Question 1

A former senator remarked that "We cannot give anyone the option of polluting for a fee." Do most economists agree with this statement, or do they disagree with it?

Accepted Answer

Most econo

Question 2

Figure 10-9
  
-Refer to Figure 10-9, Panel (b). The market equilibrium quantity is

Accepted Answer

A)  Q2, which is the socially optimal quantity. 
B)  Q3, which is the socially optimal quantity. 
C)  Q2, and the socially optimal quantity is Q3. 
D)  Q3, and the socially optimal quantity is Q2. 
A)  Q2, which is the socially optimal quantity. 
B)  Q3, which is the socially optimal quantity. 
C)  Q2, and the socially optimal quantity is Q3. 
D)  Q3, and the socially optimal quantity is Q2.

Question 3

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 4

Private markets fail to reach a socially optimal equilibrium when positive externalities are present because the

Accepted Answer

A)  private benefit equals the social benefit at the private market solution. 
B)  private cost exceeds the private benefit at the private market solution. 
C)  social value exceeds the private value at the private market solution. 
D)  private cost exceeds the social benefit at the private market solution. 
A)  private benefit equals the social benefit at the private market solution. 
B)  private cost exceeds the private benefit at the private market solution. 
C)  social value exceeds the private value at the private market solution. 
D)  private cost exceeds the social benefit at the private market solution.

Question 5

The Coase theorem suggests that efficient solutions to externalities can be determined through bargaining. Under what circumstances will private bargaining fail to produce a solution?

Accepted Answer

Private parties may fail to bargain to a

Question 6

Figure 10-15  
-Refer to Figure 10-15. Which graph illustrates a pollution permit program?

Accepted Answer

A)  the left graph 
B)  the right graph 
C)  both graphs 
D)  neither graph 
A)  the left graph 
B)  the right graph 
C)  both graphs 
D)  neither graph

Question 7

Laws that are passed that either require or forbid certain behaviors are examples of command-and-control policies.

Accepted Answer

A) True 
 B)False

Question 8

Figure 10-12  
-Refer to Figure 10-12. An alternative label for the quantity   would be

Accepted Answer

Question 9

Figure 10-19  
-Refer to Figure 10-19. The socially optimal quantity of output is

Accepted Answer

A)  58 units. 
B)  73 units. 
C)  between 73 and 94 units. 
D)  94 units. 
A)  58 units. 
B)  73 units. 
C)  between 73 and 94 units. 
D)  94 units.

Question 10

Assume each college degree that is granted conveys an external benefit of $3,500. The granting of the 500th college degree entails a private cost of $15,000 and a private value of $25,000. What is the social value of the 500th college degree?

Accepted Answer

For each college degree, the s

Question 11

Which of the following statements about the Coase theorem is true?

Accepted Answer

A)  Underlying the results of the Coase theorem is the idea that private parties can bargain without cost over the allocation of resources. 
B)  The Coase theorem asserts that private solutions to externalities invariably lead to inefficient allocations of resources. 
C)  The Coase theorem applies to negative externalities, but not to positive externalities. 
D)  All of the above are correct. 
A)  Underlying the results of the Coase theorem is the idea that private parties can bargain without cost over the allocation of resources. 
B)  The Coase theorem asserts that private solutions to externalities invariably lead to inefficient allocations of resources. 
C)  The Coase theorem applies to negative externalities, but not to positive externalities. 
D)  All of the above are correct.

Question 12

Figure 10-10  
-Refer to Figure 10-10. An increase in output from 120 units to 160 units would

Accepted Answer

A)  move the market from a socially efficient outcome to a socially inefficient outcome. 
B)  increase the external cost per unit of output. 
C)  increase total economic well-being. 
D)  be an action of which a benevolent social planner would approve. 
A)  move the market from a socially efficient outcome to a socially inefficient outcome. 
B)  increase the external cost per unit of output. 
C)  increase total economic well-being. 
D)  be an action of which a benevolent social planner would approve.

Question 13

Which of the following is NOT a way of internalizing technology spillovers?

Accepted Answer

A)  subsidies 
B)  patent protection 
C)  industrial policy 
D)  taxes 
A)  subsidies 
B)  patent protection 
C)  industrial policy 
D)  taxes

Question 14

Scenario 10-1
The demand curve for gasoline slopes downward and the supply curve for gasoline slopes upward. The production of the 1,000S1U1P1tS1S1P0S1U1P1hS1S1P0S1U1P1 S1S1P0gallon of gasoline entails the following:
-a private cost of $3.10;
-a social cost of $3.55;
-a value to consumers of $3.70.
-Refer to Scenario 10-1. The production of the 1,000th gallon of gasoline entails an

Accepted Answer

A)  external cost of $0.15. 
B)  external cost of $0.45. 
C)  external benefit of $0.15. 
D)  external benefit of $0.45. 
A)  external cost of $0.15. 
B)  external cost of $0.45. 
C)  external benefit of $0.15. 
D)  external benefit of $0.45.

Question 15

Suppose that Charles wants to dine at a fancy restaurant, but the only available table is in the smoking section. Charles dislikes the smell of cigarette smoke. He notices that only one person, Sam, is smoking in the smoking section. Charles values the absence of smoke at $40. Sam values the ability to smoke in the restaurant at $15. Which of the following represents an efficient solution in the absence of transaction costs?

Accepted Answer

A)  Sam continues to smoke because he has a right to smoke in the smoking section. 
B)  Charles offers Sam between $15 and $40 not to smoke. Sam accepts, and both parties are better off. 
C)  Charles offers Sam between $15 and $40 not to smoke. Sam declines because he has a right to smoke in the smoking section. 
D)  Only a government policy banning smoking in restaurants will solve this problem. 
A)  Sam continues to smoke because he has a right to smoke in the smoking section. 
B)  Charles offers Sam between $15 and $40 not to smoke. Sam accepts, and both parties are better off. 
C)  Charles offers Sam between $15 and $40 not to smoke. Sam declines because he has a right to smoke in the smoking section. 
D)  Only a government policy banning smoking in restaurants will solve this problem.

Question 16

Scenario 10-1
The demand curve for gasoline slopes downward and the supply curve for gasoline slopes upward. The production of the 1,000S1U1P1tS1S1P0S1U1P1hS1S1P0S1U1P1 S1S1P0gallon of gasoline entails the following:
-a private cost of $3.10;
-a social cost of $3.55;
-a value to consumers of $3.70.
-Refer to Scenario 10-1. From the given information, it is apparent that

Accepted Answer

A)  the production of gasoline involves a negative externality, so the market will produce a smaller quantity of gasoline than is socially desirable. 
B)  the production of gasoline involves a negative externality, so the market will produce a larger quantity of gasoline than is socially desirable. 
C)  the production of gasoline involves a positive externality, so the market will produce a smaller quantity of gasoline than is socially desirable. 
D)  the production of gasoline involves a positive externality, so the market will produce a larger quantity of gasoline than is socially desirable. 
A)  the production of gasoline involves a negative externality, so the market will produce a smaller quantity of gasoline than is socially desirable. 
B)  the production of gasoline involves a negative externality, so the market will produce a larger quantity of gasoline than is socially desirable. 
C)  the production of gasoline involves a positive externality, so the market will produce a smaller quantity of gasoline than is socially desirable. 
D)  the production of gasoline involves a positive externality, so the market will produce a larger quantity of gasoline than is socially desirable.

Question 17

Suppose that large-scale pork production has the potential to create ground water pollution. Why might this type of pollution be considered an externality?

Accepted Answer

A)  The groundwater pollution reduces the cost of large-scale pork production. 
B)  The economic impact of a large-scale pork production facility is localized in a small geographic areb. 
C)  The pollution has the potential for creating a health risk for water users in the region surrounding the pork production facility. 
D)  Consumers will not reap the benefits of lower production cost from large-scale pork production. 
A)  The groundwater pollution reduces the cost of large-scale pork production. 
B)  The economic impact of a large-scale pork production facility is localized in a small geographic areb. 
C)  The pollution has the potential for creating a health risk for water users in the region surrounding the pork production facility. 
D)  Consumers will not reap the benefits of lower production cost from large-scale pork production.

Question 18

Tyler owns a dog and receives a $300 benefit from owning it. Tyler's neighbor, Liz, incurs a cost of $450 from the dog's barking. Suggest a deal between Tyler and Liz that would result in both individuals becoming better off.

Accepted Answer

Since Liz's cost exceeds Tyler's benefit

Question 19

Figure 10-1  
-Refer to Figure 10-1. This graph represents the tobacco industry. The industry creates

Accepted Answer

A)  positive externalities. 
B)  negative externalities. 
C)  no externalities. 
D)  no equilibrium in the market. 
A)  positive externalities. 
B)  negative externalities. 
C)  no externalities. 
D)  no equilibrium in the market.

Question 20

Suppose the socially-optimal quantity of good x is 2,500 units and the market-equilibrium quantity of good x is 3,000 units. When 2,500 units of good x are produced, the

Accepted Answer

A)  external cost of good x exceeds the private value of good x. 
B)  external cost of good x equals the private value of good x. 
C)  social cost of good x exceeds the private value of good x. 
D)  social cost of good x equals the private value of good x. 
A)  external cost of good x exceeds the private value of good x. 
B)  external cost of good x equals the private value of good x. 
C)  social cost of good x exceeds the private value of good x. 
D)  social cost of good x equals the private value of good x.

A former senator remarked that "We cannot give anyone the option of polluting for a fee." Do most economists agree with this statement, or do they disagree with it?

Figure 10-9 -Refer to Figure 10-9, Panel (b). The market equilibrium quantity is

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

Private markets fail to reach a socially optimal equilibrium when positive externalities are present because the

The Coase theorem suggests that efficient solutions to externalities can be determined through bargaining. Under what circumstances will private bargaining fail to produce a solution?

Figure 10-15 -Refer to Figure 10-15. Which graph illustrates a pollution permit program?

Laws that are passed that either require or forbid certain behaviors are examples of command-and-control policies.

Figure 10-12 -Refer to Figure 10-12. An alternative label for the quantity would be

Figure 10-19 -Refer to Figure 10-19. The socially optimal quantity of output is

Assume each college degree that is granted conveys an external benefit of $3,500. The granting of the 500th college degree entails a private cost of $15,000 and a private value of $25,000. What is the social value of the 500th college degree?

Which of the following statements about the Coase theorem is true?

Figure 10-10 -Refer to Figure 10-10. An increase in output from 120 units to 160 units would

Which of the following is NOT a way of internalizing technology spillovers?

Suppose that large-scale pork production has the potential to create ground water pollution. Why might this type of pollution be considered an externality?

Tyler owns a dog and receives a $300 benefit from owning it. Tyler's neighbor, Liz, incurs a cost of $450 from the dog's barking. Suggest a deal between Tyler and Liz that would result in both individuals becoming better off.

Figure 10-1 -Refer to Figure 10-1. This graph represents the tobacco industry. The industry creates

Suppose the socially-optimal quantity of good x is 2,500 units and the market-equilibrium quantity of good x is 3,000 units. When 2,500 units of good x are produced, the

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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Exam 10: Externalities

A former senator remarked that "We cannot give anyone the option of polluting for a fee." Do most economists agree with this statement, or do they disagree with it?

Figure 10-9 -Refer to Figure 10-9, Panel (b). The market equilibrium quantity is

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

Private markets fail to reach a socially optimal equilibrium when positive externalities are present because the

The Coase theorem suggests that efficient solutions to externalities can be determined through bargaining. Under what circumstances will private bargaining fail to produce a solution?

Figure 10-15 -Refer to Figure 10-15. Which graph illustrates a pollution permit program?

Laws that are passed that either require or forbid certain behaviors are examples of command-and-control policies.

Figure 10-12 -Refer to Figure 10-12. An alternative label for the quantity would be

Figure 10-19 -Refer to Figure 10-19. The socially optimal quantity of output is

Assume each college degree that is granted conveys an external benefit of $3,500. The granting of the 500th college degree entails a private cost of $15,000 and a private value of $25,000. What is the social value of the 500th college degree?

Which of the following statements about the Coase theorem is true?

Figure 10-10 -Refer to Figure 10-10. An increase in output from 120 units to 160 units would

Which of the following is NOT a way of internalizing technology spillovers?

Suppose that large-scale pork production has the potential to create ground water pollution. Why might this type of pollution be considered an externality?

Tyler owns a dog and receives a $300 benefit from owning it. Tyler's neighbor, Liz, incurs a cost of $450 from the dog's barking. Suggest a deal between Tyler and Liz that would result in both individuals becoming better off.

Figure 10-1 -Refer to Figure 10-1. This graph represents the tobacco industry. The industry creates

Suppose the socially-optimal quantity of good x is 2,500 units and the market-equilibrium quantity of good x is 3,000 units. When 2,500 units of good x are produced, the

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

Filters