Question 1

Figure 10-12  
-Refer to Figure 10-12. Which of the following is an appropriate label for Line 2?

Accepted Answer

A)  social cost minus social value 
B)  social value minus private cost 
C)  demand 
D)  private value plus external benefit 
A)  social cost minus social value 
B)  social value minus private cost 
C)  demand 
D)  private value plus external benefit

Question 2

Patents do not

Accepted Answer

A)  provide firms an incentive to research. 
B)  assign property rights to inventors. 
C)  protect the rights of inventors for their lifetimes. 
D)  internalize externalities. 
A)  provide firms an incentive to research. 
B)  assign property rights to inventors. 
C)  protect the rights of inventors for their lifetimes. 
D)  internalize externalities.

Question 3

Which of the following suggests that private markets can be effective in dealing with externalities?

Accepted Answer

A)  the "invisible hand" 
B)  the law of diminishing social returns 
C)  the Coase theorem 
D)  technology policy 
A)  the "invisible hand" 
B)  the law of diminishing social returns 
C)  the Coase theorem 
D)  technology policy

Question 4

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 5

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

Accepted Answer

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

Question 6

Figure 10-19  
-Refer to Figure 10-19. Each additional unit of the good that is produced yields an external

Accepted Answer

A)  benefit of $15. 
B)  benefit of $36. 
C)  cost of $15. 
D)  cost of $36. 
A)  benefit of $15. 
B)  benefit of $36. 
C)  cost of $15. 
D)  cost of $36.

Question 7

Assuming transaction costs are small, the Coase theorem would predict that private parties could arrive at an efficient solution for which of the following problems?

Accepted Answer

A)  One neighbor doesn't mow his lawn. 
B)  One neighbor doesn't paint her house. 
C)  One neighbor comes home on his noisy motorcycle late at night. 
D)  All of the above are correct. 
A)  One neighbor doesn't mow his lawn. 
B)  One neighbor doesn't paint her house. 
C)  One neighbor comes home on his noisy motorcycle late at night. 
D)  All of the above are correct.

Question 8

In a certain city, the local government regulates the destruction of historic buildings and provides tax breaks to owners of historic buildings who restore them. These government policies

Accepted Answer

A)  reflect the fact that restored historic buildings convey a positive externality. 
B)  reflect the fact that the destruction of historic buildings conveys a positive externality. 
C)  are likely to worsen the market failure that is associated with historic buildings and the restoration of such buildings. 
D)  are likely to decrease the well-being of society as a whole. 
A)  reflect the fact that restored historic buildings convey a positive externality. 
B)  reflect the fact that the destruction of historic buildings conveys a positive externality. 
C)  are likely to worsen the market failure that is associated with historic buildings and the restoration of such buildings. 
D)  are likely to decrease the well-being of society as a whole.

Question 9

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 10

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. If 325 units of plastics are produced and consumed, then the

Accepted Answer

A)  social optimum has been reached. 
B)  market equilibrium has been reached. 
C)  government must have imposed a corrective tax to guide the market to this outcome. 
D)  government must have offered a corrective subsidy to guide the market to this outcome. 
A)  social optimum has been reached. 
B)  market equilibrium has been reached. 
C)  government must have imposed a corrective tax to guide the market to this outcome. 
D)  government must have offered a corrective subsidy to guide the market to this outcome.

Question 11

Figure 10-19  
-Refer to Figure 10-19. Each additional unit of the good that is produced yields an external benefit of

Accepted Answer

A)  $15. 
B)  $23. 
C)  $36. 
D)  $89. 
A)  $15. 
B)  $23. 
C)  $36. 
D)  $89.

Question 12

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. Could the government impose a tax or provide a subsidy to move the market to the social optimum? If your answer is "Yes," should it be a tax or should it be a subsidy?

Accepted Answer

The government could

Question 13

Negative externalities lead markets to produce a smaller quantity of a good than is socially desirable, while positive externalities lead markets to produce a larger quantity of a good than is socially desirable.

Accepted Answer

A) True 
 B)False

Question 14

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 15

Figure 10-8  
-Refer to Figure 10-8. What is the equilibrium price in this market?

Accepted Answer

A)  $8 
B)  More than $10 
C)  Between $8 and $10 
D)  $10 
A)  $8 
B)  More than $10 
C)  Between $8 and $10 
D)  $10

Question 16

Figure 10-9  
-Refer to Figure 10-9, Panel (b) and Panel (c). The overuse of antibiotics leads to the development of antibiotic- resistant diseases. Therefore, a government policy that internalized the externality would move the quantity of antibiotics used from point

Accepted Answer

A)  Q2 to point Q3. 
B)  Q3 to point Q2. 
C)  Q4 to point Q5. 
D)  Q5 to point Q4. 
A)  Q2 to point Q3. 
B)  Q3 to point Q2. 
C)  Q4 to point Q5. 
D)  Q5 to point Q4.

Question 17

At any given quantity, the willingness to pay in the market for gasoline is reflected in the

Accepted Answer

A)  height of the demand curve at that quantity. 
B)  height of the supply curve at that quantity. 
C)  value to the producer of the last unit of gasoline sold. 
D)  total quantity of gasoline exchanged in the market. 
A)  height of the demand curve at that quantity. 
B)  height of the supply curve at that quantity. 
C)  value to the producer of the last unit of gasoline sold. 
D)  total quantity of gasoline exchanged in the market.

Question 18

Which of the following statements is correct?

Accepted Answer

A)  The use of pollution permits and corrective taxes reduces the cost of environmental protection. 
B)  Rich countries usually have cleaner environments than poor countries because a clean environment is like other normal goods in that it has a positive income elasticity. 
C)  Clean water and clean air are goods to which the law of demand applies. 
D)  All of the above are correct. 
A)  The use of pollution permits and corrective taxes reduces the cost of environmental protection. 
B)  Rich countries usually have cleaner environments than poor countries because a clean environment is like other normal goods in that it has a positive income elasticity. 
C)  Clean water and clean air are goods to which the law of demand applies. 
D)  All of the above are correct.

Question 19

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 20

Suppose that coal producers create a negative externality equal to $5 per ton of coal. What is the relationship between the equilibrium quantity of coal and the socially optimal quantity of coal?

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.

Exam 10: Externalities

Figure 10-12 -Refer to Figure 10-12. Which of the following is an appropriate label for Line 2?

Patents do not

Which of the following suggests that private markets can be effective in dealing with externalities?

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

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

Figure 10-19 -Refer to Figure 10-19. Each additional unit of the good that is produced yields an external

Assuming transaction costs are small, the Coase theorem would predict that private parties could arrive at an efficient solution for which of the following problems?

In a certain city, the local government regulates the destruction of historic buildings and provides tax breaks to owners of historic buildings who restore them. These government policies

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. If 325 units of plastics are produced and consumed, then the

Figure 10-19 -Refer to Figure 10-19. Each additional unit of the good that is produced yields an external benefit of

Negative externalities lead markets to produce a smaller quantity of a good than is socially desirable, while positive externalities lead markets to produce a larger quantity of a good than is socially desirable.

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

Figure 10-8 -Refer to Figure 10-8. What is the equilibrium price in this market?

Figure 10-9 -Refer to Figure 10-9, Panel (b) and Panel (c). The overuse of antibiotics leads to the development of antibiotic- resistant diseases. Therefore, a government policy that internalized the externality would move the quantity of antibiotics used from point

At any given quantity, the willingness to pay in the market for gasoline is reflected in the

Which of the following statements is correct?

A negative externality

Suppose that coal producers create a negative externality equal to $5 per ton of coal. What is the relationship between the equilibrium quantity of coal and the socially optimal quantity of coal?

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

Filters