Question 1

One drawback to industrial policy is that

Accepted Answer

A)  technology spillovers are too expensive to control. 
B)  measuring the size of spillovers from different markets is difficult. 
C)  spillovers often occur in industries that produce undesirable products for society. 
D)  positive side effects are often outweighed by negative side effects. 
A)  technology spillovers are too expensive to control. 
B)  measuring the size of spillovers from different markets is difficult. 
C)  spillovers often occur in industries that produce undesirable products for society. 
D)  positive side effects are often outweighed by negative side effects.

Question 2

The Coase theorem suggests that private solutions to an externality problem

Accepted Answer

A)  are effective under all conditions. 
B)  will usually allocate resources efficiently if private parties can bargain without cost. 
C)  are only efficient when there are negative externalities. 
D)  may not be possible because of the distribution of property rights. 
A)  are effective under all conditions. 
B)  will usually allocate resources efficiently if private parties can bargain without cost. 
C)  are only efficient when there are negative externalities. 
D)  may not be possible because of the distribution of property rights.

Question 3

Ty lives in an apartment building and gets a benefit from playing his stereo. Olivia, who lives next door to Ty and often loses sleep due to the loud music coming from Ty's stereo, bears a cost from the noise. Olivia is threatening to call the police to force Ty to turn down his stereo. Under which of the following conditions would Ty be able to offer Olivia some amount of money to keep her from calling the police and to allow him to continue to play his stereo loudly?

Accepted Answer

A)  The cost of the noise to Olivia must exceed the benefit of the music to Ty. 
B)  The benefit of the music to Ty must exceed the cost of the noise to Olivib. 
C)  The Coase Theorem guarantees that Olivia and Ty will always be able to come to an agreement that keeps Olivia from calling the police regardless of the individual benefits and costs. 
D)  The cost of the noise to Olivia must exceed the benefit of the music to Ty by an amount greater than the transaction costs associated with the agreement. 
A)  The cost of the noise to Olivia must exceed the benefit of the music to Ty. 
B)  The benefit of the music to Ty must exceed the cost of the noise to Olivib. 
C)  The Coase Theorem guarantees that Olivia and Ty will always be able to come to an agreement that keeps Olivia from calling the police regardless of the individual benefits and costs. 
D)  The cost of the noise to Olivia must exceed the benefit of the music to Ty by an amount greater than the transaction costs associated with the agreement.

Question 4

An externality

Accepted Answer

A)  results in an equilibrium that does not maximize the total benefits to society. 
B)  causes demand to exceed supply. 
C)  strengthens the role of the "invisible hand" in the marketplace. 
D)  affects buyers but not sellers. 
A)  results in an equilibrium that does not maximize the total benefits to society. 
B)  causes demand to exceed supply. 
C)  strengthens the role of the "invisible hand" in the marketplace. 
D)  affects buyers but not sellers.

Question 5

When producers operate in a market characterized by negative externalities, a tax that forces them to internalize the externality will

Accepted Answer

A)  give sellers the incentive to account for the external effects of their actions. 
B)  increase demand. 
C)  increase the amount of the commodity exchanged in market equilibrium. 
D)  restrict the producers' ability to take the costs of the externality into account when deciding how much to supply. 
A)  give sellers the incentive to account for the external effects of their actions. 
B)  increase demand. 
C)  increase the amount of the commodity exchanged in market equilibrium. 
D)  restrict the producers' ability to take the costs of the externality into account when deciding how much to supply.

Question 6

Government intervention that aims to promote technology-enhancing industries is called

Accepted Answer

A)  assisted technology. 
B)  intervention policy. 
C)  industrial technology assistance. 
D)  industrial policy. 
A)  assisted technology. 
B)  intervention policy. 
C)  industrial technology assistance. 
D)  industrial policy.

Question 7

Before the flu season begins, Jeremy gets a flu shot. As a result, Jeremy and several of his friends and relatives avoid the flu for the entire flu season. It would make sense to argue that

Accepted Answer

A)  flu shots provide a positive externality, and that flu shots should be subsidized. 
B)  if flu shots are not subsidized, then the number of people getting flu shots will be smaller than the socially optimal number. 
C)  the externality generated by flu shots is more like the externality generated by education than the externality generated by pollution. 
D)  All of the above are correct. 
A)  flu shots provide a positive externality, and that flu shots should be subsidized. 
B)  if flu shots are not subsidized, then the number of people getting flu shots will be smaller than the socially optimal number. 
C)  the externality generated by flu shots is more like the externality generated by education than the externality generated by pollution. 
D)  All of the above are correct.

Question 8

If an externality is present in a market, economic efficiency may be enhanced by

Accepted Answer

A)  increased competition. 
B)  weakening property rights. 
C)  better informed market participants. 
D)  government intervention. 
A)  increased competition. 
B)  weakening property rights. 
C)  better informed market participants. 
D)  government intervention.

Question 9

Table 10-4
  
-Refer to Table 10-4. The table represents a market in which

Accepted Answer

A)  there is no externality. 
B)  there is a positive externality. 
C)  there is a negative externality. 
D)  The answer cannot be determined from inspection of the table. 
A)  there is no externality. 
B)  there is a positive externality. 
C)  there is a negative externality. 
D)  The answer cannot be determined from inspection of the table.

Question 10

According to recent research, the gas tax in the United States is lower than the optimal level.

Accepted Answer

A) True 
 B)False

Question 11

Scenario 10-3
   Suppose the equation for the demand curve in a market is
where is the quantity demanded and is the price.
       Also, suppose the equation for the supply curve in the same market is ,
where is the quantity supplied.
  
-Refer to Scenario 10-3. Suppose there is an external cost of $12 associated with the production of each unit of the good. What particular tax or subsidy would move the market to the social optimum?

Accepted Answer

A tax of $12 per uni

Question 12

Figure 10-4  
-Refer to Figure 10-4. At Q3

Accepted Answer

A)  the marginal consumer values this product less than the social cost of producing it. 
B)  every consumer values this product less than the social cost of producing it. 
C)  the cost to society is equal to the value to society. 
D)  the marginal consumer values this product more than the private cost. 
A)  the marginal consumer values this product less than the social cost of producing it. 
B)  every consumer values this product less than the social cost of producing it. 
C)  the cost to society is equal to the value to society. 
D)  the marginal consumer values this product more than the private cost.

Question 13

A benevolent social planner would prefer that the output of good x be decreased from its current level if, at the current level of output of good x,

Accepted Answer

A)  social value = private value = private cost < social cost. 
B)  private cost < social cost = private value = social value. 
C)  social cost = private cost = private value < social value. 
D)  social cost = private cost = private value = social value. 
A)  social value = private value = private cost < social cost. 
B)  private cost < social cost = private value = social value. 
C)  social cost = private cost = private value < social value. 
D)  social cost = private cost = private value = social value.

Question 14

Figure 10-3  
-Refer to Figure 10-3. The difference between the social cost curve and the supply curve reflects the

Accepted Answer

A)  profit margin of each concert. 
B)  cost of spillover effects from the concert (e.g., noise and traffic). 
C)  value of concerts to society as a whole. 
D)  amount by which the city should subsidize the concert organizers. 
A)  profit margin of each concert. 
B)  cost of spillover effects from the concert (e.g., noise and traffic). 
C)  value of concerts to society as a whole. 
D)  amount by which the city should subsidize the concert organizers.

Question 15

The difference between a corrective tax and a tradable pollution permit is that

Accepted Answer

A)  a corrective tax sets the price of pollution and a permit sets the quantity of pollution. 
B)  a corrective tax creates a more efficient outcome than a permit. 
C)  a corrective tax sets the quantity of pollution and a permit sets the price of pollution. 
D)  a permit creates a more efficient outcome than a corrective tax. 
A)  a corrective tax sets the price of pollution and a permit sets the quantity of pollution. 
B)  a corrective tax creates a more efficient outcome than a permit. 
C)  a corrective tax sets the quantity of pollution and a permit sets the price of pollution. 
D)  a permit creates a more efficient outcome than a corrective tax.

Question 16

An externality exists whenever

Accepted Answer

A)  the economy cannot benefit from government intervention. 
B)  markets are not able to reach equilibrium. 
C)  a firm sells its product in a foreign market. 
D)  Bobbi engages in an activity that influences the well-being of Rosa and yet Bobbi neither pays nor receives payment for that influence. 
A)  the economy cannot benefit from government intervention. 
B)  markets are not able to reach equilibrium. 
C)  a firm sells its product in a foreign market. 
D)  Bobbi engages in an activity that influences the well-being of Rosa and yet Bobbi neither pays nor receives payment for that influence.

Question 17

Assume that your roommate is very messy. Suppose she gets a $25 benefit from being messy but imposes a $50 cost on you. The Coase theorem would suggest that an efficient solution would be for you to

Accepted Answer

A)  pay your roommate at least $25 but no more than $50 to clean up after herself. 
B)  pay your roommate at least $51 to clean up after herself. 
C)  charge your roommate at least $25 to have you clean up after her. 
D)  charge your roommate at least $50 but no more than $100 to keep you from complaining about the mess. 
A)  pay your roommate at least $25 but no more than $50 to clean up after herself. 
B)  pay your roommate at least $51 to clean up after herself. 
C)  charge your roommate at least $25 to have you clean up after her. 
D)  charge your roommate at least $50 but no more than $100 to keep you from complaining about the mess.

Question 18

Market failure can be caused by

Accepted Answer

A)  too much competition. 
B)  externalities. 
C)  low consumer demand. 
D)  scarcity. 
A)  too much competition. 
B)  externalities. 
C)  low consumer demand. 
D)  scarcity.

Question 19

A local manufacturing plant that emitted sulfur dioxide was forced to stop production because it did not comply with local clean air standards. This decision provides an example of

Accepted Answer

A)  a direct regulation of an externality. 
B)  corrective taxes. 
C)  a Coase theorem solution to an externality. 
D)  the misuse of a subsidy. 
A)  a direct regulation of an externality. 
B)  corrective taxes. 
C)  a Coase theorem solution to an externality. 
D)  the misuse of a subsidy.

Question 20

The Environmental Protection Agency (EPA) requires that firms in a certain industry adopt a particular technology to reduce the emission of pollutants. Is this requirement a command- and-control policy or is it a market-based policy?

Accepted Answer

The requirement that

One drawback to industrial policy is that

The Coase theorem suggests that private solutions to an externality problem

An externality

When producers operate in a market characterized by negative externalities, a tax that forces them to internalize the externality will

Government intervention that aims to promote technology-enhancing industries is called

Before the flu season begins, Jeremy gets a flu shot. As a result, Jeremy and several of his friends and relatives avoid the flu for the entire flu season. It would make sense to argue that

If an externality is present in a market, economic efficiency may be enhanced by

Table 10-4 -Refer to Table 10-4. The table represents a market in which

According to recent research, the gas tax in the United States is lower than the optimal level.

Figure 10-4 -Refer to Figure 10-4. At Q3

A benevolent social planner would prefer that the output of good x be decreased from its current level if, at the current level of output of good x,

Figure 10-3 -Refer to Figure 10-3. The difference between the social cost curve and the supply curve reflects the

The difference between a corrective tax and a tradable pollution permit is that

An externality exists whenever

Assume that your roommate is very messy. Suppose she gets a $25 benefit from being messy but imposes a $50 cost on you. The Coase theorem would suggest that an efficient solution would be for you to

Market failure can be caused by

A local manufacturing plant that emitted sulfur dioxide was forced to stop production because it did not comply with local clean air standards. This decision provides an example of

The Environmental Protection Agency (EPA) requires that firms in a certain industry adopt a particular technology to reduce the emission of pollutants. Is this requirement a command- and-control policy or is it a market-based policy?

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

One drawback to industrial policy is that

The Coase theorem suggests that private solutions to an externality problem

An externality

When producers operate in a market characterized by negative externalities, a tax that forces them to internalize the externality will

Government intervention that aims to promote technology-enhancing industries is called

Before the flu season begins, Jeremy gets a flu shot. As a result, Jeremy and several of his friends and relatives avoid the flu for the entire flu season. It would make sense to argue that

If an externality is present in a market, economic efficiency may be enhanced by

Table 10-4 -Refer to Table 10-4. The table represents a market in which

According to recent research, the gas tax in the United States is lower than the optimal level.

Figure 10-4 -Refer to Figure 10-4. At Q3

A benevolent social planner would prefer that the output of good x be decreased from its current level if, at the current level of output of good x,

Figure 10-3 -Refer to Figure 10-3. The difference between the social cost curve and the supply curve reflects the

The difference between a corrective tax and a tradable pollution permit is that

An externality exists whenever

Assume that your roommate is very messy. Suppose she gets a $25 benefit from being messy but imposes a $50 cost on you. The Coase theorem would suggest that an efficient solution would be for you to

Market failure can be caused by

A local manufacturing plant that emitted sulfur dioxide was forced to stop production because it did not comply with local clean air standards. This decision provides an example of

The Environmental Protection Agency (EPA) requires that firms in a certain industry adopt a particular technology to reduce the emission of pollutants. Is this requirement a command- and-control policy or is it a market-based policy?

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