Question 1

Externalities tend to cause markets to be

Accepted Answer

A)  inefficient. 
B)  unequal. 
C)  unnecessary. 
D)  overwhelmed. 
A)  inefficient. 
B)  unequal. 
C)  unnecessary. 
D)  overwhelmed.

Question 2

Figure 10-11  
-Refer to Figure 10-11. Taking into account private value and external benefits, the maximum total surplus that can be achieved in this market is

Accepted Answer

A)  $5,880. 
B)  $9,480. 
C)  $13,230. 
D)  $15,360. 
A)  $5,880. 
B)  $9,480. 
C)  $13,230. 
D)  $15,360.

Question 3

Table 10-5
The following table shows the marginal 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 $54, and for Firm A to eliminate a second unit of pollution it would cost an additional $67.
  
-Refer to Table 10-5. If the government charged a fee of $84 per unit of pollution, how many units of pollution would the firms eliminate altogether?

Accepted Answer

A)  7 
B)  8 
C)  9 
D)  10 
A)  7 
B)  8 
C)  9 
D)  10

Question 4

Altering incentives so that people take account of the external effects of their actions

Accepted Answer

A)  is called internalizing the externality. 
B)  can be done by imposing a corrective tax. 
C)  is the role of government in markets with externalities. 
D)  All of the above are correct. 
A)  is called internalizing the externality. 
B)  can be done by imposing a corrective tax. 
C)  is the role of government in markets with externalities. 
D)  All of the above are correct.

Question 5

Table 10-5
The following table shows the marginal 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 $54, and for Firm A to eliminate a second unit of pollution it would cost an additional $67.
  
-Refer to Table 10-5. If the government wanted to reduce pollution from 16 units to 6 units, which of the following fees per unit of pollution would achieve that goal?

Accepted Answer

A)  $67 
B)  $68 
C)  $81 
D)  $83 
A)  $67 
B)  $68 
C)  $81 
D)  $83

Question 6

Figure 10-4  
-Refer to Figure 10-4. If this market is currently producing at Q2, then total economic well-being would increase if output

Accepted Answer

A)  increased beyond Q4. 
B)  decreased to Q1. 
C)  increased to Q3. 
D)  stayed at Q2. 
A)  increased beyond Q4. 
B)  decreased to Q1. 
C)  increased to Q3. 
D)  stayed at Q2.

Question 7

When the production of a good results in a positive externality, the social value curve is

Accepted Answer

A)  below the demand curve, indicating that the total value to society is less than the private benefit. 
B)  above the demand curve, indicating that the total value to society is greater than the private benefit. 
C)  identical to the demand curve, indicating that the total cost to society is the equal to the private benefit. 
D)  above the supply curve, indicating that the total cost to society exceeds the private cost. 
A)  below the demand curve, indicating that the total value to society is less than the private benefit. 
B)  above the demand curve, indicating that the total value to society is greater than the private benefit. 
C)  identical to the demand curve, indicating that the total cost to society is the equal to the private benefit. 
D)  above the supply curve, indicating that the total cost to society exceeds the private cost.

Question 8

Figure 10-11  
-Refer to Figure 10-11. Taking only private value and private cost into account, total surplus at the market equilibrium amounts to

Accepted Answer

A)  $3,850. 
B)  $4,320. 
C)  $4,980. 
D)  $5,530. 
A)  $3,850. 
B)  $4,320. 
C)  $4,980. 
D)  $5,530.

Question 9

Which of the following statements is correct?

Accepted Answer

A)  Government should tax goods with either positive or negative externalities. 
B)  Government should tax goods with negative externalities and subsidize goods with positive externalities. 
C)  Government should subsidize goods with either positive or negative externalities. 
D)  Government should tax goods with positive externalities and subsidize goods with negative externalities. 
A)  Government should tax goods with either positive or negative externalities. 
B)  Government should tax goods with negative externalities and subsidize goods with positive externalities. 
C)  Government should subsidize goods with either positive or negative externalities. 
D)  Government should tax goods with positive externalities and subsidize goods with negative externalities.

Question 10

When the government reduces my income tax by $0.30 for every $1.00 that I contribute to a charity, the government is effectively

Accepted Answer

A)  alleviating the negative externalities that are associated with charitable giving. 
B)  imposing a negative externality on those who do not pay income taxes. 
C)  encouraging a private solution to a positive-externality problem. 
D)  encouraging a private solution to a negative-externality problem. 
A)  alleviating the negative externalities that are associated with charitable giving. 
B)  imposing a negative externality on those who do not pay income taxes. 
C)  encouraging a private solution to a positive-externality problem. 
D)  encouraging a private solution to a negative-externality problem.

Question 11

Markets sometimes fail to allocate resources efficiently.

Accepted Answer

A) True 
 B)False

Question 12

According to the Coase theorem, private markets will solve externality problems and allocate resources efficiently as long as

Accepted Answer

A)  the externalities that are present are positive, not negative. 
B)  government assigns property rights to the harmed party. 
C)  private parties can bargain with sufficiently low transaction costs. 
D)  businesses determine an appropriate level of production. 
A)  the externalities that are present are positive, not negative. 
B)  government assigns property rights to the harmed party. 
C)  private parties can bargain with sufficiently low transaction costs. 
D)  businesses determine an appropriate level of production.

Question 13

Table 10-3
  
-Refer to Table 10-3. The socially optimal quantity of output is

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

Beverly owns a rabbit and receives a $600 benefit from owning it. Sometimes Beverly's rabbit makes its way onto the lawn of her neighbor, Charles, and eats the vegetables in Charles' garden. This intrusion by the rabbit costs Charles $400. Can both individuals become better off if Charles pays Beverly some amount of money to get rid of the rabbit? Explain.

Accepted Answer

No, since Beverly would requir

Question 15

Suppose that candy producers create a positive externality equal to $1 per pound of candy. Further suppose that the government offers a $1-per-pound subsidy to the producers. What is the relationship between the equilibrium quantity and the socially optimal quantity of candy?

Accepted Answer

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

Question 16

Which of the following statements is not correct?

Accepted Answer

A)  Government policies may improve the market's allocation of resources when negative externalities are present. 
B)  Government policies may improve the market's allocation of resources when positive externalities are present. 
C)  A positive externality is an example of a market failure. 
D)  Without government intervention, the market will tend to undersupply products that produce negative externalities. 
A)  Government policies may improve the market's allocation of resources when negative externalities are present. 
B)  Government policies may improve the market's allocation of resources when positive externalities are present. 
C)  A positive externality is an example of a market failure. 
D)  Without government intervention, the market will tend to undersupply products that produce negative externalities.

Question 17

Table 10-4
  
-Refer to Table 10-4. Take into account private and external costs and assume the quantity of output is always a whole number (that is, fractional units of output are not possible). The maximum total surplus that can be achieved in this market is

Accepted Answer

A)  $29. 
B)  $35. 
C)  $40. 
D)  $46. 
A)  $29. 
B)  $35. 
C)  $40. 
D)  $46.

Question 18

Patent protection is one way to deal with technology spillovers.

Accepted Answer

A) True 
 B)False

Question 19

Figure 10-6  
-Refer to Figure 10-6. Which quantity represents the socially-optimal quantity of output in this market?

Accepted Answer

A)  Q 
B)  Q' 
C)  Either Q or Q'. It is necessary to know whether the externality is positive or negative to determine the socially-optimal quantity. 
D)  Some quantity between Q and Q'. The socially-optimal quantity depends on the negotiating skills of the interested parties. 
A)  Q 
B)  Q' 
C)  Either Q or Q'. It is necessary to know whether the externality is positive or negative to determine the socially-optimal quantity. 
D)  Some quantity between Q and Q'. The socially-optimal quantity depends on the negotiating skills of the interested parties.

Question 20

In many cases the Coase theorem does not work well because

Accepted Answer

A)  there are too few parties at the negotiation table. 
B)  the government does not know about the Coase theorem. 
C)  transaction costs are too high. 
D)  transaction costs are too low. 
A)  there are too few parties at the negotiation table. 
B)  the government does not know about the Coase theorem. 
C)  transaction costs are too high. 
D)  transaction costs are too low.

Externalities tend to cause markets to be

Figure 10-11 -Refer to Figure 10-11. Taking into account private value and external benefits, the maximum total surplus that can be achieved in this market is

Altering incentives so that people take account of the external effects of their actions

Figure 10-4 -Refer to Figure 10-4. If this market is currently producing at Q2, then total economic well-being would increase if output

When the production of a good results in a positive externality, the social value curve is

Figure 10-11 -Refer to Figure 10-11. Taking only private value and private cost into account, total surplus at the market equilibrium amounts to

Which of the following statements is correct?

When the government reduces my income tax by $0.30 for every $1.00 that I contribute to a charity, the government is effectively

Markets sometimes fail to allocate resources efficiently.

According to the Coase theorem, private markets will solve externality problems and allocate resources efficiently as long as

Table 10-3 -Refer to Table 10-3. The socially optimal quantity of output is

Suppose that candy producers create a positive externality equal to $1 per pound of candy. Further suppose that the government offers a $1-per-pound subsidy to the producers. What is the relationship between the equilibrium quantity and the socially optimal quantity of candy?

Which of the following statements is not correct?

Patent protection is one way to deal with technology spillovers.

Figure 10-6 -Refer to Figure 10-6. Which quantity represents the socially-optimal quantity of output in this market?

In many cases the Coase theorem does not work well because

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

Externalities tend to cause markets to be

Figure 10-11 -Refer to Figure 10-11. Taking into account private value and external benefits, the maximum total surplus that can be achieved in this market is

Altering incentives so that people take account of the external effects of their actions

Figure 10-4 -Refer to Figure 10-4. If this market is currently producing at Q2, then total economic well-being would increase if output

When the production of a good results in a positive externality, the social value curve is

Figure 10-11 -Refer to Figure 10-11. Taking only private value and private cost into account, total surplus at the market equilibrium amounts to

Which of the following statements is correct?

When the government reduces my income tax by $0.30 for every $1.00 that I contribute to a charity, the government is effectively

Markets sometimes fail to allocate resources efficiently.

According to the Coase theorem, private markets will solve externality problems and allocate resources efficiently as long as

Table 10-3 -Refer to Table 10-3. The socially optimal quantity of output is

Suppose that candy producers create a positive externality equal to $1 per pound of candy. Further suppose that the government offers a $1-per-pound subsidy to the producers. What is the relationship between the equilibrium quantity and the socially optimal quantity of candy?

Which of the following statements is not correct?

Table 10-4 -Refer to Table 10-4. Take into account private and external costs and assume the quantity of output is always a whole number (that is, fractional units of output are not possible). The maximum total surplus that can be achieved in this market is

Patent protection is one way to deal with technology spillovers.

Figure 10-6 -Refer to Figure 10-6. Which quantity represents the socially-optimal quantity of output in this market?

In many cases the Coase theorem does not work well because

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