Question 1

List and discuss three problems that might arise when using the Coase theorem.

Accepted Answer

Bargaining costs are generally

Question 2

Suppose the factory Afro-Puffs Inc.produces wigs.As a by-product of this wig production,they also produce dangerous emissions of toxic gases (as a result of the strong glue used to hold the hair in place).The De-Lite car factory,down the road,experiences a negative externality from this production process.Suppose that the supply curve (private marginal costs)for the wig factory is X = (2/5)P - 2,and it faces a market demand of Xd = 15 - P/2.The marginal damages caused by the production of wigs can be written as X = P - 1/2.
(a)Find the equilibrium price and quantity in the market for wigs.
(b)Find the socially optimal level of wigs and the corresponding price.
(c)How much should the wig factory be taxed per wig?

Accepted Answer

(a)Set PMC equal to demand and solve for

Question 3

Which of the following is correct?

Accepted Answer

A)  SMC = PMC - MD 
B)  MPB = MSB + MEB 
C)  SMC = PMC + MD 
D)  MSC = MPB 
E)  MSB = MSC + MPB 
A)  SMC = PMC - MD 
B)  MPB = MSB + MEB 
C)  SMC = PMC + MD 
D)  MSC = MPB 
E)  MSB = MSC + MPB

Question 4

Externalities require government intervention when

Accepted Answer

A)  violence will result between disputing parties. 
B)  there are only a few sellers in the market. 
C)  property rights are not clearly established. 
D)  the government imposes sales taxes. 
E)  all of these answer options are correct. 
A)  violence will result between disputing parties. 
B)  there are only a few sellers in the market. 
C)  property rights are not clearly established. 
D)  the government imposes sales taxes. 
E)  all of these answer options are correct.

Question 5

A Pigouvian subsidy

Accepted Answer

A)  cannot exist with externalities. 
B)  is the same thing as a Pigouvian tax. 
C)  is measured in terms of Pigouvian dollars. 
D)  moves production to the socially optimal level of output. 
A)  cannot exist with externalities. 
B)  is the same thing as a Pigouvian tax. 
C)  is measured in terms of Pigouvian dollars. 
D)  moves production to the socially optimal level of output.

Question 6

A Pigouvian tax corrects for

Accepted Answer

A)  market congestion. 
B)  market losses. 
C)  inefficient sales. 
D)  low market prices. 
A)  market congestion. 
B)  market losses. 
C)  inefficient sales. 
D)  low market prices.

Question 7

A tax levied on each unit of pollution is

Accepted Answer

A)  an income tax. 
B)  a emissions fee. 
C)  a flat tax. 
D)  an international tax. 
A)  an income tax. 
B)  a emissions fee. 
C)  a flat tax. 
D)  an international tax.

Question 8

As a general rule,zero pollution is not socially desirable because

Accepted Answer

A)  there would be no production. 
B)  the Environmental Protection Agency (EP
A) needs to have something to do. 
C)  no pollution would lead to global warming. 
D)  all of these answer options are correct. 
A)  there would be no production. 
B)  the Environmental Protection Agency (EP
A) needs to have something to do. 
C)  no pollution would lead to global warming. 
D)  all of these answer options are correct.

Question 9

Refer to the following graphs.Which graph(s)represent(s)an externality?

Accepted Answer

A)  graph A 
B)  graphs A and B 
C)  graph B 
D)  neither graph A nor graph B 
A)  graph A 
B)  graphs A and B 
C)  graph B 
D)  neither graph A nor graph B

Question 10

Marginal damages

Accepted Answer

A)  must always be considered in social marginal costs. 
B)  must not be considered in social marginal costs. 
C)  must sometimes be considered in social marginal costs. 
D)  have nothing to do with social marginal costs. 
A)  must always be considered in social marginal costs. 
B)  must not be considered in social marginal costs. 
C)  must sometimes be considered in social marginal costs. 
D)  have nothing to do with social marginal costs.

Question 11

Refer to the figure below.What is the total amount of tax paid by Bart?

Accepted Answer

A)  0 
B)  50 
C)  15 
D)  750 
A)  0 
B)  50 
C)  15 
D)  750

Question 12

Incentive-based regulations provide polluters no incentive to reduce pollution and are thus not used often.

Accepted Answer

A)  True 
B)  False 
C)  Uncertain 
A)  True 
B)  False 
C)  Uncertain

Question 13

The desire in the U.S.for owner-occupied housing led to subsidies that contributed to the recession which started in 2007.

Accepted Answer

A)  True 
B)  False 
C)  Uncertain 
A)  True 
B)  False 
C)  Uncertain

Question 14

Marginal benefits are downward sloping when

Accepted Answer

A)  there are no total benefits. 
B)  the slope of the marginal benefits curve is negative. 
C)  total benefits are increasing at a decreasing rate. 
D)  marginal costs are upward sloping. 
A)  there are no total benefits. 
B)  the slope of the marginal benefits curve is negative. 
C)  total benefits are increasing at a decreasing rate. 
D)  marginal costs are upward sloping.

Question 15

Marginal damages are hard to measure because

Accepted Answer

A)  they can be generated from multiple sources. 
B)  they are hard to graph. 
C)  they happen over time. 
D)  no one cares about them. 
A)  they can be generated from multiple sources. 
B)  they are hard to graph. 
C)  they happen over time. 
D)  no one cares about them.

Question 16

Externalities can be produced by ____________,as well as ____________.

Accepted Answer

A)  individuals; firms 
B)  market prices; market incomes 
C)  oceans; streams 
D)  none of these answer options are correct. 
A)  individuals; firms 
B)  market prices; market incomes 
C)  oceans; streams 
D)  none of these answer options are correct.

Question 17

Consider the case of two farmers,Tony and Hakim,depicted in the following figure.Both use DDT (a chemical pesticide)for their crops.The use of DDT causes an externality for swimmers down river from the farms.
(a)Show the amount of pesticides used if each uses the privately optimal level of pesticides.
(b)Show the amount of pesticides used if they are socially concerned.
(c)Why is a reduction back to XH = HT not socially desired?

Accepted Answer

(a) @#IMG-DLM& 
(b)

Question 18

For market efficiency,MSC must be equated to MSB.

Accepted Answer

A)  True 
B)  False 
C)  Uncertain 
A)  True 
B)  False 
C)  Uncertain

Question 19

Negative externalities cause loss of welfare not transmitted by market factors.

Accepted Answer

A)  True 
B)  False 
C)  Uncertain 
A)  True 
B)  False 
C)  Uncertain

List and discuss three problems that might arise when using the Coase theorem.

Which of the following is correct?

Externalities require government intervention when

A Pigouvian subsidy

A Pigouvian tax corrects for

A tax levied on each unit of pollution is

As a general rule,zero pollution is not socially desirable because

Refer to the following graphs.Which graph(s)represent(s)an externality?

Marginal damages

Refer to the figure below.What is the total amount of tax paid by Bart?

Incentive-based regulations provide polluters no incentive to reduce pollution and are thus not used often.

The desire in the U.S.for owner-occupied housing led to subsidies that contributed to the recession which started in 2007.

Marginal benefits are downward sloping when

Marginal damages are hard to measure because

Externalities can be produced by ,as well as .

For market efficiency,MSC must be equated to MSB.

Negative externalities cause loss of welfare not transmitted by market factors.

Introduction

Tools of Positive Analysis

Tools of Normative Analysis

Public Goods

Political Economy

Education

Cost-Benefit Analysis

The Health Care Market

Government and the Market for Health Care

Social Security

Income Redistribution: Conceptual Issues

Expenditure Programs for the Poor

Taxation and Income Distribution

Taxation and Efficiency

Efficient and Equitable Taxation

The Personal Income Tax

Personal Taxation and Behavior

The Corporation Tax

Deficit Finance

Fundamental Tax Reform: Taxes on Consumption and Wealth

Public Finance in a Federal System

Filters

Exam 5: Externalities

List and discuss three problems that might arise when using the Coase theorem.

Which of the following is correct?

Externalities require government intervention when

A Pigouvian subsidy

A Pigouvian tax corrects for

A tax levied on each unit of pollution is

As a general rule,zero pollution is not socially desirable because

Refer to the following graphs.Which graph(s)represent(s)an externality?

Marginal damages

Refer to the figure below.What is the total amount of tax paid by Bart?

Incentive-based regulations provide polluters no incentive to reduce pollution and are thus not used often.

The desire in the U.S.for owner-occupied housing led to subsidies that contributed to the recession which started in 2007.

Marginal benefits are downward sloping when

Marginal damages are hard to measure because

Externalities can be produced by ____________,as well as ____________.

For market efficiency,MSC must be equated to MSB.

Negative externalities cause loss of welfare not transmitted by market factors.

Introduction

Tools of Positive Analysis

Tools of Normative Analysis

Public Goods

Political Economy

Education

Cost-Benefit Analysis

The Health Care Market

Government and the Market for Health Care

Social Security

Income Redistribution: Conceptual Issues

Expenditure Programs for the Poor

Taxation and Income Distribution

Taxation and Efficiency

Efficient and Equitable Taxation

The Personal Income Tax

Personal Taxation and Behavior

The Corporation Tax

Deficit Finance

Fundamental Tax Reform: Taxes on Consumption and Wealth

Public Finance in a Federal System

Filters

Externalities can be produced by ,as well as .