Question 1

When externalities cause markets to be inefficient,

Accepted Answer

A)  government action is always needed to solve the problem. 
B)  private solutions can be developed to solve the problem. 
C)  given enough time, externalities can be solved through normal market adjustments. 
D)  there is no way to eliminate the problem of externalities in a market. 
A)  government action is always needed to solve the problem. 
B)  private solutions can be developed to solve the problem. 
C)  given enough time, externalities can be solved through normal market adjustments. 
D)  there is no way to eliminate the problem of externalities in a market.

Question 2

Private contracts between parties with mutual interests

Accepted Answer

A)  will reduce the well-being of society. 
B)  will lead to market outcomes in which the public interest is sacrificed for personal gain. 
C)  can solve some inefficiencies associated with positive externalities. 
D)  will create negative externalities. 
A)  will reduce the well-being of society. 
B)  will lead to market outcomes in which the public interest is sacrificed for personal gain. 
C)  can solve some inefficiencies associated with positive externalities. 
D)  will create negative externalities.

Question 3

Buyers and sellers neglect the external effects of their actions when deciding how much to demand or supply.

Accepted Answer

A) True 
 B)False

Question 4

Table 10-4
  
-Refer to Table 10-4. The last unit of output for which private value exceeds social cost is the

Accepted Answer

A)  2nd unit. 
B)  3rd unit. 
C)  4th unit. 
D)  5th unit. 
A)  2nd unit. 
B)  3rd unit. 
C)  4th unit. 
D)  5th unit.

Question 5

Figure 10-18. The graph represents a corrective tax to reduce pollution. On the axes, Q denotes the quantity of pollution and P represents the price of pollution.  
-Refer to Figure 10-18. What is the appropriate label for the downward-sloping line on the graph?

Accepted Answer

A)  "Demand for clean air" 
B)  "Demand for pollution rights" 
C)  "Supply of pollution permits" 
D)  "Tax paid to government" 
A)  "Demand for clean air" 
B)  "Demand for pollution rights" 
C)  "Supply of pollution permits" 
D)  "Tax paid to government"

Question 6

Suppose the government levies a corrective tax on firms that pollute in order to limit the quantity of pollution. Under this policy, does the demand curve for pollution rights determine the quantity of pollution, or does it determine the price of pollution?

Accepted Answer

With a corrective ta

Question 7

The supply curve for a product reflects the

Accepted Answer

A)  willingness to pay of the marginal buyer. 
B)  quantity buyers will ultimately purchase of the product. 
C)  cost to sellers of producing the product. 
D)  seller's profit from producing the product. 
A)  willingness to pay of the marginal buyer. 
B)  quantity buyers will ultimately purchase of the product. 
C)  cost to sellers of producing the product. 
D)  seller's profit from producing the product.

Question 8

Which of the following is a problem that keeps people from privately solving externality problems?

Accepted Answer

A)  Each party involved holds out for a better deal. 
B)  The externality is large. 
C)  Only problems with a sufficiently large number of parties can be solved. 
D)  There is a lack of government intervention. 
A)  Each party involved holds out for a better deal. 
B)  The externality is large. 
C)  Only problems with a sufficiently large number of parties can be solved. 
D)  There is a lack of government intervention.

Question 9

Figure 10-19  
-Refer to Figure 10-19. Note that the lines labeled "Demand" and "Social Value"are parallel. Also, the slopes of the lines on the graph reflect the following facts: (1) Private value and social value decrease by $1.00 with each additional unit of the good that is consumed, and (2) private cost increases by $1.40 with each additional unit of the good that is produced. Thus, when the 74th unit of the good is produced and consumed, social well-being

Accepted Answer

A)  decreases by $2.40. 
B)  decreases by $1.60. 
C)  increases by $1.00. 
D)  increases by $1.40. 
A)  decreases by $2.40. 
B)  decreases by $1.60. 
C)  increases by $1.00. 
D)  increases by $1.40.

Question 10

A negative externality arises when a person engages in an activity that has

Accepted Answer

A)  an adverse effect on a bystander who is not compensated by the person who causes the effect. 
B)  an adverse effect on a bystander who is compensated by the person who causes the effect. 
C)  a beneficial effect on a bystander who pays the person who causes the effect. 
D)  a beneficial effect on a bystander who does not pay the person who causes the effect. 
A)  an adverse effect on a bystander who is not compensated by the person who causes the effect. 
B)  an adverse effect on a bystander who is compensated by the person who causes the effect. 
C)  a beneficial effect on a bystander who pays the person who causes the effect. 
D)  a beneficial effect on a bystander who does not pay the person who causes the effect.

Question 11

Which of the following statements is correct?

Accepted Answer

A)  Taxes are more difficult to administer than regulations. 
B)  Taxes provide incentives for firms to adopt new methods to reduce negative externalities. 
C)  Command-and-control policies provide incentives for private decisionmakers to solve their problems on their own. 
D)  Corrective taxes distort incentives. 
A)  Taxes are more difficult to administer than regulations. 
B)  Taxes provide incentives for firms to adopt new methods to reduce negative externalities. 
C)  Command-and-control policies provide incentives for private decisionmakers to solve their problems on their own. 
D)  Corrective taxes distort incentives.

Question 12

Figure 10-5  
-Refer to Figure 10-5. Which of the following statements is correct?

Accepted Answer

A)  The marginal benefit of the positive externality is measured by P3 - P1. 
B)  The marginal cost of the negative externality is measured by P3 - P2. 
C)  The marginal cost of the negative externality is measured by P3 - P1. 
D)  The marginal cost of the negative externality is measured by P3 - P0. 
A)  The marginal benefit of the positive externality is measured by P3 - P1. 
B)  The marginal cost of the negative externality is measured by P3 - P2. 
C)  The marginal cost of the negative externality is measured by P3 - P1. 
D)  The marginal cost of the negative externality is measured by P3 - P0.

Question 13

The patent system gives firms greater incentive to engage in research and other activities that advance technology.

Accepted Answer

A) True 
 B)False

Question 14

Figure 10-17  
-Refer to Figure 10-17. How large would a corrective tax need to be to move this market from the equilibrium outcome to the socially-optimal outcome?

Accepted Answer

A)  An amount equal to P' minus P. 
B)  An amount equal to P'. 
C)  An amount equal to P. 
D)  An amount equal to the external cost. 
A)  An amount equal to P' minus P. 
B)  An amount equal to P'. 
C)  An amount equal to P. 
D)  An amount equal to the external cost.

Question 15

The impact of one person's actions on the well-being of a bystander is called

Accepted Answer

A)  an economic dilemma. 
B)  deadweight loss. 
C)  a multi-party problem. 
D)  an externality. 
A)  an economic dilemma. 
B)  deadweight loss. 
C)  a multi-party problem. 
D)  an externality.

Question 16

When an externality is present, the market equilibrium is

Accepted Answer

A)  efficient, and the equilibrium maximizes the total benefit to society as a whole. 
B)  efficient, but the equilibrium does not maximize the total benefit to society as a whole. 
C)  inefficient, but the equilibrium maximizes the total benefit to society as a whole. 
D)  inefficient, and the equilibrium does not maximize the total benefit to society as a whole. 
A)  efficient, and the equilibrium maximizes the total benefit to society as a whole. 
B)  efficient, but the equilibrium does not maximize the total benefit to society as a whole. 
C)  inefficient, but the equilibrium maximizes the total benefit to society as a whole. 
D)  inefficient, and the equilibrium does not maximize the total benefit to society as a whole.

Question 17

Which of the following policies is the government most inclined to use when faced with a positive externality?

Accepted Answer

A)  taxation 
B)  permits 
C)  subsidies 
D)  usage fees 
A)  taxation 
B)  permits 
C)  subsidies 
D)  usage fees

Question 18

Table 10-4
  
-Refer to Table 10-4. Taking into account private and external costs, total surplus in the market equilibrium amounts to

Accepted Answer

A)  $28. 
B)  $39. 
C)  $45. 
D)  $51. 
A)  $28. 
B)  $39. 
C)  $45. 
D)  $51.

Question 19

Which of the following statements is not correct?

Accepted Answer

A)  Corrective taxes can be used to place a price on the right to pollute. 
B)  Corrective taxes allocate pollution to those producers who face the highest cost of reducing pollution. 
C)  Corrective taxes provide incentives to develop cleaner technologies. 
D)  Corrective taxes require the government to set a target level of pollution. 
A)  Corrective taxes can be used to place a price on the right to pollute. 
B)  Corrective taxes allocate pollution to those producers who face the highest cost of reducing pollution. 
C)  Corrective taxes provide incentives to develop cleaner technologies. 
D)  Corrective taxes require the government to set a target level of pollution.

Question 20

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. Suppose there is presently no pollution fee, and the government wishes to eliminate exactly 8 units of pollution. Which of the following fees per unit of pollution would achieve that goal?

Accepted Answer

A)  $65 
B)  $75 
C)  $80 
D)  $88 
A)  $65 
B)  $75 
C)  $80 
D)  $88

When externalities cause markets to be inefficient,

Private contracts between parties with mutual interests

Buyers and sellers neglect the external effects of their actions when deciding how much to demand or supply.

Table 10-4 -Refer to Table 10-4. The last unit of output for which private value exceeds social cost is the

Figure 10-18. The graph represents a corrective tax to reduce pollution. On the axes, Q denotes the quantity of pollution and P represents the price of pollution. -Refer to Figure 10-18. What is the appropriate label for the downward-sloping line on the graph?

Suppose the government levies a corrective tax on firms that pollute in order to limit the quantity of pollution. Under this policy, does the demand curve for pollution rights determine the quantity of pollution, or does it determine the price of pollution?

The supply curve for a product reflects the

Which of the following is a problem that keeps people from privately solving externality problems?

A negative externality arises when a person engages in an activity that has

Which of the following statements is correct?

Figure 10-5 -Refer to Figure 10-5. Which of the following statements is correct?

The patent system gives firms greater incentive to engage in research and other activities that advance technology.

Figure 10-17 -Refer to Figure 10-17. How large would a corrective tax need to be to move this market from the equilibrium outcome to the socially-optimal outcome?

The impact of one person's actions on the well-being of a bystander is called

When an externality is present, the market equilibrium is

Which of the following policies is the government most inclined to use when faced with a positive externality?

Table 10-4 -Refer to Table 10-4. Taking into account private and external costs, total surplus in the market equilibrium amounts to

Which of the following statements is not correct?

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

Exam 10: Externalities

When externalities cause markets to be inefficient,

Private contracts between parties with mutual interests

Buyers and sellers neglect the external effects of their actions when deciding how much to demand or supply.

Table 10-4 -Refer to Table 10-4. The last unit of output for which private value exceeds social cost is the

Figure 10-18. The graph represents a corrective tax to reduce pollution. On the axes, Q denotes the quantity of pollution and P represents the price of pollution. -Refer to Figure 10-18. What is the appropriate label for the downward-sloping line on the graph?

Suppose the government levies a corrective tax on firms that pollute in order to limit the quantity of pollution. Under this policy, does the demand curve for pollution rights determine the quantity of pollution, or does it determine the price of pollution?

The supply curve for a product reflects the

Which of the following is a problem that keeps people from privately solving externality problems?

A negative externality arises when a person engages in an activity that has

Which of the following statements is correct?

Figure 10-5 -Refer to Figure 10-5. Which of the following statements is correct?

The patent system gives firms greater incentive to engage in research and other activities that advance technology.

Figure 10-17 -Refer to Figure 10-17. How large would a corrective tax need to be to move this market from the equilibrium outcome to the socially-optimal outcome?

The impact of one person's actions on the well-being of a bystander is called

When an externality is present, the market equilibrium is

Which of the following policies is the government most inclined to use when faced with a positive externality?

Table 10-4 -Refer to Table 10-4. Taking into account private and external costs, total surplus in the market equilibrium amounts to

Which of the following statements is not correct?

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