Question 1

Table 10-4  
-Refer to Table 10-4. The table represents a market in which

Accepted Answer

A)  there is no externality. 
B)  there is a positive externality. 
C)  there is a negative externality. 
D)  The answer cannot be determined from inspection of the table. 
A)  there is no externality. 
B)  there is a positive externality. 
C)  there is a negative externality. 
D)  The answer cannot be determined from inspection of the table.

Question 2

An example of a private solution to externalities is charities. The government encourages this private solution by allowing .

Accepted Answer

tax deduct

Question 3

Figure 10-15  
-Refer to Figure 10-15. Which of the following is not necessary in order for the corrective tax and pollution permit to have equivalent effects?

Accepted Answer

A)  PB must be equivalent to the corrective tax. 
B)  QA must be equivalent to the amount of pollution allowed to the pollution permit holders. 
C)  The equilibrium price and quantity of pollution must be the same in both graphs. 
D)  The amount of pollution emitted by each firm must be the same. 
A)  PB must be equivalent to the corrective tax. 
B)  QA must be equivalent to the amount of pollution allowed to the pollution permit holders. 
C)  The equilibrium price and quantity of pollution must be the same in both graphs. 
D)  The amount of pollution emitted by each firm must be the same.

Question 4

Suppose that Charles wants to dine at a fancy restaurant, but the only available table is in the smoking section. Charles dislikes the smell of cigarette smoke. He notices that only one person, Sam, is smoking in the smoking section. Charles values the absence of smoke at $40. Sam values the ability to smoke in the restaurant at $15. Which of the following represents an efficient solution in the absence of transaction costs?

Accepted Answer

A)  Sam continues to smoke because he has a right to smoke in the smoking section. 
B)  Charles offers Sam between $15 and $40 not to smoke. Sam accepts, and both parties are better off. 
C)  Charles offers Sam between $15 and $40 not to smoke. Sam declines because he has a right to smoke in the smoking section. 
D)  Only a government policy banning smoking in restaurants will solve this problem. 
A)  Sam continues to smoke because he has a right to smoke in the smoking section. 
B)  Charles offers Sam between $15 and $40 not to smoke. Sam accepts, and both parties are better off. 
C)  Charles offers Sam between $15 and $40 not to smoke. Sam declines because he has a right to smoke in the smoking section. 
D)  Only a government policy banning smoking in restaurants will solve this problem.

Question 5

Which of the following statements is true of both pollution permits and corrective taxes?

Accepted Answer

A)  Both policies internalize the externality of pollution. 
B)  Both policies require firms to pay for their pollution. 
C)  Both policies lead to the establishment of an equilibrium price of pollution. 
D)  All of the above are correct. 
A)  Both policies internalize the externality of pollution. 
B)  Both policies require firms to pay for their pollution. 
C)  Both policies lead to the establishment of an equilibrium price of pollution. 
D)  All of the above are correct.

Question 6

An externality is an example of

Accepted Answer

A)  a corrective tax. 
B)  a tradable pollution permit. 
C)  a market failure. 
D)  Both a and b are correct. 
A)  a corrective tax. 
B)  a tradable pollution permit. 
C)  a market failure. 
D)  Both a and b are correct.

Question 7

Suppose that electricity producers create a negative externality equal to $5 per unit. Further suppose that the government gives a $5 per-unit subsidy to producers. What is the relationship between the equilibrium quantity and the socially optimal quantity of electricity to be produced?

Accepted Answer

A)  They are equal. 
B)  The equilibrium quantity is greater than the socially optimal quantity. 
C)  The equilibrium quantity is less than the socially optimal quantity. 
D)  There is not enough information to answer the question. 
A)  They are equal. 
B)  The equilibrium quantity is greater than the socially optimal quantity. 
C)  The equilibrium quantity is less than the socially optimal quantity. 
D)  There is not enough information to answer the question.

Question 8

Which of the following statements about the Coase theorem is true?

Accepted Answer

A)  Underlying the results of the Coase theorem is the idea that private parties can bargain without cost over the allocation of resources. 
B)  The Coase theorem asserts that private solutions to externalities invariably lead to inefficient allocations of resources. 
C)  The Coase theorem applies to negative externalities, but not to positive externalities. 
D)  All of the above are correct. 
A)  Underlying the results of the Coase theorem is the idea that private parties can bargain without cost over the allocation of resources. 
B)  The Coase theorem asserts that private solutions to externalities invariably lead to inefficient allocations of resources. 
C)  The Coase theorem applies to negative externalities, but not to positive externalities. 
D)  All of the above are correct.

Question 9

Sheryl sits on her patio and plays her guitar while her neighbors are outside. Sheryl neither pays nor receives any compensation for playing her guitar. Under what condition does her guitar-playing give rise to a positive externality?

Accepted Answer

Sheryl's guitar­playing gives

Question 10

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. Without any government regulation, how much plastic will be produced?

Accepted Answer

A)  200 
B)  500 
C)  650 
D)  900 
A)  200 
B)  500 
C)  650 
D)  900

Question 11

Figure 10-7  
-Refer to Figure 10-7. To internalize the externality in this market, the government should

Accepted Answer

A)  impose a tax on this product. 
B)  provide a subsidy for this product. 
C)  forbid production. 
D)  produce the product itself. 
A)  impose a tax on this product. 
B)  provide a subsidy for this product. 
C)  forbid production. 
D)  produce the product itself.

Question 12

Which of the following is a difference between corrective taxes and tradable pollution permits?

Accepted Answer

A)  Corrective taxes are a market-based solution while tradable pollution permits are a command-and-control policy. 
B)  With a corrective tax the government sets the price of pollution; with tradable pollution permits, demand and supply set the price of pollution. 
C)  With corrective taxes firms pay for pollution; with tradable pollution permits firms do not. 
D)  Corrective taxes internalize the pollution externality while tradable pollution permits do not. 
A)  Corrective taxes are a market-based solution while tradable pollution permits are a command-and-control policy. 
B)  With a corrective tax the government sets the price of pollution; with tradable pollution permits, demand and supply set the price of pollution. 
C)  With corrective taxes firms pay for pollution; with tradable pollution permits firms do not. 
D)  Corrective taxes internalize the pollution externality while tradable pollution permits do not.

Question 13

Taxes that are enacted to mitigate the effects of negative externalities are sometimes called

Accepted Answer

A)  control taxes. 
B)  command levies. 
C)  Pigovian taxes. 
D)  Marshallian taxes. 
A)  control taxes. 
B)  command levies. 
C)  Pigovian taxes. 
D)  Marshallian taxes.

Question 14

Melissa engages in an activity that influences the well-being of a bystander. In order for Melissa's activity to give rise to an externality, it must be the case that

Accepted Answer

A)  Melissa fails to recognize the impact of her activity on the bystander's well­being. 
B)  the bystander fails to recognize the impact of Melissa's activity on his or her well­being. 
C)  the well­being of the bystander is adversely impacted by Melissa's activity. 
D)  Melissa neither pays nor receives any compensation for her activity. 
A)  Melissa fails to recognize the impact of her activity on the bystander's well­being. 
B)  the bystander fails to recognize the impact of Melissa's activity on his or her well­being. 
C)  the well­being of the bystander is adversely impacted by Melissa's activity. 
D)  Melissa neither pays nor receives any compensation for her activity.

Question 15

When externalities are present in a market, the well-being of market participants

Accepted Answer

A)  and market bystanders are both directly affected. 
B)  and market bystanders are both indirectly affected. 
C)  is directly affected, and market bystanders are indirectly affected. 
D)  is indirectly affected, and market bystanders are directly affected. 
A)  and market bystanders are both directly affected. 
B)  and market bystanders are both indirectly affected. 
C)  is directly affected, and market bystanders are indirectly affected. 
D)  is indirectly affected, and market bystanders are directly affected.

Question 16

Figure 10-6  
-Refer to Figure 10-6. Which price represents the equilibrium price of the product in this market?

Accepted Answer

A)  P 
B)  P' 
C)  Either P or P'. It is necessary to know whether the externality is positive or negative to determine which of these is the equilibrium price. 
D)  Some price between P and P'. The equilibrium price depends on the negotiating skills of the interested parties. 
A)  P 
B)  P' 
C)  Either P or P'. It is necessary to know whether the externality is positive or negative to determine which of these is the equilibrium price. 
D)  Some price between P and P'. The equilibrium price depends on the negotiating skills of the interested parties.

Question 17

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 50S1U1P1tS1S1P0S1U1P1hS1S1P0S1U1P1 S1S1P0restored 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 the market equilibrium quantity of restored historic buildings less than, equal to, or greater than 50?

Accepted Answer

The market equilibri

Question 18

Figure 10-10  
-Refer to Figure 10-10. The graph represents a market in which

Accepted Answer

A)  there is no externality. 
B)  there is a positive externality. 
C)  there is a negative externality. 
D)  The answer cannot be determined from inspection of the graph. 
A)  there is no externality. 
B)  there is a positive externality. 
C)  there is a negative externality. 
D)  The answer cannot be determined from inspection of the graph.

Question 19

Since restored historic buildings convey a positive externality, local governments may choose to

Accepted Answer

A)  regulate the demolition of them. 
B)  provide tax breaks to owners who restore them. 
C)  increase property taxes in historic areas. 
D)  Both a and b are correct. 
A)  regulate the demolition of them. 
B)  provide tax breaks to owners who restore them. 
C)  increase property taxes in historic areas. 
D)  Both a and b are correct.

Question 20

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.

Exam 10: Externalities

Table 10-4 -Refer to Table 10-4. The table represents a market in which

An example of a private solution to externalities is charities. The government encourages this private solution by allowing .

Figure 10-15 -Refer to Figure 10-15. Which of the following is not necessary in order for the corrective tax and pollution permit to have equivalent effects?

Which of the following statements is true of both pollution permits and corrective taxes?

An externality is an example of

Suppose that electricity producers create a negative externality equal to $5 per unit. Further suppose that the government gives a $5 per-unit subsidy to producers. What is the relationship between the equilibrium quantity and the socially optimal quantity of electricity to be produced?

Which of the following statements about the Coase theorem is true?

Sheryl sits on her patio and plays her guitar while her neighbors are outside. Sheryl neither pays nor receives any compensation for playing her guitar. Under what condition does her guitar-playing give rise to a positive externality?

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. Without any government regulation, how much plastic will be produced?

Figure 10-7 -Refer to Figure 10-7. To internalize the externality in this market, the government should

Which of the following is a difference between corrective taxes and tradable pollution permits?

Taxes that are enacted to mitigate the effects of negative externalities are sometimes called

Melissa engages in an activity that influences the well-being of a bystander. In order for Melissa's activity to give rise to an externality, it must be the case that

When externalities are present in a market, the well-being of market participants

Figure 10-6 -Refer to Figure 10-6. Which price represents the equilibrium price of the product in this market?

Figure 10-10 -Refer to Figure 10-10. The graph represents a market in which

Since restored historic buildings convey a positive externality, local governments may choose to

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

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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