Question 1

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

Accepted Answer

A)  social cost minus social value 
B)  social value minus private cost 
C)  demand 
D)  private value plus external benefit 
A)  social cost minus social value 
B)  social value minus private cost 
C)  demand 
D)  private value plus external benefit

Question 2

Figure 10-19  
-Refer to Figure 10-19. How many units of the good are produced in a market equilibrium?

Accepted Answer

A)  fewer than 58 
B)  58 
C)  73 
D)  94 
A)  fewer than 58 
B)  58 
C)  73 
D)  94

Question 3

Most taxes distort incentives and move the allocation of resources away from the social optimum. Why do corrective taxes avoid the disadvantages of most other taxes?

Accepted Answer

A)  Corrective taxes apply only to goods that are bad for people's health, such as cigarettes and alcohol. 
B)  Because corrective taxes correct for market externalities, they take into consideration the well-being of bystanders. 
C)  Corrective taxes provide incentives for the conservation of natural resources. 
D)  Corrective taxes do not affect deadweight loss. 
A)  Corrective taxes apply only to goods that are bad for people's health, such as cigarettes and alcohol. 
B)  Because corrective taxes correct for market externalities, they take into consideration the well-being of bystanders. 
C)  Corrective taxes provide incentives for the conservation of natural resources. 
D)  Corrective taxes do not affect deadweight loss.

Question 4

When the government intervenes in markets with externalities, it does so in order to

Accepted Answer

A)  increase production when negative externalities are present. 
B)  protect the interests of bystanders. 
C)  make certain all benefits are received by market participants. 
D)  reduce production when positive externalities are present. 
A)  increase production when negative externalities are present. 
B)  protect the interests of bystanders. 
C)  make certain all benefits are received by market participants. 
D)  reduce production when positive externalities are present.

Question 5

Suppose a tax is imposed on producers of aluminum as a means of internalizing the externality associated with aluminum production. If the tax accurately reflects the external costs of pollutants released into the atmosphere, then the new supply curve for aluminum coincides with which other curve?

Accepted Answer

The new supply curve

Question 6

Which of the following is an example of an externality?

Accepted Answer

A)  cigarette smoke that permeates an entire restaurant 
B)  a flu shot that prevents a student from transmitting the virus to her roommate 
C)  a beautiful flower garden outside of the local post office 
D)  All of the above are correct. 
A)  cigarette smoke that permeates an entire restaurant 
B)  a flu shot that prevents a student from transmitting the virus to her roommate 
C)  a beautiful flower garden outside of the local post office 
D)  All of the above are correct.

Question 7

Reaching an efficient bargain is difficult when the

Accepted Answer

A)  externality is large. 
B)  number of interested parties is large. 
C)  externality is negative. 
D)  government becomes involved. 
A)  externality is large. 
B)  number of interested parties is large. 
C)  externality is negative. 
D)  government becomes involved.

Question 8

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. Suppose the government wants to reduce pollution from 16 units to 8 units and auctions off 8 pollution permits to achieve this goal. Which of the following is a likely auction price of the permits?

Accepted Answer

A)  $69 
B)  $81 
C)  $83 
D)  $97 
A)  $69 
B)  $81 
C)  $83 
D)  $97

Question 9

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

Accepted Answer

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

Question 10

Which of the following is not an advantage of corrective taxes?

Accepted Answer

A)  They raise revenues for the government. 
B)  They enhance economic efficiency. 
C)  They subsidize the production of goods with positive externalities. 
D)  They move the allocation of resources closer to the social optimum. 
A)  They raise revenues for the government. 
B)  They enhance economic efficiency. 
C)  They subsidize the production of goods with positive externalities. 
D)  They move the allocation of resources closer to the social optimum.

Question 11

An externality arises when a person engages in an activity that influences the well-being of

Accepted Answer

A)  buyers in the market for that activity and yet neither pays nor receives any compensation for that effect. 
B)  sellers in the market for that activity and yet neither pays nor receives any compensation for that effect. 
C)  bystanders in the market for that activity and yet neither pays nor receives any compensation for that effect. 
D)  Both (a) and (b) are correct. 
A)  buyers in the market for that activity and yet neither pays nor receives any compensation for that effect. 
B)  sellers in the market for that activity and yet neither pays nor receives any compensation for that effect. 
C)  bystanders in the market for that activity and yet neither pays nor receives any compensation for that effect. 
D)  Both (a) and (b) are correct.

Question 12

Suppose the market-equilibrium quantity of good x is 5,000 units and the socially-optimal quantity of good x is 4,000 units. Then

Accepted Answer

A)  the production of good x imposes external costs on society. 
B)  the private value of good x exceeds the private cost of good x when 5,000 units are produced. 
C)  the private cost of good x exceeds the private value of good x when 5,000 units are produced. 
D)  the social cost of good x exceeds the private value of good x when 4,000 units are produced. 
A)  the production of good x imposes external costs on society. 
B)  the private value of good x exceeds the private cost of good x when 5,000 units are produced. 
C)  the private cost of good x exceeds the private value of good x when 5,000 units are produced. 
D)  the social cost of good x exceeds the private value of good x when 4,000 units are produced.

Question 13

Suppose that flu shots create a positive externality equal to $8 per shot. Further suppose that the government offers a $11-per-shot subsidy to producers. 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 14

Which of the following statements is correct?

Accepted Answer

A)  Internalizing a negative externality will cause an industry to decrease the quantity it supplies to the market and decrease the price of the good produced. 
B)  Internalizing a negative externality will cause an industry to decrease the quantity it supplies to the market and increase the price of the good produced. 
C)  Internalizing a negative externality will cause an industry to increase the quantity it supplies to the market and decrease the price of the good produced. 
D)  Internalizing a negative externality will cause an industry to increase the quantity it supplies to the market and increase the price of the good produced. 
A)  Internalizing a negative externality will cause an industry to decrease the quantity it supplies to the market and decrease the price of the good produced. 
B)  Internalizing a negative externality will cause an industry to decrease the quantity it supplies to the market and increase the price of the good produced. 
C)  Internalizing a negative externality will cause an industry to increase the quantity it supplies to the market and decrease the price of the good produced. 
D)  Internalizing a negative externality will cause an industry to increase the quantity it supplies to the market and increase the price of the good produced.

Question 15

Which of the following is an advantage of tradable pollution permits?

Accepted Answer

A)  Each firm is allowed to pollute exactly the same amount. 
B)  Revenue from the sale of permits is greater than revenue from a corrective tax. 
C)  The initial allocation of permits to firms does not affect the efficiency of the market. 
D)  Firms will engage in joint research efforts to reduce pollution. 
A)  Each firm is allowed to pollute exactly the same amount. 
B)  Revenue from the sale of permits is greater than revenue from a corrective tax. 
C)  The initial allocation of permits to firms does not affect the efficiency of the market. 
D)  Firms will engage in joint research efforts to reduce pollution.

Question 16

Scenario 10-1
The demand curve for gasoline slopes downward and the supply curve for gasoline slopes upward. The production of the 1,000S1U1P1tS1S1P0S1U1P1hS1S1P0S1U1P1 S1S1P0gallon of gasoline entails the following:
-a private cost of $3.10;
-a social cost of $3.55;
-a value to consumers of $3.70.
-Refer to Scenario 10-1. Suppose the equilibrium quantity of gasoline is 1,150 gallons; that is, QMARKET = 1,150. Then the equilibrium price of a gallon could be

Accepted Answer

A)  $2.80. 
B)  $3.00. 
C)  $3.30. 
D)  $3.80. 
A)  $2.80. 
B)  $3.00. 
C)  $3.30. 
D)  $3.80.

Question 17

Industrial policy aims to

Accepted Answer

A)  reduce pollution by requiring factories to reduce their pollution by a certain number of tons per year. 
B)  reduce pollution by levying a tax on factories of a certain number of dollars for every ton of pollution that the factory emits. 
C)  encourage business firms to subsidize continuing education for their employees. 
D)  promote technology-enhancing industries. 
A)  reduce pollution by requiring factories to reduce their pollution by a certain number of tons per year. 
B)  reduce pollution by levying a tax on factories of a certain number of dollars for every ton of pollution that the factory emits. 
C)  encourage business firms to subsidize continuing education for their employees. 
D)  promote technology-enhancing industries.

Question 18

Which of the following statements is correct?

Accepted Answer

A)  Gasoline taxes are an example of an EPA regulation. 
B)  Gasoline taxes are higher in many European countries than in the United States. 
C)  Gasoline taxes contribute to global warming. 
D)  Gasoline taxes are an example of a command-and-control policy. 
A)  Gasoline taxes are an example of an EPA regulation. 
B)  Gasoline taxes are higher in many European countries than in the United States. 
C)  Gasoline taxes contribute to global warming. 
D)  Gasoline taxes are an example of a command-and-control policy.

Question 19

Abe owns a dog; the dog's barking annoys Abe's neighbor, Jenny. Suppose that the benefit of owning the dog is worth $200 to Abe and that Jenny bears a cost of $400 from the barking. Assuming Abe has the legal right to keep the dog, a possible private solution to this problem is that

Accepted Answer

A)  Jenny pays Abe $150 to give the dog to his parents who live on an isolated farm. 
B)  Abe pays Jenny $350 for her inconvenience. 
C)  Jenny pays Abe $300 to give the dog to his parents who live on an isolated farm. 
D)  There is no private transaction that would improve this situation. 
A)  Jenny pays Abe $150 to give the dog to his parents who live on an isolated farm. 
B)  Abe pays Jenny $350 for her inconvenience. 
C)  Jenny pays Abe $300 to give the dog to his parents who live on an isolated farm. 
D)  There is no private transaction that would improve this situation.

Question 20

Research into new technologies provides a

Accepted Answer

A)  negative externality, and too few resources are devoted to research as a result. 
B)  negative externality, and too many resources are devoted to research as a result. 
C)  positive externality, and too few resources are devoted to research as a result. 
D)  positive externality, and too many resources are devoted to research as a result. 
A)  negative externality, and too few resources are devoted to research as a result. 
B)  negative externality, and too many resources are devoted to research as a result. 
C)  positive externality, and too few resources are devoted to research as a result. 
D)  positive externality, and too many resources are devoted to research as a result.

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

Figure 10-19 -Refer to Figure 10-19. How many units of the good are produced in a market equilibrium?

Most taxes distort incentives and move the allocation of resources away from the social optimum. Why do corrective taxes avoid the disadvantages of most other taxes?

When the government intervenes in markets with externalities, it does so in order to

Suppose a tax is imposed on producers of aluminum as a means of internalizing the externality associated with aluminum production. If the tax accurately reflects the external costs of pollutants released into the atmosphere, then the new supply curve for aluminum coincides with which other curve?

Which of the following is an example of an externality?

Reaching an efficient bargain is difficult when the

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

Which of the following is not an advantage of corrective taxes?

An externality arises when a person engages in an activity that influences the well-being of

Suppose the market-equilibrium quantity of good x is 5,000 units and the socially-optimal quantity of good x is 4,000 units. Then

Suppose that flu shots create a positive externality equal to $8 per shot. Further suppose that the government offers a $11-per-shot subsidy to producers. What is the relationship between the equilibrium quantity and the socially optimal quantity of flu shots produced?

Which of the following statements is correct?

Which of the following is an advantage of tradable pollution permits?

Industrial policy aims to

Which of the following statements is correct?

Abe owns a dog; the dog's barking annoys Abe's neighbor, Jenny. Suppose that the benefit of owning the dog is worth $200 to Abe and that Jenny bears a cost of $400 from the barking. Assuming Abe has the legal right to keep the dog, a possible private solution to this problem is that

Research into new technologies provides a

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

Figure 10-19 -Refer to Figure 10-19. How many units of the good are produced in a market equilibrium?

Most taxes distort incentives and move the allocation of resources away from the social optimum. Why do corrective taxes avoid the disadvantages of most other taxes?

When the government intervenes in markets with externalities, it does so in order to

Suppose a tax is imposed on producers of aluminum as a means of internalizing the externality associated with aluminum production. If the tax accurately reflects the external costs of pollutants released into the atmosphere, then the new supply curve for aluminum coincides with which other curve?

Which of the following is an example of an externality?

Reaching an efficient bargain is difficult when the

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

Which of the following is not an advantage of corrective taxes?

An externality arises when a person engages in an activity that influences the well-being of

Suppose the market-equilibrium quantity of good x is 5,000 units and the socially-optimal quantity of good x is 4,000 units. Then

Suppose that flu shots create a positive externality equal to $8 per shot. Further suppose that the government offers a $11-per-shot subsidy to producers. What is the relationship between the equilibrium quantity and the socially optimal quantity of flu shots produced?

Which of the following statements is correct?

Which of the following is an advantage of tradable pollution permits?

Industrial policy aims to

Which of the following statements is correct?

Abe owns a dog; the dog's barking annoys Abe's neighbor, Jenny. Suppose that the benefit of owning the dog is worth $200 to Abe and that Jenny bears a cost of $400 from the barking. Assuming Abe has the legal right to keep the dog, a possible private solution to this problem is that

Research into new technologies provides a

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