Question 1

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

Accepted Answer

A)  social costs equal private costs at the private market solution. 
B)  private costs exceed social costs at the private market solution. 
C)  social costs exceed private costs at the private market solution. 
D)  they internalize externalities. 
A)  social costs equal private costs at the private market solution. 
B)  private costs exceed social costs at the private market solution. 
C)  social costs exceed private costs at the private market solution. 
D)  they internalize externalities.

Question 2

If education produces positive externalities and the government does not intervene in the market, we would expect

Accepted Answer

A)  the equilibrium price to be higher than the optimal price. 
B)  the equilibrium quantity to be lower than the optimal level. 
C)  the equilibrium quantity to be higher than the optimal level. 
D)  both a and b are correct 
A)  the equilibrium price to be higher than the optimal price. 
B)  the equilibrium quantity to be lower than the optimal level. 
C)  the equilibrium quantity to be higher than the optimal level. 
D)  both a and b are correct

Question 3

A former senator remarked that "We cannot give anyone the option of polluting for a fee." Do most economists agree with this statement, or do they disagree with it?

Accepted Answer

Most econo

Question 4

Scenario 10-3
   Suppose the equation for the demand curve in a market is
where is the quantity demanded and is the price.
       Also, suppose the equation for the supply curve in the same market is ,
where is the quantity supplied.
  
-Refer to Scenario 10-3. Suppose there is an external cost of $12 associated with the production of each unit of the good. What is the equation of the social-cost curve?

Accepted Answer

The equati

Question 5

According to the Coase theorem, private parties can solve the problem of externalities if

Accepted Answer

A)  the cost of bargaining is small. 
B)  the initial distribution of legal rights favors the person being adversely affected by the externality. 
C)  the number of parties involved is sufficiently large. 
D)  All of the above are correct. 
A)  the cost of bargaining is small. 
B)  the initial distribution of legal rights favors the person being adversely affected by the externality. 
C)  the number of parties involved is sufficiently large. 
D)  All of the above are correct.

Question 6

An externality is the impact of

Accepted Answer

A)  society's decisions on the well-being of society. 
B)  a person's actions on that person's well-being. 
C)  one person's actions on the well-being of a bystander. 
D)  society's decisions on the poorest person in the society. 
A)  society's decisions on the well-being of society. 
B)  a person's actions on that person's well-being. 
C)  one person's actions on the well-being of a bystander. 
D)  society's decisions on the poorest person in the society.

Question 7

Suppose the government imposes a tax in a certain market in order to internalize an externality. This type of policy is based on which of the Ten Principles of Economics?

Accepted Answer

A)  People face trade-offs. 
B)  People respond to incentives. 
C)  Markets are usually a good way to organize economic activity. 
D)  The cost of something is what you give up to get it. 
A)  People face trade-offs. 
B)  People respond to incentives. 
C)  Markets are usually a good way to organize economic activity. 
D)  The cost of something is what you give up to get it.

Question 8

Table 10-4
  
-Refer to Table 10-4. Take into account private and external costs and assume the quantity of output is always a whole number that is, fractional units of output are not possible). The maximum total surplus that can be achieved in this market is

Accepted Answer

A)  $29. 
B)  $35. 
C)  $40. 
D)  $46. 
A)  $29. 
B)  $35. 
C)  $40. 
D)  $46.

Question 9

An optimal tax on pollution would result in which of the following?

Accepted Answer

A)  Producers will choose not to produce any pollution. 
B)  Producers will internalize the cost of the pollution. 
C)  Producers will maximize production. 
D)  The value to consumers at market equilibrium will exceed the social cost of production. 
A)  Producers will choose not to produce any pollution. 
B)  Producers will internalize the cost of the pollution. 
C)  Producers will maximize production. 
D)  The value to consumers at market equilibrium will exceed the social cost of production.

Question 10

The Coase theorem suggests that private solutions to an externality problem

Accepted Answer

A)  are effective under all conditions. 
B)  will usually allocate resources efficiently if private parties can bargain without cost. 
C)  are only efficient when there are negative externalities. 
D)  may not be possible because of the distribution of property rights. 
A)  are effective under all conditions. 
B)  will usually allocate resources efficiently if private parties can bargain without cost. 
C)  are only efficient when there are negative externalities. 
D)  may not be possible because of the distribution of property rights.

Question 11

A positive externality will cause a market to produce

Accepted Answer

A)  more than is socially desirable. 
B)  less than is socially desirable. 
C)  the socially optimal equilibrium amount. 
D)  more than the same market would produce in the presence of a negative externality. 
A)  more than is socially desirable. 
B)  less than is socially desirable. 
C)  the socially optimal equilibrium amount. 
D)  more than the same market would produce in the presence of a negative externality.

Question 12

A negative externality

Accepted Answer

A)  is a cost to a bystander. 
B)  is a cost to the buyer. 
C)  is a cost to the seller. 
D)  exists with all market transactions. 
A)  is a cost to a bystander. 
B)  is a cost to the buyer. 
C)  is a cost to the seller. 
D)  exists with all market transactions.

Question 13

Dioxin emission that results from the production of paper is a good example of a negative externality because

Accepted Answer

A)  self-interested paper firms are generally unaware of environmental regulations. 
B)  there are fines for producing too much dioxin. 
C)  self-interested paper producers will not consider the full cost of the dioxin pollution they create. 
D)  toxic emissions are the best example of an externality. 
A)  self-interested paper firms are generally unaware of environmental regulations. 
B)  there are fines for producing too much dioxin. 
C)  self-interested paper producers will not consider the full cost of the dioxin pollution they create. 
D)  toxic emissions are the best example of an externality.

Question 14

In class action lawsuits interested parties to the lawsuit are not required to pay attorney fees directly. This is an example of an attempt to

Accepted Answer

A)  maximize attorney fees. 
B)  reduce the incentive of attorneys to file class action lawsuits. 
C)  reduce the transaction costs of finding a private solution to an externality. 
D)  regulate attorney fees. 
A)  maximize attorney fees. 
B)  reduce the incentive of attorneys to file class action lawsuits. 
C)  reduce the transaction costs of finding a private solution to an externality. 
D)  regulate attorney fees.

Question 15

The Coase theorem suggests that private markets may not be able to solve the problem of externalities

Accepted Answer

A)  if the government does not become involved in the process. 
B)  when the number of interested parties is large and bargaining costs are high. 
C)  if the firm in the market is a monopoly. 
D)  if some people benefit from the externality. 
A)  if the government does not become involved in the process. 
B)  when the number of interested parties is large and bargaining costs are high. 
C)  if the firm in the market is a monopoly. 
D)  if some people benefit from the externality.

Question 16

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 17

According to the Coase theorem, if private parties can bargain without cost, then the private market will solve the problem of externalities.

Accepted Answer

A) True 
 B)False

Question 18

Figure 10-13. On the graph, Q represents the quantity of plastics and P represents the price of plastics.   Multiple Choice - Section 02: Public Policies toward Externalities
-Refer to Figure 10-13. Each unit of plastics that is produced results in an external

Accepted Answer

A)  cost of $6. 
B)  cost of $8. 
C)  benefit of $6. 
D)  benefit of $8. 
A)  cost of $6. 
B)  cost of $8. 
C)  benefit of $6. 
D)  benefit of $8.

Question 19

All remedies for externalities share the goal of

Accepted Answer

A)  moving the allocation of resources toward the market equilibrium. 
B)  moving the allocation of resources toward the socially optimal equilibrium. 
C)  increasing the allocation of resources. 
D)  decreasing the allocation of resources. 
A)  moving the allocation of resources toward the market equilibrium. 
B)  moving the allocation of resources toward the socially optimal equilibrium. 
C)  increasing the allocation of resources. 
D)  decreasing the allocation of resources.

Question 20

When Monique drives to work every morning, she drives on a congested highway. What Monique does not realize is that when she enters the highway each morning she increases the travel time of all other drivers on the highway. In this case, the external cost of Monique's highway trip

Accepted Answer

A)  increases the social cost above the private cost. 
B)  lowers the social cost below the private cost. 
C)  increases the social value above the private benefit. 
D)  decreases the social value below the private benefit. 
A)  increases the social cost above the private cost. 
B)  lowers the social cost below the private cost. 
C)  increases the social value above the private benefit. 
D)  decreases the social value below the private benefit.

Exam 10: Externalities

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

If education produces positive externalities and the government does not intervene in the market, we would expect

A former senator remarked that "We cannot give anyone the option of polluting for a fee." Do most economists agree with this statement, or do they disagree with it?

According to the Coase theorem, private parties can solve the problem of externalities if

An externality is the impact of

Suppose the government imposes a tax in a certain market in order to internalize an externality. This type of policy is based on which of the Ten Principles of Economics?

Table 10-4 -Refer to Table 10-4. Take into account private and external costs and assume the quantity of output is always a whole number that is, fractional units of output are not possible). The maximum total surplus that can be achieved in this market is

An optimal tax on pollution would result in which of the following?

The Coase theorem suggests that private solutions to an externality problem

A positive externality will cause a market to produce

A negative externality

Dioxin emission that results from the production of paper is a good example of a negative externality because

In class action lawsuits interested parties to the lawsuit are not required to pay attorney fees directly. This is an example of an attempt to

The Coase theorem suggests that private markets may not be able to solve the problem of externalities

Reaching an efficient bargain is difficult when the

According to the Coase theorem, if private parties can bargain without cost, then the private market will solve the problem of externalities.

Figure 10-13. On the graph, Q represents the quantity of plastics and P represents the price of plastics. Multiple Choice - Section 02: Public Policies toward Externalities -Refer to Figure 10-13. Each unit of plastics that is produced results in an external

All remedies for externalities share the goal of

When Monique drives to work every morning, she drives on a congested highway. What Monique does not realize is that when she enters the highway each morning she increases the travel time of all other drivers on the highway. In this case, the external cost of Monique's highway trip

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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