Question 1

A corrective tax

Accepted Answer

A)  allocates pollution to those factories that face the highest cost of reducing it. 
B)  is a form of regulation. 
C)  works well for all types of externalities. 
D)  is inferior to regulatory policy according to most economists. 
A)  allocates pollution to those factories that face the highest cost of reducing it. 
B)  is a form of regulation. 
C)  works well for all types of externalities. 
D)  is inferior to regulatory policy according to most economists.

Question 2

A corrective tax

Accepted Answer

A)  can be used to internalize a negative externality. 
B)  imposed on sellers shifts the supply curve to the left. 
C)  imposed on buyers shifts the demand curve to the left. 
D)  All of the above. 
A)  can be used to internalize a negative externality. 
B)  imposed on sellers shifts the supply curve to the left. 
C)  imposed on buyers shifts the demand curve to the left. 
D)  All of the above.

Question 3

When correcting for an externality,command-and-control policies are always preferable to market-based policies.

Accepted Answer

A) True 
 B)False

Question 4

Ed is a writer who works from his home.Ed lives nextdoor to Ricky,the drummer for a local band.Ricky needs lots of practice to earn his share of the bands profits,$250.Ed gets distracted by Ricky's drumming but needs to get his writing done to earn $500 for his current article.Which of the following is an efficient solution?

Accepted Answer

A)  Ricky offers Ed $499 to allow Ricky to continue drumming.Ed accepts and both are better off. 
B)  Ricky offers Ed $249 to allow Ricky to continue drumming.Ed accepts and both are better off. 
C)  Ed offers Ricky $251 to stop practicing his drumming.Ricky agrees and both are better off. 
D)  Ed offers Ricky $501 to stop practicing his drumming.Ricky agrees and both are better off. 
A)  Ricky offers Ed $499 to allow Ricky to continue drumming.Ed accepts and both are better off. 
B)  Ricky offers Ed $249 to allow Ricky to continue drumming.Ed accepts and both are better off. 
C)  Ed offers Ricky $251 to stop practicing his drumming.Ricky agrees and both are better off. 
D)  Ed offers Ricky $501 to stop practicing his drumming.Ricky agrees and both are better off.

Question 5

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

Accepted Answer

A)  Sue not catching the flu because she got a flu vaccine. 
B)  Mary not catching the flu from Sue because Sue got a flu vaccine. 
C)  Sue catching the flu because she did not get a flu vaccine.. 
D)  Mary catching the flu from Sue because Sue did not get a flu vaccine. 
A)  Sue not catching the flu because she got a flu vaccine. 
B)  Mary not catching the flu from Sue because Sue got a flu vaccine. 
C)  Sue catching the flu because she did not get a flu vaccine.. 
D)  Mary catching the flu from Sue because Sue did not get a flu vaccine.

Question 6

A corrective tax places a price on the right to pollute.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following statements is not correct?

Accepted Answer

A)  Corrective taxes can be used to place a price on the right to pollute. 
B)  Corrective taxes allocate pollution to those producers who face the highest cost of reducing pollution. 
C)  Corrective taxes provide incentives to develop cleaner technologies. 
D)  Corrective taxes require the government to set a target level of pollution. 
A)  Corrective taxes can be used to place a price on the right to pollute. 
B)  Corrective taxes allocate pollution to those producers who face the highest cost of reducing pollution. 
C)  Corrective taxes provide incentives to develop cleaner technologies. 
D)  Corrective taxes require the government to set a target level of pollution.

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.What is the socially optimal quantity of plastic?

Accepted Answer

A)  200 units 
B)  450 units 
C)  500 units 
D)  650 units 
A)  200 units 
B)  450 units 
C)  500 units 
D)  650 units

Question 9

All remedies for externalities share the goal of

Accepted Answer

A)  moving the allocation of resources toward the market equilibrium. 
B)  moving the allocation of resources toward the socially optimal equilibrium. 
C)  increasing the allocation of resources. 
D)  decreasing the allocation of resources. 
A)  moving the allocation of resources toward the market equilibrium. 
B)  moving the allocation of resources toward the socially optimal equilibrium. 
C)  increasing the allocation of resources. 
D)  decreasing the allocation of resources.

Question 10

Social welfare can be enhanced by allowing firms to trade their rights to pollute.

Accepted Answer

A) True 
 B)False

Question 11

Private markets fail to account for externalities because

Accepted Answer

A)  externalities don't occur in private markets. 
B)  sellers include costs associated with externalities in the price of their product. 
C)  decisionmakers in the market fail to include the costs of their behavior to third parties. 
D)  the government cannot easily estimate the optimal quantity of pollution. 
A)  externalities don't occur in private markets. 
B)  sellers include costs associated with externalities in the price of their product. 
C)  decisionmakers in the market fail to include the costs of their behavior to third parties. 
D)  the government cannot easily estimate the optimal quantity of pollution.

Question 12

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 wanted to reduce pollution from 16 units to 6 units,which of the following fees per unit of pollution would achieve that goal?

Accepted Answer

A)  $67 
B)  $68 
C)  $81 
D)  $83 
A)  $67 
B)  $68 
C)  $81 
D)  $83

Question 13

Corrective taxes

Accepted Answer

A)  encourage consumers to avoid sales taxes by shopping online. 
B)  are frequently used to discourage imports. 
C)  are less efficient than direct regulation. 
D)  give factory owners an economic incentive to reduce pollution. 
A)  encourage consumers to avoid sales taxes by shopping online. 
B)  are frequently used to discourage imports. 
C)  are less efficient than direct regulation. 
D)  give factory owners an economic incentive to reduce pollution.

Question 14

To produce honey,beekeepers place hives of bees in the fields of farmers.As bees gather nectar,they pollinate the crops in the fields,which increases the yields of these fields at no additional cost to the farmer.What might be a reasonable private solution to this externality,and how might the solution be reached?

Accepted Answer

One solution would be to have one person

Question 15

When producers operate in a market characterized by negative externalities,a tax that forces them to internalize the externality will

Accepted Answer

A)  give sellers the incentive to account for the external effects of their actions. 
B)  increase demand. 
C)  increase the amount of the commodity exchanged in market equilibrium. 
D)  restrict the producers' ability to take the costs of the externality into account when deciding how much to supply. 
A)  give sellers the incentive to account for the external effects of their actions. 
B)  increase demand. 
C)  increase the amount of the commodity exchanged in market equilibrium. 
D)  restrict the producers' ability to take the costs of the externality into account when deciding how much to supply.

Question 16

Firms that are involved in more than one type of business could be evidence of an attempt to

Accepted Answer

A)  increase private profit at the expense of consumers. 
B)  internalize some forms of positive externalities. 
C)  reduce the impact of government regulations on their business. 
D)  increase the private marginal cost of production. 
A)  increase private profit at the expense of consumers. 
B)  internalize some forms of positive externalities. 
C)  reduce the impact of government regulations on their business. 
D)  increase the private marginal cost of production.

Question 17

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

Accepted Answer

A)  The equilibrium quantity is greater than the socially optimal quantity. 
B)  The equilibrium quantity is less than the socially optimal quantity. 
C)  They are equal. 
D)  There is not enough information to answer the question. 
A)  The equilibrium quantity is greater than the socially optimal quantity. 
B)  The equilibrium quantity is less than the socially optimal quantity. 
C)  They are equal. 
D)  There is not enough information to answer the question.

Question 18

If a paper manufacturer does not bear the entire cost of the dioxin it emits,it will

Accepted Answer

A)  emit a lower level of dioxin than is socially efficient. 
B)  emit a higher level of dioxin than is socially efficient. 
C)  emit an acceptable level of dioxin. 
D)  not emit any dioxin in an attempt to avoid paying the entire cost. 
A)  emit a lower level of dioxin than is socially efficient. 
B)  emit a higher level of dioxin than is socially efficient. 
C)  emit an acceptable level of dioxin. 
D)  not emit any dioxin in an attempt to avoid paying the entire cost.

Question 19

Which of the following statements is correct?

Accepted Answer

A)  Internalizing a negative externality will cause an industry to decrease the quantity it supplies to the market and decrease the price of the good produced. 
B)  Internalizing a negative externality will cause an industry to decrease the quantity it supplies to the market and increase the price of the good produced. 
C)  Internalizing a negative externality will cause an industry to increase the quantity it supplies to the market and decrease the price of the good produced. 
D)  Internalizing a negative externality will cause an industry to increase the quantity it supplies to the market and increase the price of the good produced. 
A)  Internalizing a negative externality will cause an industry to decrease the quantity it supplies to the market and decrease the price of the good produced. 
B)  Internalizing a negative externality will cause an industry to decrease the quantity it supplies to the market and increase the price of the good produced. 
C)  Internalizing a negative externality will cause an industry to increase the quantity it supplies to the market and decrease the price of the good produced. 
D)  Internalizing a negative externality will cause an industry to increase the quantity it supplies to the market and increase the price of the good produced.

Question 20

Barking dogs cannot be considered an externality because externalities must be associated with some form of market exchange.

Accepted Answer

A) True 
 B)False

Exam 10: Externalities

A corrective tax

A corrective tax

When correcting for an externality,command-and-control policies are always preferable to market-based policies.

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

A corrective tax places a price on the right to pollute.

Which of the following statements is not correct?

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.What is the socially optimal quantity of plastic?

All remedies for externalities share the goal of

Social welfare can be enhanced by allowing firms to trade their rights to pollute.

Private markets fail to account for externalities because

Corrective taxes

When producers operate in a market characterized by negative externalities,a tax that forces them to internalize the externality will

Firms that are involved in more than one type of business could be evidence of an attempt to

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

If a paper manufacturer does not bear the entire cost of the dioxin it emits,it will

Which of the following statements is correct?

Barking dogs cannot be considered an externality because externalities must be associated with some form of market exchange.

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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