Question 1

An externality is the impact of

Accepted Answer

A)  society's decisions on the well-being of society. 
B)  a person's actions on that person's well-being. 
C)  one person's actions on the well-being of a bystander. 
D)  society's decisions on the poorest person in the society. 
A)  society's decisions on the well-being of society. 
B)  a person's actions on that person's well-being. 
C)  one person's actions on the well-being of a bystander. 
D)  society's decisions on the poorest person in the society.

Question 2

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. Is the socially-optimal quantity of fire extinguishers less than, equal to, or greater than 500? Explain.

Accepted Answer

For the 500^t^hfire extinguisher,

Question 3

Suppose a Pigovian tax is imposed on a market that is characterized by one or more externalities. Is this a command- and-control policy or is it a market-based policy?

Accepted Answer

A Pigovian

Question 4

Which of the following illustrates the concept of a negative externality?

Accepted Answer

A)  A college professor plays a vigorous game of racquet ball with the racquet he recently purchased. 
B) m. 
C)  A flood wipes out a farmer's corn crop. 
D)  A college student plays loud music on his new stereo system at 2:00 
D)  A janitor eats a hamburger during his lunch break. 
A)  A college professor plays a vigorous game of racquet ball with the racquet he recently purchased. 
B) m. 
C)  A flood wipes out a farmer's corn crop. 
D)  A college student plays loud music on his new stereo system at 2:00 
D)  A janitor eats a hamburger during his lunch break.

Question 5

Suppose that Bill wants to dine at a fancy restaurant, but the only available table is in the smoking section. Bill dislikes the smell of cigarette smoke. He notices that only one person, Peter, is smoking in the smoking section. Bill values the absence of smoke at $15. Peter values the ability to smoke in the restaurant at $10. In order for Bill to pay Peter not to smoke, he will need to tip the waiter $10 to facilitate the transaction. Which of the following represents an efficient solution?

Accepted Answer

A)  Peter continues to smoke because the cost to Bill to pay him not to smoke is between $20 and $25, which exceeds the benefit to him of no smoking ($15). 
B)  Bill offers Peter between $10 and $15 not to smoke, and he pays the waiter $10. Peter accepts, and both parties are better off. 
C)  Bill offers Peter between $10 and $15 not to smoke, and he pays the waiter $10. Peter declines because he has a right to smoke in the smoking section. 
D)  Bill offers Peter $5 not to smoke, and he pays the waiter $10. Peter accepts, and both parties are better off. 
A)  Peter continues to smoke because the cost to Bill to pay him not to smoke is between $20 and $25, which exceeds the benefit to him of no smoking ($15). 
B)  Bill offers Peter between $10 and $15 not to smoke, and he pays the waiter $10. Peter accepts, and both parties are better off. 
C)  Bill offers Peter between $10 and $15 not to smoke, and he pays the waiter $10. Peter declines because he has a right to smoke in the smoking section. 
D)  Bill offers Peter $5 not to smoke, and he pays the waiter $10. Peter accepts, and both parties are better off.

Question 6

Organizers of an outdoor concert in a park surrounded by residential neighborhoods are likely to consider the noise and traffic cost to residential neighborhoods when they assess the financial viability of the concert venture.

Accepted Answer

A) True 
 B)False

Question 7

According to the Coase theorem, private parties can solve the problem of externalities if

Accepted Answer

A)  the cost of bargaining is small. 
B)  the initial distribution of legal rights favors the person being adversely affected by the externality. 
C)  the number of parties involved is sufficiently large. 
D)  All of the above are correct. 
A)  the cost of bargaining is small. 
B)  the initial distribution of legal rights favors the person being adversely affected by the externality. 
C)  the number of parties involved is sufficiently large. 
D)  All of the above are correct.

Question 8

Which of the following is true of markets characterized by positive externalities?

Accepted Answer

A)  Social value exceeds private value, and market quantity exceeds the socially optimal quantity. 
B)  Social value is less than private value, and market quantity exceeds the socially optimal quantity. 
C)  Social value exceeds private value, and market quantity is less than the socially optimal quantity. 
D)  Social value seldom exceeds private value; therefore, social quantity is less than private quantity. 
A)  Social value exceeds private value, and market quantity exceeds the socially optimal quantity. 
B)  Social value is less than private value, and market quantity exceeds the socially optimal quantity. 
C)  Social value exceeds private value, and market quantity is less than the socially optimal quantity. 
D)  Social value seldom exceeds private value; therefore, social quantity is less than private quantity.

Question 9

Figure 10-8  
-Refer to Figure 10-8. What is the equilibrium price in this market?

Accepted Answer

A)  $8 
B)  More than $10 
C)  Between $8 and $10 
D)  $10 
A)  $8 
B)  More than $10 
C)  Between $8 and $10 
D)  $10

Question 10

Social welfare can be enhanced by allowing firms to trade their rights to pollute.

Accepted Answer

A) True 
 B)False

Question 11

Corrective taxes cause deadweight losses, reducing economic efficiency.

Accepted Answer

A) True 
 B)False

Question 12

In the case of a technology spillover, internalizing a positive externality will cause the supply curve of an industry to

Accepted Answer

A)  shift to the right. 
B)  shift to the left. 
C)  become more elastic. 
D)  remain unchanged. 
A)  shift to the right. 
B)  shift to the left. 
C)  become more elastic. 
D)  remain unchanged.

Question 13

Which of the following is NOT an example of a negative externality?

Accepted Answer

A)  air pollution from a manufacturing plant. 
B)  disrupted sleep from a neighbor's loud music. 
C)  an illness caused by secondhand cigarette smoke. 
D)  a decrease in your property value from neglecting your lawn and garden. 
A)  air pollution from a manufacturing plant. 
B)  disrupted sleep from a neighbor's loud music. 
C)  an illness caused by secondhand cigarette smoke. 
D)  a decrease in your property value from neglecting your lawn and garden.

Question 14

Suppose that a steel factory emits a certain amount of air pollution, which constitutes a negative externality. If the market does not internalize the externality,

Accepted Answer

A)  the supply curve would adequately reflect the marginal social cost of production. 
B)  consumers will be required to pay a higher price for steel than they would have if the externality were internalized. 
C)  the market equilibrium quantity will not be the socially optimal quantity. 
D)  producers will produce less steel than they otherwise would if the externality were internalized. 
A)  the supply curve would adequately reflect the marginal social cost of production. 
B)  consumers will be required to pay a higher price for steel than they would have if the externality were internalized. 
C)  the market equilibrium quantity will not be the socially optimal quantity. 
D)  producers will produce less steel than they otherwise would if the externality were internalized.

Question 15

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

Accepted Answer

A)  social value = private value = private cost  private value = social value > private cost. 
C)  social cost = private cost = private value  private value. 
A)  social value = private value = private cost  private value = social value > private cost. 
C)  social cost = private cost = private value  private value.

Question 16

Suppose that electricity producers create a negative externality equal to $5 per unit. Further suppose that the government gives a $5 per-unit subsidy to producers. What is the relationship between the equilibrium quantity and the socially optimal quantity of electricity to be 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 17

Table 10-4
  
-Refer to Table 10-4. 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 18

Barking dogs cannot be considered an externality because externalities must be associated with some form of market exchange.

Accepted Answer

A) True 
 B)False

Question 19

Research into new technologies conveys neither negative externalities nor positive externalities.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following statements is correct about a market in which pollution is emitted?

Accepted Answer

A)  Both corrective taxes and pollution permits move the market toward the social optimum. 
B)  Corrective taxes move the market toward the social optimum, but pollution permits do not move the market toward the social optimum. 
C)  Pollution permits move the market toward the social optimum, but corrective taxes do not move the market toward the social optimum. 
D)  Neither corrective taxes nor pollution permits move the market toward the social optimum. 
A)  Both corrective taxes and pollution permits move the market toward the social optimum. 
B)  Corrective taxes move the market toward the social optimum, but pollution permits do not move the market toward the social optimum. 
C)  Pollution permits move the market toward the social optimum, but corrective taxes do not move the market toward the social optimum. 
D)  Neither corrective taxes nor pollution permits move the market toward the social optimum.

An externality is the impact of

Suppose a Pigovian tax is imposed on a market that is characterized by one or more externalities. Is this a command- and-control policy or is it a market-based policy?

Which of the following illustrates the concept of a negative externality?

Organizers of an outdoor concert in a park surrounded by residential neighborhoods are likely to consider the noise and traffic cost to residential neighborhoods when they assess the financial viability of the concert venture.

According to the Coase theorem, private parties can solve the problem of externalities if

Which of the following is true of markets characterized by positive externalities?

Figure 10-8 -Refer to Figure 10-8. What is the equilibrium price in this market?

Social welfare can be enhanced by allowing firms to trade their rights to pollute.

Corrective taxes cause deadweight losses, reducing economic efficiency.

In the case of a technology spillover, internalizing a positive externality will cause the supply curve of an industry to

Which of the following is NOT an example of a negative externality?

Suppose that a steel factory emits a certain amount of air pollution, which constitutes a negative externality. If the market does not internalize the externality,

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

Suppose that electricity producers create a negative externality equal to $5 per unit. Further suppose that the government gives a $5 per-unit subsidy to producers. What is the relationship between the equilibrium quantity and the socially optimal quantity of electricity to be produced?

Table 10-4 -Refer to Table 10-4. The market equilibrium quantity of output is

Barking dogs cannot be considered an externality because externalities must be associated with some form of market exchange.

Research into new technologies conveys neither negative externalities nor positive externalities.

Which of the following statements is correct about a market in which pollution is emitted?

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

An externality is the impact of

Suppose a Pigovian tax is imposed on a market that is characterized by one or more externalities. Is this a command- and-control policy or is it a market-based policy?

Which of the following illustrates the concept of a negative externality?

Organizers of an outdoor concert in a park surrounded by residential neighborhoods are likely to consider the noise and traffic cost to residential neighborhoods when they assess the financial viability of the concert venture.

According to the Coase theorem, private parties can solve the problem of externalities if

Which of the following is true of markets characterized by positive externalities?

Figure 10-8 -Refer to Figure 10-8. What is the equilibrium price in this market?

Social welfare can be enhanced by allowing firms to trade their rights to pollute.

Corrective taxes cause deadweight losses, reducing economic efficiency.

In the case of a technology spillover, internalizing a positive externality will cause the supply curve of an industry to

Which of the following is NOT an example of a negative externality?

Suppose that a steel factory emits a certain amount of air pollution, which constitutes a negative externality. If the market does not internalize the externality,

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

Suppose that electricity producers create a negative externality equal to $5 per unit. Further suppose that the government gives a $5 per-unit subsidy to producers. What is the relationship between the equilibrium quantity and the socially optimal quantity of electricity to be produced?

Table 10-4 -Refer to Table 10-4. The market equilibrium quantity of output is

Barking dogs cannot be considered an externality because externalities must be associated with some form of market exchange.

Research into new technologies conveys neither negative externalities nor positive externalities.

Which of the following statements is correct about a market in which pollution is emitted?

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