Question 1

The Coase theorem suggests that private markets may not be able to solve the problem of externalities

Accepted Answer

A)  if the government does not become involved in the process. 
B)  when the number of interested parties is large and bargaining costs are high. 
C)  if the firm in the market is a monopoly. 
D)  if some people benefit from the externality. 
A)  if the government does not become involved in the process. 
B)  when the number of interested parties is large and bargaining costs are high. 
C)  if the firm in the market is a monopoly. 
D)  if some people benefit from the externality.

Question 2

Table 10-2
The following table shows the private value, private cost, and social value for a market with a positive externality.
  
-Refer to Table 10-2. How large would a subsidy need to be in this market to move the market from the equilibrium level of output to the socially-optimal level of output?

Accepted Answer

A)  $3 
B)  $5 
C)  $7 
D)  $9 
A)  $3 
B)  $5 
C)  $7 
D)  $9

Question 3

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 4

In Singapore, littering fines are strictly enforced. This is an example of a policy that

Accepted Answer

A)  relies on moral codes to reduce the pollution externality. 
B)  relies on the Coase Theorem. 
C)  discriminates against foreigners. 
D)  relies on incentives to reduce the pollution externality. 
A)  relies on moral codes to reduce the pollution externality. 
B)  relies on the Coase Theorem. 
C)  discriminates against foreigners. 
D)  relies on incentives to reduce the pollution externality.

Question 5

Figure 10-13. On the graph, Q represents the quantity of plastics and P represents the price of plastics.   Multiple Choice - Section 02: Public Policies toward Externalities
-Refer to Figure 10-13. If 325 units of plastics are produced and consumed, then the

Accepted Answer

A)  social optimum has been reached. 
B)  market equilibrium has been reached. 
C)  government must have imposed a corrective tax to guide the market to this outcome. 
D)  government must have offered a corrective subsidy to guide the market to this outcome. 
A)  social optimum has been reached. 
B)  market equilibrium has been reached. 
C)  government must have imposed a corrective tax to guide the market to this outcome. 
D)  government must have offered a corrective subsidy to guide the market to this outcome.

Question 6

If only a few people are affected by an externality, then it is likely that

Accepted Answer

A)  corrective taxes will provide the most efficient solution to the externality. 
B)  command-and-control regulation will provide the most efficient solution to the externality. 
C)  a private solution to the inefficiency will occur. 
D)  a private solution will be very difficult to negotiate. 
A)  corrective taxes will provide the most efficient solution to the externality. 
B)  command-and-control regulation will provide the most efficient solution to the externality. 
C)  a private solution to the inefficiency will occur. 
D)  a private solution will be very difficult to negotiate.

Question 7

If a market is characterized by a positive externality that is not the result of a technology spillover,

Accepted Answer

A)  the socially optimal level of output is less than the equilibrium level of output, and the optimal price is greater than the equilibrium price. 
B)  the socially optimal level of output is greater than the equilibrium level of output, and the socially optimal price is less than the equilibrium price. 
C)  the socially optimal level of output is greater than the equilibrium level of output, and the socially optimal price is greater than the equilibrium price. 
D)  the socially optimal level of output is less than the equilibrium level of output, and the socially optimal price is less than the equilibrium price. 
A)  the socially optimal level of output is less than the equilibrium level of output, and the optimal price is greater than the equilibrium price. 
B)  the socially optimal level of output is greater than the equilibrium level of output, and the socially optimal price is less than the equilibrium price. 
C)  the socially optimal level of output is greater than the equilibrium level of output, and the socially optimal price is greater than the equilibrium price. 
D)  the socially optimal level of output is less than the equilibrium level of output, and the socially optimal price is less than the equilibrium price.

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, a government policy that internalized the externality would move the quantity of smokestack scrubbers installed from point

Accepted Answer

A)  Q2 to point Q3. 
B)  Q3 to point Q2. 
C)  Q4 to point Q5. 
D)  Q5 to point Q4. 
A)  Q2 to point Q3. 
B)  Q3 to point Q2. 
C)  Q4 to point Q5. 
D)  Q5 to point Q4.

Question 9

Suppose that cigarette smokers create a negative externality. Further suppose that the government imposes a tax on cigarettes equal to the per-unit externality. What is the relationship between the after-tax equilibrium quantity and the socially optimal quantity of cigarettes?

Accepted Answer

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

Question 10

Cameron lives in an apartment building and gets a $700 benefit from playing his stereo. Renee, who lives next door to Cameron and often loses sleep due to the music coming from Cameron's stereo, bears a $1,000 cost from the noise. At which of the following offers from Renee could both Renee and Cameron benefit from the silencing of Cameron's stereo?

Accepted Answer

A)  $250 
B)  $550 
C)  $750 
D)  $1,020 
A)  $250 
B)  $550 
C)  $750 
D)  $1,020

Question 11

Scenario 10-2
The demand curve for restored historic buildings slopes downward and the supply curve for restored historic buildings slopes upward. The production of the 50S1U1P1tS1S1P0S1U1P1hS1S1P0S1U1P1 S1S1P0restored historic building entails the following:
-a private cost of $800,000;
-a private value of $650,000;
-a social value of $800,000.
-Refer to Scenario 10-2. Is the market equilibrium quantity of restored historic buildings less than, equal to, or greater than 50?

Accepted Answer

The market equilibri

Question 12

Which of the following is not correct?

Accepted Answer

A)  Markets allocate scarce resources with the forces of supply and demand. 
B)  The equilibrium of supply and demand is typically an efficient allocation of resources. 
C)  Governments can sometimes improve market outcomes. 
D)  Externalities cannot be positive. 
A)  Markets allocate scarce resources with the forces of supply and demand. 
B)  The equilibrium of supply and demand is typically an efficient allocation of resources. 
C)  Governments can sometimes improve market outcomes. 
D)  Externalities cannot be positive.

Question 13

Table 10-2
The following table shows the private value, private cost, and social value for a market with a positive externality.
  
-Refer to Table 10-2. What is the equilibrium quantity of output in this market?

Accepted Answer

A)  3 units 
B)  4 units 
C)  5 units 
D)  6 units 
A)  3 units 
B)  4 units 
C)  5 units 
D)  6 units

Question 14

The goal of industrial policy should be that

Accepted Answer

A)  industries yielding the largest positive externalities should receive the biggest subsidies. 
B)  any industry that produces negative externalities should be heavily taxed. 
C)  any production process that produces negative externalities should be shut down. 
D)  all industries that produce positive externalities should be equally subsidized. 
A)  industries yielding the largest positive externalities should receive the biggest subsidies. 
B)  any industry that produces negative externalities should be heavily taxed. 
C)  any production process that produces negative externalities should be shut down. 
D)  all industries that produce positive externalities should be equally subsidized.

Question 15

Which of the following statements is correct?

Accepted Answer

A)  The use of pollution permits and corrective taxes reduces the cost of environmental protection. 
B)  Rich countries usually have cleaner environments than poor countries because a clean environment is like other normal goods in that it has a positive income elasticity. 
C)  Clean water and clean air are goods to which the law of demand applies. 
D)  All of the above are correct. 
A)  The use of pollution permits and corrective taxes reduces the cost of environmental protection. 
B)  Rich countries usually have cleaner environments than poor countries because a clean environment is like other normal goods in that it has a positive income elasticity. 
C)  Clean water and clean air are goods to which the law of demand applies. 
D)  All of the above are correct.

Question 16

Suppose the Environmental Protection Agency uses a corrective tax to set a price for pollution. Under this policy, is the supply curve for pollution rights vertical or is it horizontal?

Accepted Answer

The supply

Question 17

Government intervention in the economy with the goal of promoting technology-producing industries is known as patent policy.

Accepted Answer

A) True 
 B)False

Question 18

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 are correct. 
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 are correct.

Question 19

The externality associated with technology spillovers

Accepted Answer

A)  cannot be internalized by government. 
B)  is a negative externality. 
C)  can be internalized, potentially, through taxation of firms that are responsible for technology spillovers. 
D)  can be internalized, potentially, through patent protection. 
A)  cannot be internalized by government. 
B)  is a negative externality. 
C)  can be internalized, potentially, through taxation of firms that are responsible for technology spillovers. 
D)  can be internalized, potentially, through patent protection.

Question 20

When the government uses a command-and-control policy to solve an externality, it

Accepted Answer

A)  is usually the most effective policy option available. 
B)  creates policies that directly regulate behavior. 
C)  usually involves taxing the consumption of a commodity. 
D)  typically refers to the Coase theorem to structure the policy. 
A)  is usually the most effective policy option available. 
B)  creates policies that directly regulate behavior. 
C)  usually involves taxing the consumption of a commodity. 
D)  typically refers to the Coase theorem to structure the policy.

The Coase theorem suggests that private markets may not be able to solve the problem of externalities

Table 10-2 The following table shows the private value, private cost, and social value for a market with a positive externality. -Refer to Table 10-2. How large would a subsidy need to be in this market to move the market from the equilibrium level of output to the socially-optimal level of output?

All remedies for externalities share the goal of

In Singapore, littering fines are strictly enforced. This is an example of a policy that

Figure 10-13. On the graph, Q represents the quantity of plastics and P represents the price of plastics. Multiple Choice - Section 02: Public Policies toward Externalities -Refer to Figure 10-13. If 325 units of plastics are produced and consumed, then the

If only a few people are affected by an externality, then it is likely that

If a market is characterized by a positive externality that is not the result of a technology spillover,

Suppose that cigarette smokers create a negative externality. Further suppose that the government imposes a tax on cigarettes equal to the per-unit externality. What is the relationship between the after-tax equilibrium quantity and the socially optimal quantity of cigarettes?

Which of the following is not correct?

Table 10-2 The following table shows the private value, private cost, and social value for a market with a positive externality. -Refer to Table 10-2. What is the equilibrium quantity of output in this market?

The goal of industrial policy should be that

Which of the following statements is correct?

Suppose the Environmental Protection Agency uses a corrective tax to set a price for pollution. Under this policy, is the supply curve for pollution rights vertical or is it horizontal?

Government intervention in the economy with the goal of promoting technology-producing industries is known as patent policy.

A corrective tax

The externality associated with technology spillovers

When the government uses a command-and-control policy to solve an externality, it

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

The Coase theorem suggests that private markets may not be able to solve the problem of externalities

Table 10-2 The following table shows the private value, private cost, and social value for a market with a positive externality. -Refer to Table 10-2. How large would a subsidy need to be in this market to move the market from the equilibrium level of output to the socially-optimal level of output?

All remedies for externalities share the goal of

In Singapore, littering fines are strictly enforced. This is an example of a policy that

Figure 10-13. On the graph, Q represents the quantity of plastics and P represents the price of plastics. Multiple Choice - Section 02: Public Policies toward Externalities -Refer to Figure 10-13. If 325 units of plastics are produced and consumed, then the

If only a few people are affected by an externality, then it is likely that

If a market is characterized by a positive externality that is not the result of a technology spillover,

Suppose that cigarette smokers create a negative externality. Further suppose that the government imposes a tax on cigarettes equal to the per-unit externality. What is the relationship between the after-tax equilibrium quantity and the socially optimal quantity of cigarettes?

Which of the following is not correct?

Table 10-2 The following table shows the private value, private cost, and social value for a market with a positive externality. -Refer to Table 10-2. What is the equilibrium quantity of output in this market?

The goal of industrial policy should be that

Which of the following statements is correct?

Suppose the Environmental Protection Agency uses a corrective tax to set a price for pollution. Under this policy, is the supply curve for pollution rights vertical or is it horizontal?

Government intervention in the economy with the goal of promoting technology-producing industries is known as patent policy.

A corrective tax

The externality associated with technology spillovers

When the government uses a command-and-control policy to solve an externality, it

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