Question 1

Why do most economists favor emissions taxes and transferable pollution rights over compliance standards as pollution deterrents?

Accepted Answer

Compliance standards do not consider whi

Question 2

If there are important spillover benefits from consumption of a good,

Accepted Answer

A)  government should prohibit its production. 
B)  taxes should be imposed on producers of the product. 
C)  the market demand curve for the good understates the value of the product to society and resources are therefore underallocated to its production. 
D)  the market demand curve for the good overstates the value of the product to society and resources are therefore overallocated to its production. 
A)  government should prohibit its production. 
B)  taxes should be imposed on producers of the product. 
C)  the market demand curve for the good understates the value of the product to society and resources are therefore underallocated to its production. 
D)  the market demand curve for the good overstates the value of the product to society and resources are therefore overallocated to its production.

Question 3

Which of the following will most likely generate positive externalities?

Accepted Answer

A)  a hot dog vendor 
B)  public education 
C)  an automobile 
D)  a steel mill 
A)  a hot dog vendor 
B)  public education 
C)  an automobile 
D)  a steel mill

Question 4

Assume that production of a good generates external benefits for others.The equilibrium price of the good will be ____ and the equilibrium quantity ____ for efficient resource allocation.

Accepted Answer

A)  too high; too high. 
B)  too high; too low. 
C)  too low; too high. 
D)  too low, too low. 
A)  too high; too high. 
B)  too high; too low. 
C)  too low; too high. 
D)  too low, too low.

Question 5

If there are significant external benefits associated with the consumption of a product,it can be said that the private benefit to the consumer ____ the relative importance of this product to society and output should ____ to move toward the efficient situation.

Accepted Answer

A)  overstates; increase 
B)  understates; increase 
C)  overstates; decrease 
D)  understates; decrease 
A)  overstates; increase 
B)  understates; increase 
C)  overstates; decrease 
D)  understates; decrease

Question 6

Cleaning an environment may lead to:

Accepted Answer

A)  less production. 
B)  higher prices. 
C)  lower incomes. 
D)  all of the above. 
A)  less production. 
B)  higher prices. 
C)  lower incomes. 
D)  all of the above.

Question 7

If the government imposes a pollution tax on gasoline refineries:

Accepted Answer

A)  the supply of gasoline will shift to the right. 
B)  the demand for gasoline will shift to the right. 
C)  the supply of gasoline will shift to the left. 
D)  the demand for gasoline will shift to the left. 
A)  the supply of gasoline will shift to the right. 
B)  the demand for gasoline will shift to the right. 
C)  the supply of gasoline will shift to the left. 
D)  the demand for gasoline will shift to the left.

Question 8

According to the Coase Theorem,private solutions to externalities can lead to the socially efficient outcome when:
i.transaction costs are negligible
ii.property rights are clearly defined
iii.the number of parties involved is small

Accepted Answer

A)  (i), (ii), and (iii) 
B)  (i) and (ii) only 
C)  (iii) only 
D)  (ii) and (iii) only 
A)  (i), (ii), and (iii) 
B)  (i) and (ii) only 
C)  (iii) only 
D)  (ii) and (iii) only

Question 9

If negative externalities are created in the production of a good,then society will:

Accepted Answer

A)  produce too much of the good since the marginal private cost to firms is less than the marginal social cost. 
B)  produce too little of the good since the marginal private cost to firms is less than the marginal social cost. 
C)  produce too much of the good since the marginal private cost to firms is greater than the marginal social cost. 
D)  produce too little of the good since the marginal private cost to firms is greater than the marginal social cost. 
A)  produce too much of the good since the marginal private cost to firms is less than the marginal social cost. 
B)  produce too little of the good since the marginal private cost to firms is less than the marginal social cost. 
C)  produce too much of the good since the marginal private cost to firms is greater than the marginal social cost. 
D)  produce too little of the good since the marginal private cost to firms is greater than the marginal social cost.

Question 10

The key explanation for the prevalence of waterway pollution is:

Accepted Answer

A)  the inclusion in decisions of all production costs associated with the use of waterways. 
B)  that there are private costs but no costs to society associated with the use of waterways that are not costs to society. 
C)  that waterways are not private property and can be used free of charge. 
D)  that waterways are not of great value to society. 
A)  the inclusion in decisions of all production costs associated with the use of waterways. 
B)  that there are private costs but no costs to society associated with the use of waterways that are not costs to society. 
C)  that waterways are not private property and can be used free of charge. 
D)  that waterways are not of great value to society.

Question 11

The consumption of public goods is

Accepted Answer

A)  excludable and rivalrous 
B)  excludable and non-rivalrous 
C)  non-excludable and rivalrous 
D)  non-excludable and non-rivalrous 
A)  excludable and rivalrous 
B)  excludable and non-rivalrous 
C)  non-excludable and rivalrous 
D)  non-excludable and non-rivalrous

Question 12

If the production of a particular good involves significant external benefits,to force the externality to be internalized the government might:

Accepted Answer

A)  impose a tax on production of the good in order to increase production. 
B)  impose a tax on production of the good in order to decrease production. 
C)  offer a subsidy for production of the good in order to increase production. 
D)  offer a subsidy for production of the good in order to decrease production. 
A)  impose a tax on production of the good in order to increase production. 
B)  impose a tax on production of the good in order to decrease production. 
C)  offer a subsidy for production of the good in order to increase production. 
D)  offer a subsidy for production of the good in order to decrease production.

Question 13

To internalize a positive externality:

Accepted Answer

A)  the consumers of a good could receive a subsidy equal to the external benefit resulting from the production or consumption of the good. 
B)  a producer's costs could be increased by an amount equal to the external benefit resulting from the production of the good. 
C)  consumers of the good could pay a tax equal to the external benefit resulting from the production or consumption of the good. 
D)  None of the above are correct. 
A)  the consumers of a good could receive a subsidy equal to the external benefit resulting from the production or consumption of the good. 
B)  a producer's costs could be increased by an amount equal to the external benefit resulting from the production of the good. 
C)  consumers of the good could pay a tax equal to the external benefit resulting from the production or consumption of the good. 
D)  None of the above are correct.

Question 14

Where a free-rider problem exists,goods tend to be:

Accepted Answer

A)  underproduced. 
B)  overproduced. 
C)  high-priced and available only to the rich. 
D)  low priced and available only to the poor. 
A)  underproduced. 
B)  overproduced. 
C)  high-priced and available only to the rich. 
D)  low priced and available only to the poor.

Question 15

The least-cost abatement pattern will require all polluters to clean up on an equal basis.

Accepted Answer

A) True 
 B)False

Exam 8: Market Failure

Why do most economists favor emissions taxes and transferable pollution rights over compliance standards as pollution deterrents?

If there are important spillover benefits from consumption of a good,

Which of the following will most likely generate positive externalities?

Assume that production of a good generates external benefits for others.The equilibrium price of the good will be ____ and the equilibrium quantity ____ for efficient resource allocation.

If there are significant external benefits associated with the consumption of a product,it can be said that the private benefit to the consumer ____ the relative importance of this product to society and output should ____ to move toward the efficient situation.

Cleaning an environment may lead to:

If the government imposes a pollution tax on gasoline refineries:

According to the Coase Theorem,private solutions to externalities can lead to the socially efficient outcome when: i.transaction costs are negligible ii.property rights are clearly defined iii.the number of parties involved is small

If negative externalities are created in the production of a good,then society will:

The key explanation for the prevalence of waterway pollution is:

The consumption of public goods is

If the production of a particular good involves significant external benefits,to force the externality to be internalized the government might:

To internalize a positive externality:

Where a free-rider problem exists,goods tend to be:

The least-cost abatement pattern will require all polluters to clean up on an equal basis.

The Role and Method of Economics

Economics: Eight Powerful Ideas

Scarcity, Trade-Offs, and Production Possibilities

Demand, Supply, and Market Equilibrium

Markets in Motion and Price Controls

Elasticities

Market Efficiency and Welfare

Public Finance and Public Choice

Consumer Choice Theory

The Firm: Production and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust

Monopolistic Competition and Product Differentiation

Oligopoly and Strategic Behavior

The Markets for Labor, Capital, and Land

Income, Poverty, and Health Care

Introduction to Macroeconomics: Unemployment, Inflation, and Economic Fluctuations

Measuring Economic Performance

Economic Growth in the Global Economy

Financial Markets, Saving, and Investment

Aggregate Demand and Aggregate Supply

The Aggregate Expenditure Model

Monetary Institutions

The Federal Reserve System and Monetary Policy

Issues in Macroeconomic Theory and Policy

International Trade

International Finance

Filters

Assume that production of a good generates external benefits for others.The equilibrium price of the good will be and the equilibrium quantity for efficient resource allocation.

If there are significant external benefits associated with the consumption of a product,it can be said that the private benefit to the consumer the relative importance of this product to society and output should to move toward the efficient situation.