Question 1

Figure 10-1  
-Refer to Figure 10-1. This graph represents the tobacco industry. The socially optimal price and quantity are

Accepted Answer

A)  $1.90 and 38 units, respectively. 
B)  $1.80 and 35 units, respectively. 
C)  $1.60 and 42 units, respectively. 
D)  $1.35 and 58 units, respectively. 
A)  $1.90 and 38 units, respectively. 
B)  $1.80 and 35 units, respectively. 
C)  $1.60 and 42 units, respectively. 
D)  $1.35 and 58 units, respectively.

Question 2

When negative externalities are present in a market,

Accepted Answer

A)  producers will be affected but consumers will not. 
B)  producers will supply too much of the product. 
C)  demand will be too high. 
D)  the market will still maximize total benefits. 
A)  producers will be affected but consumers will not. 
B)  producers will supply too much of the product. 
C)  demand will be too high. 
D)  the market will still maximize total benefits.

Question 3

Figure 10-11  
-Refer to Figure 10-11. On the

Accepted Answer

A)  390th unit of output, private value exceeds private cost. 
B)  390th unit of output, private value exceeds external value. 
C)  450th unit of output, private value exceeds social value. 
D)  450th unit of output, private cost exceeds social value. 
A)  390th unit of output, private value exceeds private cost. 
B)  390th unit of output, private value exceeds external value. 
C)  450th unit of output, private value exceeds social value. 
D)  450th unit of output, private cost exceeds social value.

Question 4

Does the restoration of historic buildings create a positive externality or does it create a negative externality?

Accepted Answer

The restoration of h

Question 5

Figure 10-11  
-Refer to Figure 10-11. Which of the following magnitudes is constant over all units of output?

Accepted Answer

A)  the private value of the last unit of output that was produced and sold 
B)  the social value of the last unit of output that was produced and sold 
C)  the external benefit of the last unit of output that was produced and sold 
D)  the private cost of the last unit of output that was produced and sold 
A)  the private value of the last unit of output that was produced and sold 
B)  the social value of the last unit of output that was produced and sold 
C)  the external benefit of the last unit of output that was produced and sold 
D)  the private cost of the last unit of output that was produced and sold

Question 6

Figure 10-2. The graph depicts the market for plastic.  
-Refer to Figure 10-2. Suppose that the production of plastic creates a social cost which is depicted in the graph above. Without any government regulation, what price will the firm charge per unit of plastic?

Accepted Answer

A)  $4.00 
B)  $6.00 
C)  $7.00 
D)  $10.00 
A)  $4.00 
B)  $6.00 
C)  $7.00 
D)  $10.00

Question 7

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 8

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 - P3c. 
D)  P4a - P4b. 
A)  Q3 - Q2. 
B)  Q5 - Q4. 
C)  P3a - P3c. 
D)  P4a - P4b.

Question 9

Which of the following best defines the situation where one firm's research yields knowledge that is used by society as a whole?

Accepted Answer

A)  social cost 
B)  opportunity cost of technology 
C)  internalization of an externality 
D)  technology spillover 
A)  social cost 
B)  opportunity cost of technology 
C)  internalization of an externality 
D)  technology spillover

Question 10

If gasoline taxes were significantly increased in the United States, then

Accepted Answer

A)  some of the government regulations that require automakers to produce more fuel-efficient cars would become unnecessary. 
B)  other taxes, such as income taxes, could be lowered. 
C)  it is likely that roads would become safer and the environment would become cleaner. 
D)  All of the above are correct. 
A)  some of the government regulations that require automakers to produce more fuel-efficient cars would become unnecessary. 
B)  other taxes, such as income taxes, could be lowered. 
C)  it is likely that roads would become safer and the environment would become cleaner. 
D)  All of the above are correct.

Question 11

If education produces positive externalities, we would expect

Accepted Answer

A)  the government to tax education. 
B)  the government to subsidize education. 
C)  people to realize the benefits, which would increase the demand for education. 
D)  colleges to relax admission requirements. 
A)  the government to tax education. 
B)  the government to subsidize education. 
C)  people to realize the benefits, which would increase the demand for education. 
D)  colleges to relax admission requirements.

Question 12

A cost imposed on someone who is neither the consumer nor the producer is called a

Accepted Answer

A)  corrective tax. 
B)  command and control policy. 
C)  positive externality. 
D)  negative externality. 
A)  corrective tax. 
B)  command and control policy. 
C)  positive externality. 
D)  negative externality.

Question 13

According to the Coase theorem, whatever the initial distribution of rights, the interested parties can bargain to an efficient outcome.

Accepted Answer

A) True 
 B)False

Question 14

Suppose the market-equilibrium quantity of good x is larger than the socially-optimal quantity of good x. Does the production of good x convey a positive externality or does it convey a negative externality?

Accepted Answer

The production of go

Question 15

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 16

Some policies toward externalities provide incentives so that private decision makers will choose to solve the problem on their own. What name do we use for these types of policies?

Accepted Answer

We call th

Question 17

In class action lawsuits interested parties to the lawsuit are not required to pay attorney fees directly. This is an example of an attempt to

Accepted Answer

A)  maximize attorney fees. 
B)  reduce the incentive of attorneys to file class action lawsuits. 
C)  reduce the transaction costs of finding a private solution to an externality. 
D)  regulate attorney fees. 
A)  maximize attorney fees. 
B)  reduce the incentive of attorneys to file class action lawsuits. 
C)  reduce the transaction costs of finding a private solution to an externality. 
D)  regulate attorney fees.

Question 18

Two firms, A and B, each currently emit 100 tons of chemicals into the air. The government has decided to reduce the pollution and from now on will require a pollution permit for each ton of pollution emitted into the air. The government gives each firm 40 pollution permits, which it can either use or sell to the other firm. It costs Firm A $200 for each ton of pollution that it eliminates before it is emitted into the air, and it costs Firm B $100 for each ton of pollution that it eliminates before it is emitted into the air. It is likely that

Accepted Answer

A)  Firm A will buy all of Firm B's pollution permits. Each one will cost between $100 and $200. 
B)  Firm B will buy all of Firm A's pollution permits. Each one will cost between $100 and $200. 
C)  Both firms will use their own pollution permits. 
D)  Firm A will buy some of Firm B's pollution permits. Each one will cost less than $100. 
A)  Firm A will buy all of Firm B's pollution permits. Each one will cost between $100 and $200. 
B)  Firm B will buy all of Firm A's pollution permits. Each one will cost between $100 and $200. 
C)  Both firms will use their own pollution permits. 
D)  Firm A will buy some of Firm B's pollution permits. Each one will cost less than $100.

Question 19

The Golden Rule is an example of a private solution for

Accepted Answer

A)  subsidizing higher education. 
B)  internalizing externalities. 
C)  increasing production. 
D)  reducing scarcity. 
A)  subsidizing higher education. 
B)  internalizing externalities. 
C)  increasing production. 
D)  reducing scarcity.

Question 20

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.

Exam 10: Externalities

Figure 10-1 -Refer to Figure 10-1. This graph represents the tobacco industry. The socially optimal price and quantity are

When negative externalities are present in a market,

Figure 10-11 -Refer to Figure 10-11. On the

Does the restoration of historic buildings create a positive externality or does it create a negative externality?

Figure 10-11 -Refer to Figure 10-11. Which of the following magnitudes is constant over all units of output?

Figure 10-2. The graph depicts the market for plastic. -Refer to Figure 10-2. Suppose that the production of plastic creates a social cost which is depicted in the graph above. Without any government regulation, what price will the firm charge per unit of plastic?

A positive externality occurs when

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

Which of the following best defines the situation where one firm's research yields knowledge that is used by society as a whole?

If gasoline taxes were significantly increased in the United States, then

If education produces positive externalities, we would expect

A cost imposed on someone who is neither the consumer nor the producer is called a

According to the Coase theorem, whatever the initial distribution of rights, the interested parties can bargain to an efficient outcome.

Suppose the market-equilibrium quantity of good x is larger than the socially-optimal quantity of good x. Does the production of good x convey a positive externality or does it convey a negative externality?

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

Some policies toward externalities provide incentives so that private decision makers will choose to solve the problem on their own. What name do we use for these types of policies?

In class action lawsuits interested parties to the lawsuit are not required to pay attorney fees directly. This is an example of an attempt to

The Golden Rule is an example of a private solution for

The Coase theorem states that

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

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