Question 1

To economists, good environmental policy begins by acknowledging one of the Ten Principles of Economics:

Accepted Answer

A)  Trade can make everyone better off. 
B)  People face trade-offs. 
C)  Markets are usually a good way to organize economic activity. 
D)  A country's standard of living depends on its ability to produce goods and services. 
A)  Trade can make everyone better off. 
B)  People face trade-offs. 
C)  Markets are usually a good way to organize economic activity. 
D)  A country's standard of living depends on its ability to produce goods and services.

Question 2

In the case of a technology spillover, internalizing a positive externality through a government subsidy will cause the industry's supply curve to

Accepted Answer

A)  shift up by an amount equal to the subsidy. 
B)  shift down by an amount less than the subsidy. 
C)  shift down by an amount equal to the subsidy. 
D)  shift down by an amount greater than the subsidy. 
A)  shift up by an amount equal to the subsidy. 
B)  shift down by an amount less than the subsidy. 
C)  shift down by an amount equal to the subsidy. 
D)  shift down by an amount greater than the subsidy.

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 tax depicted on the graph

Accepted Answer

A)  gives polluting firms an incentive to develop cleaner technologies. 
B)  is viewed by most economists as less effective than a command-and-control policy as a means of reducing pollution. 
C)  has the effect of moving the allocation of resources further from the social optimum than it would be in the absence of the tax. 
D)  All of the above are correct. 
A)  gives polluting firms an incentive to develop cleaner technologies. 
B)  is viewed by most economists as less effective than a command-and-control policy as a means of reducing pollution. 
C)  has the effect of moving the allocation of resources further from the social optimum than it would be in the absence of the tax. 
D)  All of the above are correct.

Question 4

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 50th restored 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. Is there an externality associated with this market? If your answer is "Yes," is the externality positive or negative?

Accepted Answer

There is a positive

Question 5

Corrective taxes differ from most taxes in that corrective taxes

Accepted Answer

A)  reduce economic efficiency. 
B)  do not raise revenue for the government. 
C)  do not cause deadweight losses. 
D)  always result in a high burden on sellers of goods to which the corrective tax applies. 
A)  reduce economic efficiency. 
B)  do not raise revenue for the government. 
C)  do not cause deadweight losses. 
D)  always result in a high burden on sellers of goods to which the corrective tax applies.

Question 6

Figure 10-2. The graph depicts the market for plastic.  
-Refer to Figure 10-2. Suppose that the production of plastic creates a social cost which is depicted in the graph above. What is the socially optimal quantity of plastic?

Accepted Answer

A)  200 units 
B)  450 units 
C)  500 units 
D)  650 units 
A)  200 units 
B)  450 units 
C)  500 units 
D)  650 units

Question 7

Figure 10-11  
-Refer to Figure 10-11. Which of the following statements is correct?

Accepted Answer

A)  The private value of the 420th unit of output is $15. 
B)  The social value of the 420th unit of output is $42. 
C)  The external benefit of the 420th unit of output is $27. 
D)  All of the above are correct. 
A)  The private value of the 420th unit of output is $15. 
B)  The social value of the 420th unit of output is $42. 
C)  The external benefit of the 420th unit of output is $27. 
D)  All of the above are correct.

Question 8

An externality

Accepted Answer

A)  results in an equilibrium that does not maximize the total benefits to society. 
B)  causes demand to exceed supply. 
C)  strengthens the role of the "invisible hand" in the marketplace. 
D)  affects buyers but not sellers. 
A)  results in an equilibrium that does not maximize the total benefits to society. 
B)  causes demand to exceed supply. 
C)  strengthens the role of the "invisible hand" in the marketplace. 
D)  affects buyers but not sellers.

Question 9

In Singapore, littering fines are strictly enforced. This is an example of a policy that

Accepted Answer

A)  relies on moral codes to reduce the pollution externality. 
B)  relies on the Coase Theorem. 
C)  discriminates against foreigners. 
D)  relies on incentives to reduce the pollution externality. 
A)  relies on moral codes to reduce the pollution externality. 
B)  relies on the Coase Theorem. 
C)  discriminates against foreigners. 
D)  relies on incentives to reduce the pollution externality.

Question 10

A corrective tax

Accepted Answer

A)  allocates pollution to those factories that face the highest cost of reducing it. 
B)  is a form of regulation. 
C)  works well for all types of externalities. 
D)  is inferior to regulatory policy according to most economists. 
A)  allocates pollution to those factories that face the highest cost of reducing it. 
B)  is a form of regulation. 
C)  works well for all types of externalities. 
D)  is inferior to regulatory policy according to most economists.

Question 11

Government intervention in the economy with the goal of promoting technology-producing industries is known as patent policy.

Accepted Answer

A) True 
 B)False

Question 12

In summarizing the research on the externalities associated with driving cars, a 2007 Journal of Economic Literature article concluded that the optimal corrective tax on gasoline in the United States, in 2012 dollars, would be about

Accepted Answer

A)  $0.40 per gallon. 
B)  $0.90 per gallon. 
C)  $2.10 per gallon. 
D)  $2.70 per gallon. 
A)  $0.40 per gallon. 
B)  $0.90 per gallon. 
C)  $2.10 per gallon. 
D)  $2.70 per gallon.

Question 13

Emission controls on automobiles are an example of a

Accepted Answer

A)  corrective tax. 
B)  command-and-control policy to increase social efficiency. 
C)  policy that reduces pollution by allocating resources through market mechanisms. 
D)  policy to reduce congestion on urban freeways. 
A)  corrective tax. 
B)  command-and-control policy to increase social efficiency. 
C)  policy that reduces pollution by allocating resources through market mechanisms. 
D)  policy to reduce congestion on urban freeways.

Question 14

In many cases the Coase theorem does not work well because

Accepted Answer

A)  there are too few parties at the negotiation table. 
B)  the government does not know about the Coase theorem. 
C)  transaction costs are too high. 
D)  transaction costs are too low. 
A)  there are too few parties at the negotiation table. 
B)  the government does not know about the Coase theorem. 
C)  transaction costs are too high. 
D)  transaction costs are too low.

Question 15

Figure 10-9
  
-Refer to Figure 10-9, Panel b) and Panel c). The installation of a scrubber in a smokestack reduces the emission of harmful chemicals from the smokestack. Therefore, the external benefit of smokestack scrubber installation 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 16

Figure 10-19  
-Refer to Figure 10-19. The socially optimal quantity of output is

Accepted Answer

A)  58 units. 
B)  73 units. 
C)  between 73 and 94 units. 
D)  94 units. 
A)  58 units. 
B)  73 units. 
C)  between 73 and 94 units. 
D)  94 units.

Question 17

According to the Coase theorem, the private market will need government intervention in order to reach an efficient outcome.

Accepted Answer

A) True 
 B)False

Question 18

Figure 10-5  
-Refer to Figure 10-5. Which price and quantity combination represents the social optimum?

Accepted Answer

A)  P0 and Q1. 
B)  P2 and Q1. 
C)  P1 and Q0. 
D)  P2 and Q0. 
A)  P0 and Q1. 
B)  P2 and Q1. 
C)  P1 and Q0. 
D)  P2 and Q0.

Question 19

The Coase theorem asserts that, if externalities are present and if private parties can bargain over the allocation of resources at no cost, then

Accepted Answer

A)  the private market will reach an equilibrium in which resources are allocated inefficiently. 
B)  the private market will reach an equilibrium in which resources are allocated efficiently. 
C)  the private market cannot reach an equilibrium. 
D)  a mixture of corrective taxes and subsidies is necessary for a socially optimal equilibrium. 
A)  the private market will reach an equilibrium in which resources are allocated inefficiently. 
B)  the private market will reach an equilibrium in which resources are allocated efficiently. 
C)  the private market cannot reach an equilibrium. 
D)  a mixture of corrective taxes and subsidies is necessary for a socially optimal equilibrium.

Question 20

Which of the following statements is not correct?

Accepted Answer

A)  A patent is a way for the government to encourage the production of a good with technology spillovers. 
B)  A tax is a way for the government to reduce the production of a good with a negative externality. 
C)  A tax that accurately reflects social costs produces the socially optimal outcome. 
D)  Government policies cannot improve upon private market outcomes. 
A)  A patent is a way for the government to encourage the production of a good with technology spillovers. 
B)  A tax is a way for the government to reduce the production of a good with a negative externality. 
C)  A tax that accurately reflects social costs produces the socially optimal outcome. 
D)  Government policies cannot improve upon private market outcomes.

Exam 10: Externalities

To economists, good environmental policy begins by acknowledging one of the Ten Principles of Economics:

In the case of a technology spillover, internalizing a positive externality through a government subsidy will cause the industry's supply curve to

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 tax depicted on the graph

Corrective taxes differ from most taxes in that corrective taxes

Figure 10-2. The graph depicts the market for plastic. -Refer to Figure 10-2. Suppose that the production of plastic creates a social cost which is depicted in the graph above. What is the socially optimal quantity of plastic?

Figure 10-11 -Refer to Figure 10-11. Which of the following statements is correct?

An externality

In Singapore, littering fines are strictly enforced. This is an example of a policy that

A corrective tax

Government intervention in the economy with the goal of promoting technology-producing industries is known as patent policy.

In summarizing the research on the externalities associated with driving cars, a 2007 Journal of Economic Literature article concluded that the optimal corrective tax on gasoline in the United States, in 2012 dollars, would be about

Emission controls on automobiles are an example of a

In many cases the Coase theorem does not work well because

Figure 10-9 -Refer to Figure 10-9, Panel b) and Panel c). The installation of a scrubber in a smokestack reduces the emission of harmful chemicals from the smokestack. Therefore, the external benefit of smokestack scrubber installation is represented by

Figure 10-19 -Refer to Figure 10-19. The socially optimal quantity of output is

According to the Coase theorem, the private market will need government intervention in order to reach an efficient outcome.

Figure 10-5 -Refer to Figure 10-5. Which price and quantity combination represents the social optimum?

The Coase theorem asserts that, if externalities are present and if private parties can bargain over the allocation of resources at no cost, then

Which of the following statements is not correct?

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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