Question 1

If the production of computer chips yields greater technology spillovers than the production of potato chips, the government should

Accepted Answer

A)  encourage the production of computer chips with subsidies. 
B)  discourage the production of potato chips with taxes. 
C)  encourage the production of potato chips with subsidies. 
D)  discourage the production of computer chips with taxes. 
A)  encourage the production of computer chips with subsidies. 
B)  discourage the production of potato chips with taxes. 
C)  encourage the production of potato chips with subsidies. 
D)  discourage the production of computer chips with taxes.

Question 2

Table 10-3
  
-Refer to Table 10-3. The social value of the 4th unit of output that is produced is

Accepted Answer

A)  $10. 
B)  $16. 
C)  $26. 
D)  $30. 
A)  $10. 
B)  $16. 
C)  $26. 
D)  $30.

Question 3

Figure 10-16  
-Refer to Figure 10-16. This graph shows the market for pollution when permits are issued to firms and traded in the marketplace. The equilibrium price of pollution is

Accepted Answer

A)  $50 
B)  $500 
C)  $1,000 
D)  $2,000 
A)  $50 
B)  $500 
C)  $1,000 
D)  $2,000

Question 4

Corrective taxes are more efficient than regulations for keeping the environment clean.

Accepted Answer

A) True 
 B)False

Question 5

In a market with positive externalities, the market equilibrium quantity maximizes the welfare of society as a whole.

Accepted Answer

A) True 
 B)False

Question 6

Corrective taxes are typically advocated to correct for the effects of

Accepted Answer

A)  positive externalities. 
B)  negative externalities. 
C)  patents. 
D)  All of the above are correct. 
A)  positive externalities. 
B)  negative externalities. 
C)  patents. 
D)  All of the above are correct.

Question 7

Which of the following require firms to pay to pollute? (i) corrective taxes
(ii) tradable pollution permits
(iii) pollution regulations

Accepted Answer

A)  (i) only 
B)  both (i) and (ii) 
C)  (iii) only 
D)  both (ii) and (iii) 
A)  (i) only 
B)  both (i) and (ii) 
C)  (iii) only 
D)  both (ii) and (iii)

Question 8

Suppose that smoking creates a negative externality. If the government does not interfere in the cigarette market, then

Accepted Answer

A)  the equilibrium quantity of cigarettes smoked will equal the socially optimal quantity of cigarettes smoked. 
B)  the equilibrium quantity of cigarettes smoked will be greater than the socially optimal quantity of cigarettes smoked. 
C)  the equilibrium quantity of cigarettes smoked will be less than the socially optimal quantity of cigarettes smoked. 
D)  There is not enough information to answer the question. 
A)  the equilibrium quantity of cigarettes smoked will equal the socially optimal quantity of cigarettes smoked. 
B)  the equilibrium quantity of cigarettes smoked will be greater than the socially optimal quantity of cigarettes smoked. 
C)  the equilibrium quantity of cigarettes smoked will be less than the socially optimal quantity of cigarettes smoked. 
D)  There is not enough information to answer the question.

Question 9

A corrective tax places a price on the right to pollute.

Accepted Answer

A) True 
 B)False

Question 10

Suppose that flu shots create a positive externality equal to $12 per shot. What is the relationship between the equilibrium quantity and the socially optimal quantity of flu shots produced?

Accepted Answer

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

Question 11

Which of the following statements about a well-maintained yard best conveys the general nature of the externality?

Accepted Answer

A)  A well-maintained yard conveys a positive externality because it increases the home's market value. 
B)  A well-maintained yard conveys a negative externality because it increases the property tax liability of the owner. 
C)  A well-maintained yard conveys a positive externality because it increases the value of adjacent properties in the neighborhood. 
D)  A well-maintained yard cannot provide any type of externality. 
A)  A well-maintained yard conveys a positive externality because it increases the home's market value. 
B)  A well-maintained yard conveys a negative externality because it increases the property tax liability of the owner. 
C)  A well-maintained yard conveys a positive externality because it increases the value of adjacent properties in the neighborhood. 
D)  A well-maintained yard cannot provide any type of externality.

Question 12

At any given quantity, the cost of the marginal seller is the height of the .

Accepted Answer

The answer of At any given quantity, the cost of...

Question 13

Scenario 10-4
The demand curve for fire extinguishers slopes downward and the supply curve for fire extinguishers slopes upward. The production of the 500S1U1P1tS1S1P0S1U1P1hS1S1P0S1U1P1 S1S1P0fire extinguisher entails the following:
-a private cost of $10;
-an external cost of $0;
-a private value of $9;
-an external benefit of $3.
-
-Refer to Scenario 10-4. In order to reach the social optimum, should fire extinguishers be taxed or subsidized? What is the appropriate amount of the tax or subsidy on each fire extinguisher?

Accepted Answer

Each fire extinguish

Question 14

Private solutions may not be possible due to the costs of negotiating and enforcing these solutions. Such costs are called

Accepted Answer

A)  transaction costs. 
B)  corrective costs. 
C)  input costs. 
D)  private costs. 
A)  transaction costs. 
B)  corrective costs. 
C)  input costs. 
D)  private costs.

Question 15

With a corrective tax, the supply curve for pollution is

Accepted Answer

A)  vertical. 
B)  horizontal. 
C)  upward-sloping. 
D)  downward-sloping. 
A)  vertical. 
B)  horizontal. 
C)  upward-sloping. 
D)  downward-sloping.

Question 16

Table 10-4
  
-Refer to Table 10-4. Which of the following policies would move the market from the market equilibrium to the socially optimal equilibrium?

Accepted Answer

A)  a tax of $4 per unit of output 
B)  a subsidy of $4 per unit of output 
C)  a tax of $6 per unit of output 
D)  a subsidy of $6 per unit of output 
A)  a tax of $4 per unit of output 
B)  a subsidy of $4 per unit of output 
C)  a tax of $6 per unit of output 
D)  a subsidy of $6 per unit of output

Question 17

In markets, the invisible hand allocates resources efficiently

Accepted Answer

A)  in all cases. 
B)  when the buyers and sellers are the only interested parties. 
C)  when there are positive externalities, but not when there are negative externalities. 
D)  when there are negative externalities, but not when there are positive externalities. 
A)  in all cases. 
B)  when the buyers and sellers are the only interested parties. 
C)  when there are positive externalities, but not when there are negative externalities. 
D)  when there are negative externalities, but not when there are positive externalities.

Question 18

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 is the equation of the social-cost curve?

Accepted Answer

The equati

Question 19

In some circumstances, selling pollution permits may be better than levying a corrective tax.

Accepted Answer

A) True 
 B)False

Question 20

Melissa engages in an activity that influences the well-being of a bystander. In order for Melissa's activity to give rise to an externality, it must be the case that

Accepted Answer

A)  Melissa fails to recognize the impact of her activity on the bystander's well­being. 
B)  the bystander fails to recognize the impact of Melissa's activity on his or her well­being. 
C)  the well­being of the bystander is adversely impacted by Melissa's activity. 
D)  Melissa neither pays nor receives any compensation for her activity. 
A)  Melissa fails to recognize the impact of her activity on the bystander's well­being. 
B)  the bystander fails to recognize the impact of Melissa's activity on his or her well­being. 
C)  the well­being of the bystander is adversely impacted by Melissa's activity. 
D)  Melissa neither pays nor receives any compensation for her activity.

If the production of computer chips yields greater technology spillovers than the production of potato chips, the government should

Table 10-3 -Refer to Table 10-3. The social value of the 4th unit of output that is produced is

Figure 10-16 -Refer to Figure 10-16. This graph shows the market for pollution when permits are issued to firms and traded in the marketplace. The equilibrium price of pollution is

Corrective taxes are more efficient than regulations for keeping the environment clean.

In a market with positive externalities, the market equilibrium quantity maximizes the welfare of society as a whole.

Corrective taxes are typically advocated to correct for the effects of

Which of the following require firms to pay to pollute? (i) corrective taxes (ii) tradable pollution permits (iii) pollution regulations

Suppose that smoking creates a negative externality. If the government does not interfere in the cigarette market, then

A corrective tax places a price on the right to pollute.

Suppose that flu shots create a positive externality equal to $12 per shot. What is the relationship between the equilibrium quantity and the socially optimal quantity of flu shots produced?

Which of the following statements about a well-maintained yard best conveys the general nature of the externality?

At any given quantity, the cost of the marginal seller is the height of the .

Private solutions may not be possible due to the costs of negotiating and enforcing these solutions. Such costs are called

With a corrective tax, the supply curve for pollution is

Table 10-4 -Refer to Table 10-4. Which of the following policies would move the market from the market equilibrium to the socially optimal equilibrium?

In markets, the invisible hand allocates resources efficiently

In some circumstances, selling pollution permits may be better than levying a corrective tax.

Melissa engages in an activity that influences the well-being of a bystander. In order for Melissa's activity to give rise to an externality, it must be the case that

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

If the production of computer chips yields greater technology spillovers than the production of potato chips, the government should

Table 10-3 -Refer to Table 10-3. The social value of the 4th unit of output that is produced is

Figure 10-16 -Refer to Figure 10-16. This graph shows the market for pollution when permits are issued to firms and traded in the marketplace. The equilibrium price of pollution is

Corrective taxes are more efficient than regulations for keeping the environment clean.

In a market with positive externalities, the market equilibrium quantity maximizes the welfare of society as a whole.

Corrective taxes are typically advocated to correct for the effects of

Which of the following require firms to pay to pollute? (i) corrective taxes (ii) tradable pollution permits (iii) pollution regulations

Suppose that smoking creates a negative externality. If the government does not interfere in the cigarette market, then

A corrective tax places a price on the right to pollute.

Suppose that flu shots create a positive externality equal to $12 per shot. What is the relationship between the equilibrium quantity and the socially optimal quantity of flu shots produced?

Which of the following statements about a well-maintained yard best conveys the general nature of the externality?

At any given quantity, the cost of the marginal seller is the height of the .

Private solutions may not be possible due to the costs of negotiating and enforcing these solutions. Such costs are called

With a corrective tax, the supply curve for pollution is

Table 10-4 -Refer to Table 10-4. Which of the following policies would move the market from the market equilibrium to the socially optimal equilibrium?

In markets, the invisible hand allocates resources efficiently

In some circumstances, selling pollution permits may be better than levying a corrective tax.

Melissa engages in an activity that influences the well-being of a bystander. In order for Melissa's activity to give rise to an externality, it must be the case that

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