Exam 10: Externalities

University researchers create a positive externality because what they discover in their research labs can easily be learned by others who haven't contributed to the research costs. What could the federal government do to equate the equilibrium quantity of university research and the socially optimal quantity of university research produced?

To enhance the well-being of society, a social planner will encourage firms to increase production when

A positive externality

Which of the following problems can not be alleviated by a gasoline tax?

Many charities like the Sierra Club are established to deal with externalities.

If an aluminum manufacturer does not bear the entire cost of the smoke it emits, it will

Suppose that an MBA degree creates no externality because the benefits of an MBA are internalized by the student in the form of higher wages. If the government offers subsidies for MBAs, then which of the following statements is correct?

Figure 10-18. The graph represents a corrective tax to reduce pollution. On the axes, Q denotes the quantity of pollution and P represents the price of pollution. -Refer to Figure 10-18. What is the appropriate label for the downward-sloping line on the graph?

The concept of external benefit is associated with a negative externality, but not with a positive externality.

To determine the optimal level of output in a market with negative externalities, a benevolent social planner would look for the level of output at which private cost equals private value.

Which of the following require firms to pay to pollute?

Which of the following is not an effective method of reducing negative externalities?

Private contracts between parties with mutual interests

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 are the socially optimal quantity and price?

Most taxes distort incentives and move the allocation of resources away from the social optimum. Why do corrective taxes avoid the disadvantages of most other taxes?

When externalities exist, buyers and sellers

Table 10-1 The following table shows the private value, private cost, and external cost for various quantities of output in a market. -Refer to Table 10-1. How large would a corrective tax need to be to move this market from the equilibrium outcome to the socially-optimal outcome?

Does the restoration of historic buildings create a positive externality or does it create a negative externality?

An externality is the impact of

A cost imposed on someone who is neither the consumer nor the producer is called a