Question 1

If a sawmill creates too much noise for local residents,

Accepted Answer

A)  noise restrictions will force residents to move out of the area. 
B)  a sense of social responsibility will cause owners of the mill to reduce noise levels. 
C)  the government can raise economic well-being through noise-control regulations. 
D)  the government should avoid intervening because the market will allocate resources efficiently. 
A)  noise restrictions will force residents to move out of the area. 
B)  a sense of social responsibility will cause owners of the mill to reduce noise levels. 
C)  the government can raise economic well-being through noise-control regulations. 
D)  the government should avoid intervening because the market will allocate resources efficiently.

Question 2

Education yields positive externalities. For example,

Accepted Answer

A)  colleges and universities have benefited, in recent years, from increases in tuition paid by students. 
B)  as a result of earning a college degree, a person becomes a more productive worker and benefits by earning higher wages. 
C)  a more educated population tends to result in lower crime rates. 
D)  All of the above are correct. 
A)  colleges and universities have benefited, in recent years, from increases in tuition paid by students. 
B)  as a result of earning a college degree, a person becomes a more productive worker and benefits by earning higher wages. 
C)  a more educated population tends to result in lower crime rates. 
D)  All of the above are correct.

Question 3

In the case of a technology spillover, the government can encourage firms to internalize a positive externality by

Accepted Answer

A)  taxing production, which would decrease supply. 
B)  taxing production, which would increase supply. 
C)  subsidizing production, which would decrease supply. 
D)  subsidizing production, which would increase supply. 
A)  taxing production, which would decrease supply. 
B)  taxing production, which would increase supply. 
C)  subsidizing production, which would decrease supply. 
D)  subsidizing production, which would increase supply.

Question 4

To determine the optimal level of output in a market with negative externalities, a benevolent social planner would look for the level of output at which private cost equals private value.

Accepted Answer

A) True 
 B)False

Question 5

Figure 10-12  
-Refer to Figure 10-12. An alternative label for the line labeled "Supply" would be

Accepted Answer

A)  private value. 
B)  external value. 
C)  private cost. 
D)  external cost. 
A)  private value. 
B)  external value. 
C)  private cost. 
D)  external cost.

Question 6

Employing a lawyer to draft and enforce a private contract between parties wishing to solve an externality problem is an example of

Accepted Answer

A)  an opportunity cost. 
B)  an implicit cost. 
C)  a sunk cost. 
D)  a transaction cost. 
A)  an opportunity cost. 
B)  an implicit cost. 
C)  a sunk cost. 
D)  a transaction cost.

Question 7

Negative externalities lead markets to produce

Accepted Answer

A)  greater than efficient output levels and positive externalities lead markets to produce smaller than efficient output levels. 
B)  smaller than efficient output levels and positive externalities lead markets to produce greater than efficient output levels. 
C)  greater than efficient output levels and positive externalities lead markets to produce efficient output levels. 
D)  efficient output levels and positive externalities lead markets to produce greater than efficient output levels. 
A)  greater than efficient output levels and positive externalities lead markets to produce smaller than efficient output levels. 
B)  smaller than efficient output levels and positive externalities lead markets to produce greater than efficient output levels. 
C)  greater than efficient output levels and positive externalities lead markets to produce efficient output levels. 
D)  efficient output levels and positive externalities lead markets to produce greater than efficient output levels.

Question 8

In some cases, tradable pollution permits may be better than a corrective tax because

Accepted Answer

A)  pollution permits allow for a market solution while a corrective tax does not. 
B)  pollution permits generate more revenue for the government than a corrective tax. 
C)  pollution permits are never preferred over a corrective tax. 
D)  the government can set a maximum level of pollution using permits. 
A)  pollution permits allow for a market solution while a corrective tax does not. 
B)  pollution permits generate more revenue for the government than a corrective tax. 
C)  pollution permits are never preferred over a corrective tax. 
D)  the government can set a maximum level of pollution using permits.

Question 9

Suppose that elementary education creates a positive externality. If the government subsidizes education by an amount equal to the per-unit externality it creates, then

Accepted Answer

A)  the equilibrium quantity of education will equal the socially optimal quantity of education. 
B)  the equilibrium quantity of education will be greater than the socially optimal quantity of education. 
C)  the equilibrium quantity of education will be less than the socially optimal quantity of education. 
D)  There is not enough information to answer the question. 
A)  the equilibrium quantity of education will equal the socially optimal quantity of education. 
B)  the equilibrium quantity of education will be greater than the socially optimal quantity of education. 
C)  the equilibrium quantity of education will be less than the socially optimal quantity of education. 
D)  There is not enough information to answer the question.

Question 10

Table 10-6
The following table shows the total 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 $46, and for Firm A to eliminate two units of pollution, it would cost a total of $103.
  
-Refer to Table 10-6. If the government charged a fee of $85 per unit of pollution, how many units of pollution would the firms eliminate altogether?

Accepted Answer

A)  10 
B)  12 
C)  14 
D)  16 
A)  10 
B)  12 
C)  14 
D)  16

Question 11

With pollution permits, the supply curve for pollution rights is

Accepted Answer

A)  perfectly elastic. 
B)  perfectly inelastic. 
C)  upward sloping. 
D)  downward sloping. 
A)  perfectly elastic. 
B)  perfectly inelastic. 
C)  upward sloping. 
D)  downward sloping.

Question 12

Figure 10-2. The graph depicts the market for plastic.  
-Refer to Figure 10-2. The private value of the 200th unit of plastic exceeds the social cost of the 200th unit of plastic by

Accepted Answer

A)  $4. 
B)  $8. 
C)  $12. 
D)  $16. 
A)  $4. 
B)  $8. 
C)  $12. 
D)  $16.

Question 13

Emission controls on automobiles are an example of a

Accepted Answer

A)  corrective tax. 
B)  command-and-control policy to increase social efficiency. 
C)  policy that reduces pollution by allocating resources through market mechanisms. 
D)  policy to reduce congestion on urban freeways. 
A)  corrective tax. 
B)  command-and-control policy to increase social efficiency. 
C)  policy that reduces pollution by allocating resources through market mechanisms. 
D)  policy to reduce congestion on urban freeways.

Question 14

The Coase theorem asserts that, in the presence of externalities,

Accepted Answer

A)  private economic actors sometimes can reach a bargain that produces an efficient outcome. 
B)  private economic actors always can reach a bargain that makes everyone better off. 
C)  private solutions cannot be very effective. 
D)  corrective taxes cannot be very effective. 
A)  private economic actors sometimes can reach a bargain that produces an efficient outcome. 
B)  private economic actors always can reach a bargain that makes everyone better off. 
C)  private solutions cannot be very effective. 
D)  corrective taxes cannot be very effective.

Question 15

When a market experiences a positive externality,

Accepted Answer

A)  the demand curve does not reflect the value to society of the good. 
B)  too much of the good is being produced. 
C)  the government can internalize the externality by imposing a tax on the product. 
D)  the private value is greater than the social value. 
A)  the demand curve does not reflect the value to society of the good. 
B)  too much of the good is being produced. 
C)  the government can internalize the externality by imposing a tax on the product. 
D)  the private value is greater than the social value.

Question 16

If the government were to impose a fine of $4,000 for each unit of air-pollution released by a fertilizer plant, the policy would be considered

Accepted Answer

A)  a subsidy. 
B)  a regulation. 
C)  a corrective tax. 
D)  an application of the Coase theorem. 
A)  a subsidy. 
B)  a regulation. 
C)  a corrective tax. 
D)  an application of the Coase theorem.

Question 17

Which of the following is a way to address an externality problem?

Accepted Answer

A)  command and control solution 
B)  corrective tax 
C)  corrective subsidy 
D)  all of the above. 
A)  command and control solution 
B)  corrective tax 
C)  corrective subsidy 
D)  all of the above.

Question 18

Which of the following statements is not correct?

Accepted Answer

A)  Private markets tend to over-produce products with negative externalities. 
B)  Private markets tend to under-produce products with positive externalities. 
C)  Private parties can bargain to efficient outcomes even in the presence of externalities. 
D)  Private parties are usually more successful in achieving efficient outcomes than government policies. 
A)  Private markets tend to over-produce products with negative externalities. 
B)  Private markets tend to under-produce products with positive externalities. 
C)  Private parties can bargain to efficient outcomes even in the presence of externalities. 
D)  Private parties are usually more successful in achieving efficient outcomes than government policies.

Question 19

Many charities like the Sierra Club are established to deal with externalities.

Accepted Answer

A) True 
 B)False

Question 20

Refer to Figure 10-12. The graph, as drawn, could apply to the market for

Accepted Answer

A)  automobiles. 
B)  aluminum. 
C)  industrial robots. 
D)  All of the above are correct. 
A)  automobiles. 
B)  aluminum. 
C)  industrial robots. 
D)  All of the above are correct.

Exam 10: Externalities

If a sawmill creates too much noise for local residents,

Education yields positive externalities. For example,

In the case of a technology spillover, the government can encourage firms to internalize a positive externality by

To determine the optimal level of output in a market with negative externalities, a benevolent social planner would look for the level of output at which private cost equals private value.

Figure 10-12 -Refer to Figure 10-12. An alternative label for the line labeled "Supply" would be

Employing a lawyer to draft and enforce a private contract between parties wishing to solve an externality problem is an example of

Negative externalities lead markets to produce

In some cases, tradable pollution permits may be better than a corrective tax because

Suppose that elementary education creates a positive externality. If the government subsidizes education by an amount equal to the per-unit externality it creates, then

With pollution permits, the supply curve for pollution rights is

Figure 10-2. The graph depicts the market for plastic. -Refer to Figure 10-2. The private value of the 200th unit of plastic exceeds the social cost of the 200th unit of plastic by

Emission controls on automobiles are an example of a

The Coase theorem asserts that, in the presence of externalities,

When a market experiences a positive externality,

If the government were to impose a fine of $4,000 for each unit of air-pollution released by a fertilizer plant, the policy would be considered

Which of the following is a way to address an externality problem?

Which of the following statements is not correct?

Many charities like the Sierra Club are established to deal with externalities.

Refer to Figure 10-12. The graph, as drawn, could apply to the market for

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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