Question 1

When negative externalities are present in a market

Accepted Answer

A)  private costs will be greater than social costs. 
B)  social costs will be greater than private costs. 
C)  only government regulation will solve the problem. 
D)  the market will not be able to reach any equilibrium. 
A)  private costs will be greater than social costs. 
B)  social costs will be greater than private costs. 
C)  only government regulation will solve the problem. 
D)  the market will not be able to reach any equilibrium.

Question 2

Corrective taxes

Accepted Answer

A)  encourage consumers to avoid sales taxes by shopping online. 
B)  are frequently used to discourage imports. 
C)  are less efficient than direct regulation. 
D)  give factory owners an economic incentive to reduce pollution. 
A)  encourage consumers to avoid sales taxes by shopping online. 
B)  are frequently used to discourage imports. 
C)  are less efficient than direct regulation. 
D)  give factory owners an economic incentive to reduce pollution.

Question 3

An optimal tax on pollution would result in which of the following?

Accepted Answer

A)  Producers will choose not to produce any pollution. 
B)  Producers will internalize the cost of the pollution. 
C)  Producers will maximize production. 
D)  The value to consumers at market equilibrium will exceed the social cost of production. 
A)  Producers will choose not to produce any pollution. 
B)  Producers will internalize the cost of the pollution. 
C)  Producers will maximize production. 
D)  The value to consumers at market equilibrium will exceed the social cost of production.

Question 4

Which of the following statements is not correct?

Accepted Answer

A)  Tradable pollution permits have an advantage over corrective taxes if the government is uncertain as to the optimal size of the tax necessary to reduce pollution to a specific level. 
B)  Both corrective taxes and tradable pollution permits provide market-based incentives for firms to reduce pollution. 
C)  Corrective taxes set the maximum quantity of pollution, whereas tradable pollution permits fix the price of pollution. 
D)  Both corrective taxes and tradable pollution permits reduce the cost of environmental protection and thus should increase the public's demand for a clean environment. 
A)  Tradable pollution permits have an advantage over corrective taxes if the government is uncertain as to the optimal size of the tax necessary to reduce pollution to a specific level. 
B)  Both corrective taxes and tradable pollution permits provide market-based incentives for firms to reduce pollution. 
C)  Corrective taxes set the maximum quantity of pollution, whereas tradable pollution permits fix the price of pollution. 
D)  Both corrective taxes and tradable pollution permits reduce the cost of environmental protection and thus should increase the public's demand for a clean environment.

Question 5

Mary and Cathy are roommates. Mary assigns a $30 value to smoking cigarettes. Cathy values smoke-free air at $15. Which of the following scenarios is a successful example of the Coase theorem?

Accepted Answer

A)  Cathy offers Mary $20 not to smoke. Mary accepts and does not smoke. 
B)  Mary pays Cathy $16 so that Mary can smoke. 
C)  Mary pays Cathy $14 so that Mary can smoke. 
D)  Cathy offers Mary $15 not to smoke. Mary accepts and does not smoke. 
A)  Cathy offers Mary $20 not to smoke. Mary accepts and does not smoke. 
B)  Mary pays Cathy $16 so that Mary can smoke. 
C)  Mary pays Cathy $14 so that Mary can smoke. 
D)  Cathy offers Mary $15 not to smoke. Mary accepts and does not smoke.

Question 6

Figure 10-4  
-Refer to Figure 10-4. The socially optimal quantity would be

Accepted Answer

A)  Q1. 
B)  Q2. 
C)  Q3. 
D)  Q4. 
A)  Q1. 
B)  Q2. 
C)  Q3. 
D)  Q4.

Question 7

To produce honey, beekeepers place hives of bees in the fields of farmers. As bees gather nectar, they pollinate the crops in the fields, which increases the yields of these fields at no additional cost to the farmer. What might be a reasonable private solution to this externality, and how might the solution be reached?

Accepted Answer

One solution would be to have one person

Question 8

According to the Coase theorem, if private parties can bargain without cost, then the private market will solve the problem of externalities.

Accepted Answer

A) True 
 B)False

Question 9

Table 10-3
  
-Refer to Table 10-3. The market equilibrium 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 10

Economists believe that the optimal level of pollution is zero.

Accepted Answer

A) True 
 B)False

Question 11

Corrective taxes differ from most taxes in that corrective taxes

Accepted Answer

A)  reduce economic efficiency. 
B)  do not raise revenue for the government. 
C)  do not cause deadweight losses. 
D)  always result in a high burden on sellers of goods to which the corrective tax applies. 
A)  reduce economic efficiency. 
B)  do not raise revenue for the government. 
C)  do not cause deadweight losses. 
D)  always result in a high burden on sellers of goods to which the corrective tax applies.

Question 12

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

Accepted Answer

A)  Sue not catching the flu because she got a flu vaccine 
B)  Mary not catching the flu from Sue because Sue got a flu vaccine 
C)  Sue catching the flu because she did not get a flu vaccine 
D)  Mary catching the flu from Sue because Sue did not get a flu vaccine 
A)  Sue not catching the flu because she got a flu vaccine 
B)  Mary not catching the flu from Sue because Sue got a flu vaccine 
C)  Sue catching the flu because she did not get a flu vaccine 
D)  Mary catching the flu from Sue because Sue did not get a flu vaccine

Question 13

Which of the following would not be considered a negative externality?

Accepted Answer

A)  Smelter, Inc. creates steel and pollution. 
B)  Your friend buys a new puppy that barks every night. 
C)  You have an adverse reaction to a medication your doctor prescribed for you. 
D)  Your neighbor plays loud music that you dislike through stereo speakers set up on his deck. 
A)  Smelter, Inc. creates steel and pollution. 
B)  Your friend buys a new puppy that barks every night. 
C)  You have an adverse reaction to a medication your doctor prescribed for you. 
D)  Your neighbor plays loud music that you dislike through stereo speakers set up on his deck.

Question 14

Figure 10-2. The graph depicts the market for plastic.  
-Refer to Figure 10-2. Suppose that the production of plastic creates a social cost which is depicted in the graph above. What is the socially optimal quantity of plastic?

Accepted Answer

A)  200 units 
B)  450 units 
C)  500 units 
D)  650 units 
A)  200 units 
B)  450 units 
C)  500 units 
D)  650 units

Question 15

By allowing an income-tax deduction for charitable contributions, the government

Accepted Answer

A)  encourages a private solution to a particular positive-externality problem. 
B)  discourages a private solution to a particular positive-externality problem. 
C)  encourages a private solution to a particular negative-externality problem. 
D)  discourages a private solution to a particular negative-externality problem. 
A)  encourages a private solution to a particular positive-externality problem. 
B)  discourages a private solution to a particular positive-externality problem. 
C)  encourages a private solution to a particular negative-externality problem. 
D)  discourages a private solution to a particular negative-externality problem.

Question 16

Figure 10-14  
-Refer to Figure 10-14. Which of the following statements is correct?

Accepted Answer

A)  To induce firms to internalize the externality in this market, the government should impose a tax measured by P2 - P0. 
B)  To induce firms to internalize the externality in this market, the government should offer a subsidy measured by P2 - P0. 
C)  To induce firms to internalize the externality in this market, the government should impose a tax measured by P2 - P1. 
D)  There is no externality in this market. 
A)  To induce firms to internalize the externality in this market, the government should impose a tax measured by P2 - P0. 
B)  To induce firms to internalize the externality in this market, the government should offer a subsidy measured by P2 - P0. 
C)  To induce firms to internalize the externality in this market, the government should impose a tax measured by P2 - P1. 
D)  There is no externality in this market.

Question 17

The least expensive way to clean up the environment is for all firms to reduce pollution by an equal percentage.

Accepted Answer

A) True 
 B)False

Question 18

Figure 10-11  
-Refer to Figure 10-11. "The social value of the last unit produced exceeds the private cost of the last unit produced by $13.50." This statement is correct at which quantity of output?

Accepted Answer

A)  210 units 
B)  270 units 
C)  330 units 
D)  390 units 
A)  210 units 
B)  270 units 
C)  330 units 
D)  390 units

Question 19

Figure 10-9
  
-Refer to Figure 10-9, Panel (b) and Panel (c). The overuse of antibiotics leads to the development of antibiotic- resistant diseases. Therefore, the external cost of antibiotic overuse is represented by

Accepted Answer

A)  Q3 - Q2. 
B)  Q5 - Q4. 
C)  P3a - P3c. 
D)  P4a - P4b. 
A)  Q3 - Q2. 
B)  Q5 - Q4. 
C)  P3a - P3c. 
D)  P4a - P4b.

Question 20

Using a supply and demand diagram, demonstrate how a positive externality leads to market inefficiency. How might the government help to eliminate this inefficiency?

Accepted Answer

@#IMG-DLM& When a positive externality exists, the

Exam 10: Externalities

When negative externalities are present in a market

Corrective taxes

An optimal tax on pollution would result in which of the following?

Which of the following statements is not correct?

Mary and Cathy are roommates. Mary assigns a $30 value to smoking cigarettes. Cathy values smoke-free air at $15. Which of the following scenarios is a successful example of the Coase theorem?

Figure 10-4 -Refer to Figure 10-4. The socially optimal quantity would be

According to the Coase theorem, if private parties can bargain without cost, then the private market will solve the problem of externalities.

Table 10-3 -Refer to Table 10-3. The market equilibrium quantity of output is

Economists believe that the optimal level of pollution is zero.

Corrective taxes differ from most taxes in that corrective taxes

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

Which of the following would not be considered a negative externality?

Figure 10-2. The graph depicts the market for plastic. -Refer to Figure 10-2. Suppose that the production of plastic creates a social cost which is depicted in the graph above. What is the socially optimal quantity of plastic?

By allowing an income-tax deduction for charitable contributions, the government

Figure 10-14 -Refer to Figure 10-14. Which of the following statements is correct?

The least expensive way to clean up the environment is for all firms to reduce pollution by an equal percentage.

Figure 10-11 -Refer to Figure 10-11. "The social value of the last unit produced exceeds the private cost of the last unit produced by $13.50." This statement is correct at which quantity of output?

Figure 10-9 -Refer to Figure 10-9, Panel (b) and Panel (c). The overuse of antibiotics leads to the development of antibiotic- resistant diseases. Therefore, the external cost of antibiotic overuse is represented by

Using a supply and demand diagram, demonstrate how a positive externality leads to market inefficiency. How might the government help to eliminate this inefficiency?

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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