Question 1

A paper plant produces water pollution during the production process. If the government forces the plant to internalize the negative externality, then the

Accepted Answer

A)  supply curve for paper would shift to the right. 
B)  supply curve for paper would shift to the left. 
C)  demand curve for paper would shift to the right. 
D)  demand curve for paper would shift to the left. 
A)  supply curve for paper would shift to the right. 
B)  supply curve for paper would shift to the left. 
C)  demand curve for paper would shift to the right. 
D)  demand curve for paper would shift to the left.

Question 2

Figure 10-4  
-Refer to Figure 10-4. This market is characterized by

Accepted Answer

A)  government intervention. 
B)  a positive externality. 
C)  a negative externality. 
D)  None of the above is correct. 
A)  government intervention. 
B)  a positive externality. 
C)  a negative externality. 
D)  None of the above is correct.

Question 3

When one firm sells its pollution permit to another firm,

Accepted Answer

A)  both firms benefit. 
B)  the total amount of pollution remains the same. 
C)  the total amount of pollution decreases. 
D)  Both a and b are correct. 
A)  both firms benefit. 
B)  the total amount of pollution remains the same. 
C)  the total amount of pollution decreases. 
D)  Both a and b are correct.

Question 4

A technology spillover is a type of negative externality.

Accepted Answer

A) True 
 B)False

Question 5

Two firms, A and B, each currently emit 100 tons of chemicals into the air. The government has decided to reduce the pollution and from now on will require a pollution permit for each ton of pollution emitted into the air. The government gives each firm 40 pollution permits, which it can either use or sell to the other firm. It costs Firm A $200 for each ton of pollution that it eliminates before it is emitted into the air, and it costs Firm B $100 for each ton of pollution that it eliminates before it is emitted into the air. It is likely that

Accepted Answer

A)  Firm A will buy all of Firm B's pollution permits. Each one will cost between $100 and $200. 
B)  Firm B will buy all of Firm A's pollution permits. Each one will cost between $100 and $200. 
C)  Both firms will use their own pollution permits. 
D)  Firm A will buy some of Firm B's pollution permits. Each one will cost less than $100. 
A)  Firm A will buy all of Firm B's pollution permits. Each one will cost between $100 and $200. 
B)  Firm B will buy all of Firm A's pollution permits. Each one will cost between $100 and $200. 
C)  Both firms will use their own pollution permits. 
D)  Firm A will buy some of Firm B's pollution permits. Each one will cost less than $100.

Question 6

Figure 10-9
  
-Refer to Figure 10-9. Which graph represents a market with a negative externality?

Accepted Answer

A)  Panel a) 
B)  Panel b) 
C)  Panel c) 
D)  Both b) and c) are correct. 
A)  Panel a) 
B)  Panel b) 
C)  Panel c) 
D)  Both b) and c) are correct.

Question 7

Private markets fail to reach a socially optimal equilibrium when positive externalities are present because the

Accepted Answer

A)  private benefit equals the social benefit at the private market solution. 
B)  private cost exceeds the private benefit at the private market solution. 
C)  social value exceeds the private value at the private market solution. 
D)  private cost exceeds the social benefit at the private market solution. 
A)  private benefit equals the social benefit at the private market solution. 
B)  private cost exceeds the private benefit at the private market solution. 
C)  social value exceeds the private value at the private market solution. 
D)  private cost exceeds the social benefit at the private market solution.

Question 8

Table 10-1
The following table shows the private value, private cost, and external cost for various quantities of output in a market.
  
-Refer to Table 10-1. What is the equilibrium quantity of output in the market?

Accepted Answer

A)  2 units 
B)  3 units 
C)  4 units 
D)  5 units 
A)  2 units 
B)  3 units 
C)  4 units 
D)  5 units

Question 9

Figure 10-1  
-Refer to Figure 10-1. This graph represents the tobacco industry. Without any government intervention, the equilibrium price and quantity are

Accepted Answer

A)  $1.90 and 38 units, respectively. 
B)  $1.80 and 35 units, respectively. 
C)  $1.60 and 42 units, respectively. 
D)  $1.35 and 58 units, respectively. 
A)  $1.90 and 38 units, respectively. 
B)  $1.80 and 35 units, respectively. 
C)  $1.60 and 42 units, respectively. 
D)  $1.35 and 58 units, respectively.

Question 10

Technology spillover occurs when

Accepted Answer

A)  a firm passes the high costs of technical research on to society through higher prices. 
B)  a firm's research yields technical knowledge that is used by society as a whole. 
C)  the government subsidizes firms engaged in high-tech research. 
D)  copyright laws prohibit firms from profiting from the research of others. 
A)  a firm passes the high costs of technical research on to society through higher prices. 
B)  a firm's research yields technical knowledge that is used by society as a whole. 
C)  the government subsidizes firms engaged in high-tech research. 
D)  copyright laws prohibit firms from profiting from the research of others.

Question 11

Figure 10-9
  
-Refer to Figure 10-9, Panel b) and Panel c). The overuse of antibiotics leads to the development of antibiotic- resistant diseases. Therefore, the external cost of antibiotic overuse is represented by

Accepted Answer

A)  Q3 - Q2. 
B)  Q5 - Q4. 
C)  P3a - P3b. 
D)  P4a - P4b. 
A)  Q3 - Q2. 
B)  Q5 - Q4. 
C)  P3a - P3b. 
D)  P4a - P4b.

Question 12

A local manufacturing plant that emitted sulfur dioxide was forced to stop production because it did not comply with local clean air standards. This decision provides an example of

Accepted Answer

A)  a direct regulation of an externality. 
B)  corrective taxes. 
C)  a Coase theorem solution to an externality. 
D)  the misuse of a subsidy. 
A)  a direct regulation of an externality. 
B)  corrective taxes. 
C)  a Coase theorem solution to an externality. 
D)  the misuse of a subsidy.

Question 13

Which of the following statements is not correct?

Accepted Answer

A)  Government policies may improve the market's allocation of resources when negative externalities are present. 
B)  Government policies may improve the market's allocation of resources when positive externalities are present. 
C)  A positive externality is an example of a market failure. 
D)  Without government intervention, the market will tend to undersupply products that produce negative externalities. 
A)  Government policies may improve the market's allocation of resources when negative externalities are present. 
B)  Government policies may improve the market's allocation of resources when positive externalities are present. 
C)  A positive externality is an example of a market failure. 
D)  Without government intervention, the market will tend to undersupply products that produce negative externalities.

Question 14

Figure 10-7  
-Refer to Figure 10-7. Which quantity represents the social optimum for this market?

Accepted Answer

A)  Q1. 
B)  Q2. 
C)  Q3. 
D)  Q4. 
A)  Q1. 
B)  Q2. 
C)  Q3. 
D)  Q4.

Question 15

Which of the following policies is not an example of a command-and-control policy?

Accepted Answer

A)  subsidies 
B)  Pigovian taxes 
C)  tradable pollution permits 
D)  None of the above is an example of a command-and-control policy. 
A)  subsidies 
B)  Pigovian taxes 
C)  tradable pollution permits 
D)  None of the above is an example of a command-and-control policy.

Question 16

In a certain city, the local government regulates the destruction of historic buildings and provides tax breaks to owners of historic buildings who restore them. These government policies

Accepted Answer

A)  reflect the fact that restored historic buildings convey a positive externality. 
B)  reflect the fact that the destruction of historic buildings conveys a positive externality. 
C)  are likely to worsen the market failure that is associated with historic buildings and the restoration of such buildings. 
D)  are likely to decrease the well-being of society as a whole. 
A)  reflect the fact that restored historic buildings convey a positive externality. 
B)  reflect the fact that the destruction of historic buildings conveys a positive externality. 
C)  are likely to worsen the market failure that is associated with historic buildings and the restoration of such buildings. 
D)  are likely to decrease the well-being of society as a whole.

Question 17

Figure 10-2. The graph depicts the market for plastic.  
-Refer to Figure 10-2. A benevolent social planner would like to see

Accepted Answer

A)  200 units of plastic produced. 
B)  500 units of plastic produced. 
C)  650 units of plastic produced. 
D)  more than 650 units of plastic produced. 
A)  200 units of plastic produced. 
B)  500 units of plastic produced. 
C)  650 units of plastic produced. 
D)  more than 650 units of plastic produced.

Question 18

Figure 10-9
  
-Refer to Figure 10-9, Panel c). The market equilibrium quantity is

Accepted Answer

A)  Q4, which is the socially optimal quantity. 
B)  Q5, which is the socially optimal quantity. 
C)  Q4, and the socially optimal quantity is Q5. 
D)  Q5, and the socially optimal quantity is Q4. 
A)  Q4, which is the socially optimal quantity. 
B)  Q5, which is the socially optimal quantity. 
C)  Q4, and the socially optimal quantity is Q5. 
D)  Q5, and the socially optimal quantity is Q4.

Question 19

Patent protection is one way to deal with technology spillovers.

Accepted Answer

A) True 
 B)False

Question 20

Table 10-1
The following table shows the private value, private cost, and external cost for various quantities of output in a market.
  
-Refer to Table 10-1. What is the socially-optimal quantity of output in this market?

Accepted Answer

A)  1 unit 
B)  2 units 
C)  3 units 
D)  4 units 
A)  1 unit 
B)  2 units 
C)  3 units 
D)  4 units

Exam 10: Externalities

A paper plant produces water pollution during the production process. If the government forces the plant to internalize the negative externality, then the

Figure 10-4 -Refer to Figure 10-4. This market is characterized by

When one firm sells its pollution permit to another firm,

A technology spillover is a type of negative externality.

Figure 10-9 -Refer to Figure 10-9. Which graph represents a market with a negative externality?

Private markets fail to reach a socially optimal equilibrium when positive externalities are present because the

Table 10-1 The following table shows the private value, private cost, and external cost for various quantities of output in a market. -Refer to Table 10-1. What is the equilibrium quantity of output in the market?

Figure 10-1 -Refer to Figure 10-1. This graph represents the tobacco industry. Without any government intervention, the equilibrium price and quantity are

Technology spillover occurs when

Figure 10-9 -Refer to Figure 10-9, Panel b) and Panel c). The overuse of antibiotics leads to the development of antibiotic- resistant diseases. Therefore, the external cost of antibiotic overuse is represented by

A local manufacturing plant that emitted sulfur dioxide was forced to stop production because it did not comply with local clean air standards. This decision provides an example of

Which of the following statements is not correct?

Figure 10-7 -Refer to Figure 10-7. Which quantity represents the social optimum for this market?

Which of the following policies is not an example of a command-and-control policy?

In a certain city, the local government regulates the destruction of historic buildings and provides tax breaks to owners of historic buildings who restore them. These government policies

Figure 10-2. The graph depicts the market for plastic. -Refer to Figure 10-2. A benevolent social planner would like to see

Figure 10-9 -Refer to Figure 10-9, Panel c). The market equilibrium quantity is

Patent protection is one way to deal with technology spillovers.

Table 10-1 The following table shows the private value, private cost, and external cost for various quantities of output in a market. -Refer to Table 10-1. What is the socially-optimal quantity of output in this market?

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 Costs of Production

Firms in Competitive Markets

Monopoly

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

The Basic Tools of Finance

Unemployment

The Monetary System

Money Growth and Inflation

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

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