units 
C)  10 units 
D)  More than 10 units

Question 5

The goal of industrial policy should be that

Accepted Answer

A)  industries yielding the largest positive externalities should receive the biggest subsidies. 
B)  any industry that produces negative externalities should be heavily taxed. 
C)  any production process that produces negative externalities should be shut down. 
D)  all industries that produce positive externalities should be equally subsidized. 
A)  industries yielding the largest positive externalities should receive the biggest subsidies. 
B)  any industry that produces negative externalities should be heavily taxed. 
C)  any production process that produces negative externalities should be shut down. 
D)  all industries that produce positive externalities should be equally subsidized.

Question 6

Figure 10-7  
-Refer to Figure 10-7.Which quantity represents the social optimum for this market?

Accepted Answer

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

Question 7

Which of the following suggests that private markets can be effective in dealing with externalities?

Accepted Answer

A)  the "invisible hand" 
B)  the law of diminishing social returns 
C)  the Coase theorem 
D)  technology policy 
A)  the "invisible hand" 
B)  the law of diminishing social returns 
C)  the Coase theorem 
D)  technology policy

Question 8

Which of the following policies is the government most inclined to use when faced with a positive externality?

Accepted Answer

A)  taxation 
B)  permits 
C)  subsidies 
D)  usage fees 
A)  taxation 
B)  permits 
C)  subsidies 
D)  usage fees

Question 9

Which of the following is not correct?

Accepted Answer

A)  Markets allocate scarce resources with the forces of supply and demand. 
B)  The equilibrium of supply and demand is typically an efficient allocation of resources. 
C)  Governments can sometimes improve market outcomes. 
D)  Externalities cannot be positive. 
A)  Markets allocate scarce resources with the forces of supply and demand. 
B)  The equilibrium of supply and demand is typically an efficient allocation of resources. 
C)  Governments can sometimes improve market outcomes. 
D)  Externalities cannot be positive.

Question 10

Figure 10-4  
-Refer to Figure 10-4.This market

Accepted Answer

A)  has no need for government intervention. 
B)  would benefit from a tax on the product. 
C)  would benefit from a subsidy for the product. 
D)  would maximize total well-being at Q3. 
A)  has no need for government intervention. 
B)  would benefit from a tax on the product. 
C)  would benefit from a subsidy for the product. 
D)  would maximize total well-being at Q3.

Question 11

To enhance the well-being of society,a social planner will encourage firms to increase production when

Accepted Answer

A)  the firms are producing basic goods. 
B)  there is a shortage in the market. 
C)  technology spillovers are associated with production. 
D)  negative externalities "spill over" into production. 
A)  the firms are producing basic goods. 
B)  there is a shortage in the market. 
C)  technology spillovers are associated with production. 
D)  negative externalities "spill over" into production.

Question 12

According to the Coase theorem,if private parties can bargain without cost,then the private market will solve the problem of externalities.

Accepted Answer

A) True 
 B)False

Question 13

A positive externality occurs when

Accepted Answer

A)  Jack receives a benefit from John's consumption of a certain good. 
B)  Jack receives personal benefits from his own consumption of a certain good. 
C)  Jack's benefit exceeds John's benefit when they each consume the same good. 
D)  Jack's receives a loss from John's consumption of a certain good. 
A)  Jack receives a benefit from John's consumption of a certain good. 
B)  Jack receives personal benefits from his own consumption of a certain good. 
C)  Jack's benefit exceeds John's benefit when they each consume the same good. 
D)  Jack's receives a loss from John's consumption of a certain good.

Question 14

Figure 10-9      
-Refer to Figure 10-9.The installation of a scrubber in a smokestack reduces the emission of harmful chemicals from the smokestack.Therefore,the market for smokestack scrubbers is shown in

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 15

Patents do not

Accepted Answer

A)  provide firms an incentive to research. 
B)  assign property rights to inventors. 
C)  protect the rights of inventors for their lifetimes. 
D)  internalize externalities. 
A)  provide firms an incentive to research. 
B)  assign property rights to inventors. 
C)  protect the rights of inventors for their lifetimes. 
D)  internalize externalities.

Question 16

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 socially optimal quantity of smokestack scrubbers is represented by point

Accepted Answer

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

Question 17

Figure 10-8  
-Refer to Figure 10-8.What is the equilibrium price in this market?

Accepted Answer

A)  $8 
B)  Between $8 and $10 
C)  $10 
D)  More than $10 
A)  $8 
B)  Between $8 and $10 
C)  $10 
D)  More than $10

Question 18

Which of the following is the most effective way to internalize a technology spillover?

Accepted Answer

A)  taxes 
B)  patents 
C)  government regulations 
D)  free markets 
A)  taxes 
B)  patents 
C)  government regulations 
D)  free markets

Question 19

Since restored historic buildings convey a positive externality,local governments may choose to

Accepted Answer

A)  regulate the demolition of them. 
B)  provide tax breaks to owners who restore them. 
C)  increase property taxes in historic areas. 
D)  Both a and b are correct. 
A)  regulate the demolition of them. 
B)  provide tax breaks to owners who restore them. 
C)  increase property taxes in historic areas. 
D)  Both a and b are correct.

Question 20

When externalities exist,buyers and sellers

Accepted Answer

A)  neglect the external effects of their actions,but the market equilibrium is still efficient. 
B)  do not neglect the external effects of their actions,and the market equilibrium is efficient. 
C)  neglect the external effects of their actions,and the market equilibrium is not efficient. 
D)  do not neglect the external effects of their actions,and the market equilibrium is not efficient. 
A)  neglect the external effects of their actions,but the market equilibrium is still efficient. 
B)  do not neglect the external effects of their actions,and the market equilibrium is efficient. 
C)  neglect the external effects of their actions,and the market equilibrium is not efficient. 
D)  do not neglect the external effects of their actions,and the market equilibrium is not efficient.

Exam 10: Externalities

A market for pollution permits can efficiently allocate the right to pollute by using the forces of supply and demand.

A corrective tax

Figure 10-8 -Refer to Figure 10-8.What is the socially-optimal quantity of output in this market?

The goal of industrial policy should be that

Figure 10-7 -Refer to Figure 10-7.Which quantity represents the social optimum for this market?

Which of the following suggests that private markets can be effective in dealing with externalities?

Which of the following policies is the government most inclined to use when faced with a positive externality?

Which of the following is not correct?

Figure 10-4 -Refer to Figure 10-4.This market

To enhance the well-being of society,a social planner will encourage firms to increase production when

According to the Coase theorem,if private parties can bargain without cost,then the private market will solve the problem of externalities.

A positive externality occurs when

Figure 10-9 -Refer to Figure 10-9.The installation of a scrubber in a smokestack reduces the emission of harmful chemicals from the smokestack.Therefore,the market for smokestack scrubbers is shown in

Patents do not

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 socially optimal quantity of smokestack scrubbers is represented by point

Figure 10-8 -Refer to Figure 10-8.What is the equilibrium price in this market?

Which of the following is the most effective way to internalize a technology spillover?

Since restored historic buildings convey a positive externality,local governments may choose to

When externalities exist,buyers and sellers

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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