Question 1

When a negative externality exists in a market, the cost to producers

Accepted Answer

A)  is greater than the cost to society. 
B)  will be the same as the cost to society. 
C)  will be less than the cost to society. 
D)  will differ from the cost to society, regardless of whether an externality is present. 
A)  is greater than the cost to society. 
B)  will be the same as the cost to society. 
C)  will be less than the cost to society. 
D)  will differ from the cost to society, regardless of whether an externality is present.

Question 2

Dick owns a dog whose barking annoys Dick's neighbor Jane. Dick receives personal benefit from owning the dog, and Jane bears a cost of Dick's ownership of the dog. Assuming Jane has the legal right to peace and quiet, which of the following statements is correct?

Accepted Answer

A)  If Dick's benefit exceeds Jane's cost, government intervention is necessary. 
B)  Dick will pay to keep his dog if his benefit exceeds Jane's cost. 
C)  If Jane's cost exceeds Dick's benefit, Dick will pay Jane to keep his dog. 
D)  If Jane has the legal right to peace and quiet, no further transactions will be mutually beneficial. 
A)  If Dick's benefit exceeds Jane's cost, government intervention is necessary. 
B)  Dick will pay to keep his dog if his benefit exceeds Jane's cost. 
C)  If Jane's cost exceeds Dick's benefit, Dick will pay Jane to keep his dog. 
D)  If Jane has the legal right to peace and quiet, no further transactions will be mutually beneficial.

Question 3

Private markets fail to account for externalities because

Accepted Answer

A)  externalities don't occur in private markets. 
B)  sellers include costs associated with externalities in the price of their product. 
C)  decisionmakers in the market fail to include the costs of their behavior to third parties. 
D)  the government cannot easily estimate the optimal quantity of pollution. 
A)  externalities don't occur in private markets. 
B)  sellers include costs associated with externalities in the price of their product. 
C)  decisionmakers in the market fail to include the costs of their behavior to third parties. 
D)  the government cannot easily estimate the optimal quantity of pollution.

Question 4

Even if possible, it would be inefficient to prohibit all polluting activity.

Accepted Answer

A) True 
 B)False

Question 5

At any given quantity, the willingness to pay of the marginal buyer is the height of the .

Accepted Answer

The answer of At any given quantity, the willingness to...

Question 6

Figure 10-3  
-Refer to Figure 10-3. At the private market outcome, the equilibrium price will be

Accepted Answer

A)  P0. 
B)  P1. 
C)  P2. 
D)  None of the above is correct. 
A)  P0. 
B)  P1. 
C)  P2. 
D)  None of the above is correct.

Question 7

When externalities are present, reaching an efficient outcome is especially difficult when the number of interested parties is large.

Accepted Answer

A) True 
 B)False

Question 8

Technology spillover occurs when

Accepted Answer

A)  a firm passes the high costs of technical research on to society through higher prices. 
B)  a firm's research yields technical knowledge that is used by society as a whole. 
C)  the government subsidizes firms engaged in high-tech research. 
D)  copyright laws prohibit firms from profiting from the research of others. 
A)  a firm passes the high costs of technical research on to society through higher prices. 
B)  a firm's research yields technical knowledge that is used by society as a whole. 
C)  the government subsidizes firms engaged in high-tech research. 
D)  copyright laws prohibit firms from profiting from the research of others.

Question 9

Since restored historic buildings convey a positive externality, local governments may choose to

Accepted Answer

A)  regulate the demolition of them. 
B)  provide tax breaks to owners who restore them. 
C)  increase property taxes in historic areas. 
D)  Both a and b are correct. 
A)  regulate the demolition of them. 
B)  provide tax breaks to owners who restore them. 
C)  increase property taxes in historic areas. 
D)  Both a and b are correct.

Question 10

In the case of a technology spillover, internalizing a positive externality through a government subsidy will cause the industry's supply curve to

Accepted Answer

A)  shift up by an amount equal to the subsidy. 
B)  shift down by an amount less than the subsidy. 
C)  shift down by an amount equal to the subsidy. 
D)  shift down by an amount greater than the subsidy. 
A)  shift up by an amount equal to the subsidy. 
B)  shift down by an amount less than the subsidy. 
C)  shift down by an amount equal to the subsidy. 
D)  shift down by an amount greater than the subsidy.

Question 11

The Coase theorem asserts that private economic actors can solve the problem of externalities among themselves, without government intervention, regardless of whether those actors incur significant costs in reaching and enforcing an agreement.

Accepted Answer

A) True 
 B)False

Question 12

Gretchen is a writer who works from her home. Gretchen lives next door to Randall, the trumpet player for a local band. Randall needs lots of practice to earn his share of the band's profit, which will amount to $350. Gretchen gets distracted by Randall's trumpet playing but she needs to get her writing done to earn $570 for her current article. If Gretchen needs to hire a lawyer to help her reach an agreement with Randall, then what price is Gretchen willing to pay the lawyer?

Accepted Answer

A)  less than $350 
B)  less than $450 
C)  less than $570 
D)  less than $920 
A)  less than $350 
B)  less than $450 
C)  less than $570 
D)  less than $920

Question 13

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

Accepted Answer

A)  fire extinguishers. 
B)  immunizations such as flu shots. 
C)  education. 
D)  All of the above are correct. 
A)  fire extinguishers. 
B)  immunizations such as flu shots. 
C)  education. 
D)  All of the above are correct.

Question 14

Suppose a subsidy is offered to consumers of education as a means of internalizing the externalities associated with education. If the subsidy accurately reflects the external benefits of education, then the new demand curve for education coincides with which other curve?

Accepted Answer

The new demand curve

Question 15

A command-and-control policy is another term for a

Accepted Answer

A)  pollution permit. 
B)  government regulation. 
C)  corrective tax. 
D)  Both a and b are correct. 
A)  pollution permit. 
B)  government regulation. 
C)  corrective tax. 
D)  Both a and b are correct.

Question 16

Which of the following is an example of a positive externality?

Accepted Answer

A)  A college student buys a new car when she graduates. 
B)  The mayor of a small town plants flowers in the city park. 
C)  Local high school teachers have pizza delivered every Friday for lunch. 
D)  An avid fisherman buys new fishing gear for his next fishing trip. 
A)  A college student buys a new car when she graduates. 
B)  The mayor of a small town plants flowers in the city park. 
C)  Local high school teachers have pizza delivered every Friday for lunch. 
D)  An avid fisherman buys new fishing gear for his next fishing trip.

Question 17

According to the Coase theorem, in the presence of externalities

Accepted Answer

A)  private parties can bargain to reach an efficient outcome. 
B)  government assistance is necessary to reach an efficient outcome. 
C)  the assignment of legal rights can prevent externalities. 
D)  the initial distribution of property rights will determine the efficient outcome. 
A)  private parties can bargain to reach an efficient outcome. 
B)  government assistance is necessary to reach an efficient outcome. 
C)  the assignment of legal rights can prevent externalities. 
D)  the initial distribution of property rights will determine the efficient outcome.

Question 18

All externalities

Accepted Answer

A)  cause markets to fail to allocate resources efficiently. 
B)  cause equilibrium prices to be too high. 
C)  benefit producers at the expense of consumers. 
D)  cause equilibrium prices to be too low. 
A)  cause markets to fail to allocate resources efficiently. 
B)  cause equilibrium prices to be too high. 
C)  benefit producers at the expense of consumers. 
D)  cause equilibrium prices to be too low.

Question 19

In a market characterized by externalities, the market equilibrium fails to maximize the total benefit to society as a whole.

Accepted Answer

A) True 
 B)False

Question 20

Figure 10-4  
-Refer to Figure 10-4. This market is characterized by

Accepted Answer

A)  government intervention. 
B)  a positive externality. 
C)  a negative externality. 
D)  None of the above is correct. 
A)  government intervention. 
B)  a positive externality. 
C)  a negative externality. 
D)  None of the above is correct.

Exam 10: Externalities

When a negative externality exists in a market, the cost to producers

Dick owns a dog whose barking annoys Dick's neighbor Jane. Dick receives personal benefit from owning the dog, and Jane bears a cost of Dick's ownership of the dog. Assuming Jane has the legal right to peace and quiet, which of the following statements is correct?

Private markets fail to account for externalities because

Even if possible, it would be inefficient to prohibit all polluting activity.

At any given quantity, the willingness to pay of the marginal buyer is the height of the .

Figure 10-3 -Refer to Figure 10-3. At the private market outcome, the equilibrium price will be

When externalities are present, reaching an efficient outcome is especially difficult when the number of interested parties is large.

Technology spillover occurs when

Since restored historic buildings convey a positive externality, local governments may choose to

In the case of a technology spillover, internalizing a positive externality through a government subsidy will cause the industry's supply curve to

The Coase theorem asserts that private economic actors can solve the problem of externalities among themselves, without government intervention, regardless of whether those actors incur significant costs in reaching and enforcing an agreement.

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

Suppose a subsidy is offered to consumers of education as a means of internalizing the externalities associated with education. If the subsidy accurately reflects the external benefits of education, then the new demand curve for education coincides with which other curve?

A command-and-control policy is another term for a

Which of the following is an example of a positive externality?

According to the Coase theorem, in the presence of externalities

All externalities

In a market characterized by externalities, the market equilibrium fails to maximize the total benefit to society as a whole.

Figure 10-4 -Refer to Figure 10-4. This market is characterized by

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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