Question 1

Figure 10-11  
-Refer to Figure 10-11. A benevolent social planner would prefer

Accepted Answer

A)  a $24 price to any other price. 
B)  420 units to any other quantity of output. 
C)  a subsidy of $24 per unit to a subsidy of $27 per unit. 
D)  All of the above are correct. 
A)  a $24 price to any other price. 
B)  420 units to any other quantity of output. 
C)  a subsidy of $24 per unit to a subsidy of $27 per unit. 
D)  All of the above are correct.

Question 2

In the absence of externalities, the "invisible hand" leads a market to maximize

Accepted Answer

A)  producer profit from that market. 
B)  total benefit to society from that market. 
C)  both equality and efficiency in that market. 
D)  output of goods or services in that market. 
A)  producer profit from that market. 
B)  total benefit to society from that market. 
C)  both equality and efficiency in that market. 
D)  output of goods or services in that market.

Question 3

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. The line labeled "Corrective tax" could accurately be re­labeled as

Accepted Answer

A)  "Demand for clean air." 
B)  "Demand for pollution rights." 
C)  "Price of pollution." 
D)  "Rate of subsidy." 
A)  "Demand for clean air." 
B)  "Demand for pollution rights." 
C)  "Price of pollution." 
D)  "Rate of subsidy."

Question 4

The best remedy for market failure is often

Accepted Answer

A)  a market-based solution. 
B)  shutdown of the market. 
C)  no government intervention. 
D)  externalizing the externalities. 
A)  a market-based solution. 
B)  shutdown of the market. 
C)  no government intervention. 
D)  externalizing the externalities.

Question 5

Economists Edward Glaeser and Matthew Kahn studied carbon emissions in different parts of the United States. On the basis of what they found, they concluded that environmentalists should be in favor of

Accepted Answer

A)  lower taxes on carbon-based fuels such as gasoline. 
B)  more and taller skyscrapers. 
C)  policies that encourage people to move from large cities to suburban areas. 
D)  policies that encourage people to move from suburban areas to rural areas. 
A)  lower taxes on carbon-based fuels such as gasoline. 
B)  more and taller skyscrapers. 
C)  policies that encourage people to move from large cities to suburban areas. 
D)  policies that encourage people to move from suburban areas to rural areas.

Question 6

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. Does the production of fire extinguishers convey a positive externality, a negative externality, or neither?

Accepted Answer

The social value exceeds the p

Question 7

Describe the circumstances under which it would be better for the government to sell pollution permits than to levy a corrective tax.

Accepted Answer

When the governmental authority (e.g., E

Question 8

For the purpose of protecting the environment, upon which of the following approaches do we rely more and more as time goes by?

Accepted Answer

A)  adherence to the notion of the invisible hand 
B)  command-and-control policies 
C)  the development and enforcement of regulations 
D)  the requirement that decision makers bear the full costs of their actions 
A)  adherence to the notion of the invisible hand 
B)  command-and-control policies 
C)  the development and enforcement of regulations 
D)  the requirement that decision makers bear the full costs of their actions

Question 9

A negative externality

Accepted Answer

A)  is an adverse impact on a bystander. 
B)  causes the product in a market to be under-produced. 
C)  is an adverse impact on market participants. 
D)  is present in markets where the good or service does not have any impact on bystanders. 
A)  is an adverse impact on a bystander. 
B)  causes the product in a market to be under-produced. 
C)  is an adverse impact on market participants. 
D)  is present in markets where the good or service does not have any impact on bystanders.

Question 10

Which of the following represents a way that a government can help the private market to internalize an externality?

Accepted Answer

A)  taxing goods that have negative externalities 
B)  subsidizing goods that have positive externalities 
C)  The government cannot improve upon the outcomes of private markets. 
D)  Both a and b are correct. 
A)  taxing goods that have negative externalities 
B)  subsidizing goods that have positive externalities 
C)  The government cannot improve upon the outcomes of private markets. 
D)  Both a and b are correct.

Question 11

When externalities are present in a market, the well-being of market participants

Accepted Answer

A)  and market bystanders are both directly affected. 
B)  and market bystanders are both indirectly affected. 
C)  is directly affected, and market bystanders are indirectly affected. 
D)  is indirectly affected, and market bystanders are directly affected. 
A)  and market bystanders are both directly affected. 
B)  and market bystanders are both indirectly affected. 
C)  is directly affected, and market bystanders are indirectly affected. 
D)  is indirectly affected, and market bystanders are directly affected.

Question 12

A positive externality

Accepted Answer

A)  causes the product to be overproduced. 
B)  provides an additional benefit to market participants. 
C)  benefits consumers because it results in a lower equilibrium price. 
D)  is a benefit to a market bystander. 
A)  causes the product to be overproduced. 
B)  provides an additional benefit to market participants. 
C)  benefits consumers because it results in a lower equilibrium price. 
D)  is a benefit to a market bystander.

Question 13

Figure 10-12  
-Refer to Figure 10-12. Which of the following is an appropriate label for Line 2?

Accepted Answer

A)  social cost 
B)  social value 
C)  private cost 
D)  private value 
A)  social cost 
B)  social value 
C)  private cost 
D)  private value

Question 14

Scenario 10-2
The demand curve for restored historic buildings slopes downward and the supply curve for restored historic buildings slopes upward. The production of the 50S1U1P1tS1S1P0S1U1P1hS1S1P0S1U1P1 S1S1P0restored historic building entails the following:
-a private cost of $800,000;
-a private value of $650,000;
-a social value of $800,000.
-Refer to Scenario 10-2. Could the government impose a tax or provide a subsidy to move the market to the social optimum? If your answer is "Yes," should it be a tax or should it be a subsidy?

Accepted Answer

The government could

Question 15

The tax on gasoline

Accepted Answer

A)  reduces efficiency by causing large deadweight losses. 
B)  reduces efficiency by decreasing consumer surplus and producer surplus. 
C)  enhances efficiency by serving as a corrective device in a market with positive externalities. 
D)  enhances efficiency by serving as a corrective device in a market with negative externalities. 
A)  reduces efficiency by causing large deadweight losses. 
B)  reduces efficiency by decreasing consumer surplus and producer surplus. 
C)  enhances efficiency by serving as a corrective device in a market with positive externalities. 
D)  enhances efficiency by serving as a corrective device in a market with negative externalities.

Question 16

Once tradable pollution permits have been allocated to firms,

Accepted Answer

A)  the government controls the price of permits. 
B)  firms that can reduce pollution only at high cost will be willing to pay the most for the pollution permits. 
C)  the value of pollution-saving technology will be lower than the market value of a pollution permit. 
D)  the Coase theorem is no longer applicable as a solution to reducing pollution. 
A)  the government controls the price of permits. 
B)  firms that can reduce pollution only at high cost will be willing to pay the most for the pollution permits. 
C)  the value of pollution-saving technology will be lower than the market value of a pollution permit. 
D)  the Coase theorem is no longer applicable as a solution to reducing pollution.

Question 17

Most economists prefer corrective taxes to regulation as a way to correct the problem of pollution because

Accepted Answer

A)  the market-based solution is less costly to society. 
B)  the market-based solution can result in a greater reduction in pollution. 
C)  the market-based solution raises revenue for the government. 
D)  All of the above are correct. 
A)  the market-based solution is less costly to society. 
B)  the market-based solution can result in a greater reduction in pollution. 
C)  the market-based solution raises revenue for the government. 
D)  All of the above are correct.

Question 18

Positive externalities

Accepted Answer

A)  result in a larger than efficient equilibrium quantity. 
B)  result in smaller than efficient equilibrium quantity. 
C)  result in an efficient equilibrium quantity. 
D)  can be internalized with a corrective tax. 
A)  result in a larger than efficient equilibrium quantity. 
B)  result in smaller than efficient equilibrium quantity. 
C)  result in an efficient equilibrium quantity. 
D)  can be internalized with a corrective tax.

Question 19

Government can be used to solve externality problems that are too costly for private parties to solve.

Accepted Answer

A) True 
 B)False

Question 20

Figure 10-15  
-Refer to Figure 10-15. Which graph illustrates a corrective tax?

Accepted Answer

A)  the left graph 
B)  the right graph 
C)  both graphs 
D)  neither graph 
A)  the left graph 
B)  the right graph 
C)  both graphs 
D)  neither graph

Figure 10-11 -Refer to Figure 10-11. A benevolent social planner would prefer

In the absence of externalities, the "invisible hand" leads a market to maximize

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. The line labeled "Corrective tax" could accurately be relabeled as

The best remedy for market failure is often

Economists Edward Glaeser and Matthew Kahn studied carbon emissions in different parts of the United States. On the basis of what they found, they concluded that environmentalists should be in favor of

Describe the circumstances under which it would be better for the government to sell pollution permits than to levy a corrective tax.

For the purpose of protecting the environment, upon which of the following approaches do we rely more and more as time goes by?

A negative externality

Which of the following represents a way that a government can help the private market to internalize an externality?

When externalities are present in a market, the well-being of market participants

A positive externality

Figure 10-12 -Refer to Figure 10-12. Which of the following is an appropriate label for Line 2?

The tax on gasoline

Once tradable pollution permits have been allocated to firms,

Most economists prefer corrective taxes to regulation as a way to correct the problem of pollution because

Positive externalities

Government can be used to solve externality problems that are too costly for private parties to solve.

Figure 10-15 -Refer to Figure 10-15. Which graph illustrates a corrective tax?

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

Figure 10-11 -Refer to Figure 10-11. A benevolent social planner would prefer

In the absence of externalities, the "invisible hand" leads a market to maximize

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. The line labeled "Corrective tax" could accurately be re­labeled as

The best remedy for market failure is often

Economists Edward Glaeser and Matthew Kahn studied carbon emissions in different parts of the United States. On the basis of what they found, they concluded that environmentalists should be in favor of

Describe the circumstances under which it would be better for the government to sell pollution permits than to levy a corrective tax.

For the purpose of protecting the environment, upon which of the following approaches do we rely more and more as time goes by?

A negative externality

Which of the following represents a way that a government can help the private market to internalize an externality?

When externalities are present in a market, the well-being of market participants

A positive externality

Figure 10-12 -Refer to Figure 10-12. Which of the following is an appropriate label for Line 2?

The tax on gasoline

Once tradable pollution permits have been allocated to firms,

Most economists prefer corrective taxes to regulation as a way to correct the problem of pollution because

Positive externalities

Government can be used to solve externality problems that are too costly for private parties to solve.

Figure 10-15 -Refer to Figure 10-15. Which graph illustrates a corrective tax?

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

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. The line labeled "Corrective tax" could accurately be relabeled as