Question 1

According to the Coase theorem, in the presence of externalities

Accepted Answer

A)  private parties can bargain to reach an efficient outcome. 
B)  government assistance is necessary to reach an efficient outcome. 
C)  the assignment of legal rights can prevent externalities. 
D)  the initial distribution of property rights will determine the efficient outcome. 
A)  private parties can bargain to reach an efficient outcome. 
B)  government assistance is necessary to reach an efficient outcome. 
C)  the assignment of legal rights can prevent externalities. 
D)  the initial distribution of property rights will determine the efficient outcome.

Question 2

Figure 10-19  
-Refer to Figure 10-19. The social optimum can be reached if

Accepted Answer

A)  a subsidy of $36 is applied to each unit of the good. 
B)  a subsidy of $23 is applied to each unit of the good. 
C)  a tax of $23 is applied to each unit of the good. 
D)  a tax of $15 is applied to each unit of the good. 
A)  a subsidy of $36 is applied to each unit of the good. 
B)  a subsidy of $23 is applied to each unit of the good. 
C)  a tax of $23 is applied to each unit of the good. 
D)  a tax of $15 is applied to each unit of the good.

Question 3

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 external cost associated with the restoration of the 50th historic building, or is there an external benefit? What is the amount of that external cost or external benefit?

Accepted Answer

There is an external benefit o

Question 4

Table 10-3
  
-Refer to Table 10-3. The socially optimal 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 5

Which of the following is a way to address an externality problem?

Accepted Answer

A)  command and control solution 
B)  corrective tax 
C)  corrective subsidy 
D)  all of the above. 
A)  command and control solution 
B)  corrective tax 
C)  corrective subsidy 
D)  all of the above.

Question 6

Suppose that alcohol consumption creates a negative externality. What can the government do to equate the equilibrium quantity of alcohol and the socially optimal quantity of alcohol?

Accepted Answer

A)  impose a tax on alcohol that is equal to the per-unit externality 
B)  offer a subsidy on alcohol that is equal to the per-unit externality 
C)  impose a regulation limiting the amount of alcohol that each consumer can purchase 
D)  nothing 
A)  impose a tax on alcohol that is equal to the per-unit externality 
B)  offer a subsidy on alcohol that is equal to the per-unit externality 
C)  impose a regulation limiting the amount of alcohol that each consumer can purchase 
D)  nothing

Question 7

Figure 10-11  
-Refer to Figure 10-11. Taking only private value and private cost into account, total surplus at the market equilibrium amounts to

Accepted Answer

A)  $3,850. 
B)  $4,320. 
C)  $4,980. 
D)  $5,530. 
A)  $3,850. 
B)  $4,320. 
C)  $4,980. 
D)  $5,530.

Question 8

The Golden Rule is an example of a private solution for

Accepted Answer

A)  subsidizing higher education. 
B)  internalizing externalities. 
C)  increasing production. 
D)  reducing scarcity. 
A)  subsidizing higher education. 
B)  internalizing externalities. 
C)  increasing production. 
D)  reducing scarcity.

Question 9

Bruce engages in an activity that diminishes the well-being of Shawna. Bruce pays no compensation to Shawna for her loss in well-being. What specific term do economists use to describe this situation?

Accepted Answer

The term i

Question 10

If an externality is present in a market, economic efficiency may be enhanced by

Accepted Answer

A)  increased competition. 
B)  weakening property rights. 
C)  better informed market participants. 
D)  government intervention. 
A)  increased competition. 
B)  weakening property rights. 
C)  better informed market participants. 
D)  government intervention.

Question 11

Scenario 10-4
The demand curve for fire extinguishers slopes downward and the supply curve for fire extinguishers slopes upward. The production of the 500th fire 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. In order to reach the social optimum, should fire extinguishers be taxed or subsidized? What is the appropriate amount of the tax or subsidy on each fire extinguisher?

Accepted Answer

Each fire extinguish

Question 12

Since air pollution creates a negative externality,

Accepted Answer

A)  social welfare will be enhanced when some, but not all air pollution is eliminated. 
B)  social welfare is optimal when all air pollution is eliminated. 
C)  governments should encourage private firms to consider only private costs. 
D)  the free market result maximizes social welfare. 
A)  social welfare will be enhanced when some, but not all air pollution is eliminated. 
B)  social welfare is optimal when all air pollution is eliminated. 
C)  governments should encourage private firms to consider only private costs. 
D)  the free market result maximizes social welfare.

Question 13

Which of the following statements about a well-maintained yard best conveys the general nature of the externality?

Accepted Answer

A)  A well-maintained yard conveys a positive externality because it increases the home's market value. 
B)  A well-maintained yard conveys a negative externality because it increases the property tax liability of the owner. 
C)  A well-maintained yard conveys a positive externality because it increases the value of adjacent properties in the neighborhood. 
D)  A well-maintained yard cannot provide any type of externality. 
A)  A well-maintained yard conveys a positive externality because it increases the home's market value. 
B)  A well-maintained yard conveys a negative externality because it increases the property tax liability of the owner. 
C)  A well-maintained yard conveys a positive externality because it increases the value of adjacent properties in the neighborhood. 
D)  A well-maintained yard cannot provide any type of externality.

Question 14

Negative externalities lead markets to produce

Accepted Answer

A)  greater than efficient output levels and positive externalities lead markets to produce smaller than efficient output levels. 
B)  smaller than efficient output levels and positive externalities lead markets to produce greater than efficient output levels. 
C)  greater than efficient output levels and positive externalities lead markets to produce efficient output levels. 
D)  efficient output levels and positive externalities lead markets to produce greater than efficient output levels. 
A)  greater than efficient output levels and positive externalities lead markets to produce smaller than efficient output levels. 
B)  smaller than efficient output levels and positive externalities lead markets to produce greater than efficient output levels. 
C)  greater than efficient output levels and positive externalities lead markets to produce efficient output levels. 
D)  efficient output levels and positive externalities lead markets to produce greater than efficient output levels.

Question 15

The externality associated with technology spillovers

Accepted Answer

A)  cannot be internalized by government. 
B)  is a negative externality. 
C)  can be internalized, potentially, through taxation of firms that are responsible for technology spillovers. 
D)  can be internalized, potentially, through patent protection. 
A)  cannot be internalized by government. 
B)  is a negative externality. 
C)  can be internalized, potentially, through taxation of firms that are responsible for technology spillovers. 
D)  can be internalized, potentially, through patent protection.

Question 16

Corrective taxes

Accepted Answer

A)  encourage consumers to avoid sales taxes by shopping online. 
B)  are frequently used to discourage imports. 
C)  are less efficient than direct regulation. 
D)  give factory owners an economic incentive to reduce pollution. 
A)  encourage consumers to avoid sales taxes by shopping online. 
B)  are frequently used to discourage imports. 
C)  are less efficient than direct regulation. 
D)  give factory owners an economic incentive to reduce pollution.

Question 17

When a particular negative externality affects a very large number of people, it is likely that

Accepted Answer

A)  government will not find it worthwhile to impose a corrective tax. 
B)  private solutions to the problem will dominate any attempt by government to alleviate the problem. 
C)  the solution to externalities suggested by the Coase theorem will work very well. 
D)  the solution to externalities suggested by the Coase theorem will not work. 
A)  government will not find it worthwhile to impose a corrective tax. 
B)  private solutions to the problem will dominate any attempt by government to alleviate the problem. 
C)  the solution to externalities suggested by the Coase theorem will work very well. 
D)  the solution to externalities suggested by the Coase theorem will not work.

Question 18

Wally owns a dog whose barking annoys Wally's neighbor, Corrine. Suppose that the benefit of owning the dog is worth $700 to Wally and that Corrine bears a cost of $500 from the barking. Assuming Wally has the legal right to keep the dog, a possible private solution to this problem is that

Accepted Answer

A)  Wally pays Corrine $600 for her inconvenience. 
B)  Corrine pays Wally $400 to give the dog to his parents who live on an isolated farm. 
C)  Corrine pays Wally $550 to give the dog to his parents who live on an isolated farm. 
D)  The current situation is efficient. 
A)  Wally pays Corrine $600 for her inconvenience. 
B)  Corrine pays Wally $400 to give the dog to his parents who live on an isolated farm. 
C)  Corrine pays Wally $550 to give the dog to his parents who live on an isolated farm. 
D)  The current situation is efficient.

Question 19

What is the difference between command-and-control policies and market-based policies toward externalities?

Accepted Answer

A)  Command-and-control policies provide incentives for private decision makers to solve the problems on their own, whereas market-based policies regulate behavior directly. 
B)  Command-and-control policies rely on taxes, whereas market-based policies rely on quotas. 
C)  Command-and-control policies regulate behavior directly, whereas market-based policies provide incentives for private decision makers to change their behavior. 
D)  Command-and-control policies are efficient, whereas market-based policies are inefficient. 
A)  Command-and-control policies provide incentives for private decision makers to solve the problems on their own, whereas market-based policies regulate behavior directly. 
B)  Command-and-control policies rely on taxes, whereas market-based policies rely on quotas. 
C)  Command-and-control policies regulate behavior directly, whereas market-based policies provide incentives for private decision makers to change their behavior. 
D)  Command-and-control policies are efficient, whereas market-based policies are inefficient.

Question 20

If the government were to impose a fine of $4,000 for each unit of air-pollution released by a fertilizer plant, the policy would be considered

Accepted Answer

A)  a subsidy. 
B)  a regulation. 
C)  a corrective tax. 
D)  an application of the Coase theorem. 
A)  a subsidy. 
B)  a regulation. 
C)  a corrective tax. 
D)  an application of the Coase theorem.

Exam 10: Externalities

According to the Coase theorem, in the presence of externalities

Figure 10-19 -Refer to Figure 10-19. The social optimum can be reached if

Table 10-3 -Refer to Table 10-3. The socially optimal quantity of output is

Which of the following is a way to address an externality problem?

Suppose that alcohol consumption creates a negative externality. What can the government do to equate the equilibrium quantity of alcohol and the socially optimal quantity of alcohol?

Figure 10-11 -Refer to Figure 10-11. Taking only private value and private cost into account, total surplus at the market equilibrium amounts to

The Golden Rule is an example of a private solution for

Bruce engages in an activity that diminishes the well-being of Shawna. Bruce pays no compensation to Shawna for her loss in well-being. What specific term do economists use to describe this situation?

If an externality is present in a market, economic efficiency may be enhanced by

Since air pollution creates a negative externality,

Which of the following statements about a well-maintained yard best conveys the general nature of the externality?

Negative externalities lead markets to produce

The externality associated with technology spillovers

Corrective taxes

When a particular negative externality affects a very large number of people, it is likely that

Wally owns a dog whose barking annoys Wally's neighbor, Corrine. Suppose that the benefit of owning the dog is worth $700 to Wally and that Corrine bears a cost of $500 from the barking. Assuming Wally has the legal right to keep the dog, a possible private solution to this problem is that

What is the difference between command-and-control policies and market-based policies toward externalities?

If the government were to impose a fine of $4,000 for each unit of air-pollution released by a fertilizer plant, the policy would be considered

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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