Question 1

A benevolent social planner would prefer that the output of good x be decreased from its current level if, at the current level of output of good x,

Accepted Answer

A)  social value = private value = private cost < social cost. 
B)  private cost < social cost = private value = social value. 
C)  social cost = private cost = private value < social value. 
D)  social cost = private cost = private value = social value. 
A)  social value = private value = private cost < social cost. 
B)  private cost < social cost = private value = social value. 
C)  social cost = private cost = private value < social value. 
D)  social cost = private cost = private value = social value.

Question 2

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 3

When externalities cause markets to be inefficient,

Accepted Answer

A)  government action is always needed to solve the problem. 
B)  private solutions can be developed to solve the problem. 
C)  given enough time, externalities can be solved through normal market adjustments. 
D)  there is no way to eliminate the problem of externalities in a market. 
A)  government action is always needed to solve the problem. 
B)  private solutions can be developed to solve the problem. 
C)  given enough time, externalities can be solved through normal market adjustments. 
D)  there is no way to eliminate the problem of externalities in a market.

Question 4

A corrective tax

Accepted Answer

A)  can be used to internalize a negative externality. 
B)  imposed on sellers shifts the supply curve to the left. 
C)  imposed on buyers shifts the demand curve to the left. 
D)  All of the above are correct. 
A)  can be used to internalize a negative externality. 
B)  imposed on sellers shifts the supply curve to the left. 
C)  imposed on buyers shifts the demand curve to the left. 
D)  All of the above are correct.

Question 5

In a market with positive externalities, the market equilibrium quantity maximizes the welfare of society as a whole.

Accepted Answer

A) True 
 B)False

Question 6

The Coase theorem suggests that efficient solutions to externalities can be determined through bargaining. Under what circumstances will private bargaining fail to produce a solution?

Accepted Answer

Private parties may fail to bargain to a

Question 7

Some policies toward externalities provide incentives so that private decision makers will choose to solve the problem on their own. What name do we use for these types of policies?

Accepted Answer

We call th

Question 8

A market for pollution permits can efficiently allocate the right to pollute by using the forces of supply and demand.

Accepted Answer

A) True 
 B)False

Question 9

Figure 10-8  
-Refer to Figure 10-8. If the government wanted to tax or subsidize this good to achieve the socially-optimal level of output, it would

Accepted Answer

A)  introduce a subsidy of $2 per unit. 
B)  impose a tax of $2 per unit. 
C)  introduce a subsidy of $4 per unit. 
D)  impose a tax of $4 per unit. 
A)  introduce a subsidy of $2 per unit. 
B)  impose a tax of $2 per unit. 
C)  introduce a subsidy of $4 per unit. 
D)  impose a tax of $4 per unit.

Question 10

Does the phenomenon of externalities strengthen the argument that we should rely upon the "invisible hand" of the marketplace, or does it weaken that argument?

Accepted Answer

The phenomenon of ex

Question 11

Figure 10-3  
-Refer to Figure 10-3. The difference between the social cost curve and the supply curve reflects the

Accepted Answer

A)  profit margin of each concert. 
B)  cost of spillover effects from the concert (e.g., noise and traffic). 
C)  value of concerts to society as a whole. 
D)  amount by which the city should subsidize the concert organizers. 
A)  profit margin of each concert. 
B)  cost of spillover effects from the concert (e.g., noise and traffic). 
C)  value of concerts to society as a whole. 
D)  amount by which the city should subsidize the concert organizers.

Question 12

Flu shots provide a positive externality. Suppose that the market for vaccinations is perfectly competitive. Without government intervention in the vaccination market, which of the following statements is correct?

Accepted Answer

A)  At the current output level, the marginal social benefit exceeds the marginal private benefit. 
B)  The current output level is inefficiently low. 
C)  A per-shot subsidy could turn an inefficient situation into an efficient one. 
D)  All of the above are correct. 
A)  At the current output level, the marginal social benefit exceeds the marginal private benefit. 
B)  The current output level is inefficiently low. 
C)  A per-shot subsidy could turn an inefficient situation into an efficient one. 
D)  All of the above are correct.

Question 13

A technology spillover is a type of negative externality.

Accepted Answer

A) True 
 B)False

Question 14

Figure 10-4  
-Refer to Figure 10-4. At Q3

Accepted Answer

A)  the marginal consumer values this product less than the social cost of producing it. 
B)  every consumer values this product less than the social cost of producing it. 
C)  the cost to society is equal to the value to society. 
D)  the marginal consumer values this product more than the private cost. 
A)  the marginal consumer values this product less than the social cost of producing it. 
B)  every consumer values this product less than the social cost of producing it. 
C)  the cost to society is equal to the value to society. 
D)  the marginal consumer values this product more than the private cost.

Question 15

When the social cost curve is above a product's supply curve,

Accepted Answer

A)  the government has intervened in the market. 
B)  a negative externality exists in the market. 
C)  a positive externality exists in the market. 
D)  the distribution of resources is unfair. 
A)  the government has intervened in the market. 
B)  a negative externality exists in the market. 
C)  a positive externality exists in the market. 
D)  the distribution of resources is unfair.

Question 16

Which of the following represents a way that a government can help the private market to internalize an externality?

Accepted Answer

A)  taxing goods that have negative externalities 
B)  subsidizing goods that have positive externalities 
C)  The government cannot improve upon the outcomes of private markets. 
D)  Both a and b are correct. 
A)  taxing goods that have negative externalities 
B)  subsidizing goods that have positive externalities 
C)  The government cannot improve upon the outcomes of private markets. 
D)  Both a and b are correct.

Question 17

Suppose that elementary education creates a positive externality. If the government does not subsidize education, then

Accepted Answer

A)  the equilibrium quantity of education will be equal to the socially optimal quantity of education. 
B)  the equilibrium quantity of education will be greater than the socially optimal quantity of education. 
C)  the equilibrium quantity of education will be less than the socially optimal quantity of education. 
D)  There is not enough information to answer the question. 
A)  the equilibrium quantity of education will be equal to the socially optimal quantity of education. 
B)  the equilibrium quantity of education will be greater than the socially optimal quantity of education. 
C)  the equilibrium quantity of education will be less than the socially optimal quantity of education. 
D)  There is not enough information to answer the question.

Question 18

When correcting for an externality, command-and-control policies are always preferable to market-based policies.

Accepted Answer

A) True 
 B)False

Question 19

Suppose the socially-optimal quantity of good x is larger than the market-equilibrium quantity of good x. Does the production of good x convey a positive externality or does it convey a negative externality?

Accepted Answer

The production of go

Question 20

When externalities are present, reaching an efficient outcome is especially difficult when the number of interested parties is large.

Accepted Answer

A) True 
 B)False

Exam 10: Externalities

A benevolent social planner would prefer that the output of good x be decreased from its current level if, at the current level of output of good x,

The Golden Rule is an example of a private solution for

When externalities cause markets to be inefficient,

A corrective tax

In a market with positive externalities, the market equilibrium quantity maximizes the welfare of society as a whole.

The Coase theorem suggests that efficient solutions to externalities can be determined through bargaining. Under what circumstances will private bargaining fail to produce a solution?

Some policies toward externalities provide incentives so that private decision makers will choose to solve the problem on their own. What name do we use for these types of policies?

A market for pollution permits can efficiently allocate the right to pollute by using the forces of supply and demand.

Figure 10-8 -Refer to Figure 10-8. If the government wanted to tax or subsidize this good to achieve the socially-optimal level of output, it would

Does the phenomenon of externalities strengthen the argument that we should rely upon the "invisible hand" of the marketplace, or does it weaken that argument?

Figure 10-3 -Refer to Figure 10-3. The difference between the social cost curve and the supply curve reflects the

Flu shots provide a positive externality. Suppose that the market for vaccinations is perfectly competitive. Without government intervention in the vaccination market, which of the following statements is correct?

A technology spillover is a type of negative externality.

Figure 10-4 -Refer to Figure 10-4. At Q3

When the social cost curve is above a product's supply curve,

Which of the following represents a way that a government can help the private market to internalize an externality?

Suppose that elementary education creates a positive externality. If the government does not subsidize education, then

When correcting for an externality, command-and-control policies are always preferable to market-based policies.

Suppose the socially-optimal quantity of good x is larger than the market-equilibrium quantity of good x. Does the production of good x convey a positive externality or does it convey a negative externality?

When externalities are present, reaching an efficient outcome is especially difficult when the number of interested parties is large.

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 Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

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

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Trade-Off Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

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