Question 1

A paper plant produces water pollution during the production process. If the government forces the plant to internalize the negative externality, then the

Accepted Answer

A)  supply curve for paper would shift to the right. 
B)  supply curve for paper would shift to the left. 
C)  demand curve for paper would shift to the right. 
D)  demand curve for paper would shift to the left. 
A)  supply curve for paper would shift to the right. 
B)  supply curve for paper would shift to the left. 
C)  demand curve for paper would shift to the right. 
D)  demand curve for paper would shift to the left.

Question 2

Table 10-2
The following table shows the private value, private cost, and social value for a market with a positive externality.  
-Refer to Table 10-2. How large would a subsidy need to be in this market to move the market from the equilibrium level of output to the socially-optimal level of output?

Accepted Answer

A)  $3 
B)  $5 
C)  $7 
D)  $9 
A)  $3 
B)  $5 
C)  $7 
D)  $9

Question 3

To economists, good environmental policy begins by acknowledging one of the Ten Principles of Economics:

Accepted Answer

A)  Trade can make everyone better off. 
B)  People face trade-offs. 
C)  Markets are usually a good way to organize economic activity. 
D)  A country's standard of living depends on its ability to produce goods and services. 
A)  Trade can make everyone better off. 
B)  People face trade-offs. 
C)  Markets are usually a good way to organize economic activity. 
D)  A country's standard of living depends on its ability to produce goods and services.

Question 4

When the government reduces my income tax by $0.30 for every $1.00 that I contribute to a charity, the government is effectively

Accepted Answer

A)  alleviating the negative externalities that are associated with charitable giving. 
B)  imposing a negative externality on those who do not pay income taxes. 
C)  encouraging a private solution to a positive-externality problem. 
D)  encouraging a private solution to a negative-externality problem. 
A)  alleviating the negative externalities that are associated with charitable giving. 
B)  imposing a negative externality on those who do not pay income taxes. 
C)  encouraging a private solution to a positive-externality problem. 
D)  encouraging a private solution to a negative-externality problem.

Question 5

Suppose a certain good conveys either an external cost or an external benefit. If the private cost of the last unit of the good that was produced is equal to the private value of that unit, then the sum of producer and consumer surplus is maximized.

Accepted Answer

A) True 
 B)False

Question 6

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 particular tax or subsidy would move the market to the social optimum?

Accepted Answer

A tax of $12 per uni

Question 7

Bruce engages in an activity that diminishes the well-being of Shawna. Bruce pays no compensation to Shawna for her loss in well-being. What specific term do economists use to describe this situation?

Accepted Answer

The term i

Question 8

A corrective tax

Accepted Answer

A)  allocates pollution to those factories that face the highest cost of reducing it. 
B)  is a form of regulation. 
C)  works well for all types of externalities. 
D)  is inferior to regulatory policy according to most economists. 
A)  allocates pollution to those factories that face the highest cost of reducing it. 
B)  is a form of regulation. 
C)  works well for all types of externalities. 
D)  is inferior to regulatory policy according to most economists.

Question 9

Table 10-6
The following table shows the total costs for each of four firms (A, B, C, and D) to eliminate units of pollution from their production processes. For example, for Firm A to eliminate one unit of pollution, it would cost $46, and for Firm A to eliminate two units of pollution, it would cost a total of $103.  
-Refer to Table 10-6. If the government charged a fee of $85 per unit of pollution, how many units of pollution would the firms eliminate altogether?

Accepted Answer

A)  10 
B)  12 
C)  14 
D)  16 
A)  10 
B)  12 
C)  14 
D)  16

Question 10

Which of the following helped reduce sulfur dioxide emissions, a leading cause of acid rain?

Accepted Answer

A)  (i) only 
B)  both (i) and (ii) 
C)  (iii) only 
D)  both (ii) and (iii) 
A)  (i) only 
B)  both (i) and (ii) 
C)  (iii) only 
D)  both (ii) and (iii)

Question 11

One drawback to industrial policy is that

Accepted Answer

A)  technology spillovers are too expensive to control. 
B)  measuring the size of spillovers from different markets is difficult. 
C)  spillovers often occur in industries that produce undesirable products for society. 
D)  positive side effects are often outweighed by negative side effects. 
A)  technology spillovers are too expensive to control. 
B)  measuring the size of spillovers from different markets is difficult. 
C)  spillovers often occur in industries that produce undesirable products for society. 
D)  positive side effects are often outweighed by negative side effects.

Question 12

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

Accepted Answer

A)  private benefit equals the social benefit at the private market solution. 
B)  private cost exceeds the private benefit at the private market solution. 
C)  social value exceeds the private value at the private market solution. 
D)  private cost exceeds the social benefit at the private market solution. 
A)  private benefit equals the social benefit at the private market solution. 
B)  private cost exceeds the private benefit at the private market solution. 
C)  social value exceeds the private value at the private market solution. 
D)  private cost exceeds the social benefit at the private market solution.

Question 13

If an externality is present in a market, economic efficiency may be enhanced by

Accepted Answer

A)  increased competition. 
B)  weakening property rights. 
C)  better informed market participants. 
D)  government intervention. 
A)  increased competition. 
B)  weakening property rights. 
C)  better informed market participants. 
D)  government intervention.

Question 14

Research into new technologies conveys neither negative externalities nor positive externalities.

Accepted Answer

A) True 
 B)False

Question 15

The Environmental Protection Agency (EPA) cannot reach a target level of pollution through the use of pollution permits.

Accepted Answer

A) True 
 B)False

Question 16

When a market experiences a positive externality,

Accepted Answer

A)  the demand curve does not reflect the value to society of the good. 
B)  too much of the good is being produced. 
C)  the government can internalize the externality by imposing a tax on the product. 
D)  the private value is greater than the social value. 
A)  the demand curve does not reflect the value to society of the good. 
B)  too much of the good is being produced. 
C)  the government can internalize the externality by imposing a tax on the product. 
D)  the private value is greater than the social value.

Question 17

The tax on cigarettes is an example of

Accepted Answer

A)  a consumption tax. 
B)  a corrective tax. 
C)  an income tax. 
D)  a command-and-control policy. 
A)  a consumption tax. 
B)  a corrective tax. 
C)  an income tax. 
D)  a command-and-control policy.

Question 18

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

Accepted Answer

A)  social value = private value = private cost  private value = social value > private cost. 
C)  social cost = private cost = private value  private value. 
A)  social value = private value = private cost  private value = social value > private cost. 
C)  social cost = private cost = private value  private value.

Question 19

Suppose the Environmental Protection Agency issues pollution permits in order to limit the quantity of pollution.
Under this policy, is the supply of pollution rights perfectly elastic or is it perfectly inelastic?

Accepted Answer

The supply

Question 20

Figure 10-12  
-Refer to Figure 10-12. Which of the following is an appropriate label for Line 1?

Accepted Answer

A)  social cost minus social value 
B)  social value minus private cost 
C)  demand 
D)  private cost 
A)  social cost minus social value 
B)  social value minus private cost 
C)  demand 
D)  private cost

Exam 10: Externalities

A paper plant produces water pollution during the production process. If the government forces the plant to internalize the negative externality, then the

Table 10-2 The following table shows the private value, private cost, and social value for a market with a positive externality. -Refer to Table 10-2. How large would a subsidy need to be in this market to move the market from the equilibrium level of output to the socially-optimal level of output?

To economists, good environmental policy begins by acknowledging one of the Ten Principles of Economics:

When the government reduces my income tax by $0.30 for every $1.00 that I contribute to a charity, the government is effectively

Suppose a certain good conveys either an external cost or an external benefit. If the private cost of the last unit of the good that was produced is equal to the private value of that unit, then the sum of producer and consumer surplus is maximized.

Bruce engages in an activity that diminishes the well-being of Shawna. Bruce pays no compensation to Shawna for her loss in well-being. What specific term do economists use to describe this situation?

A corrective tax

Which of the following helped reduce sulfur dioxide emissions, a leading cause of acid rain?

One drawback to industrial policy is that

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

If an externality is present in a market, economic efficiency may be enhanced by

Research into new technologies conveys neither negative externalities nor positive externalities.

The Environmental Protection Agency (EPA) cannot reach a target level of pollution through the use of pollution permits.

When a market experiences a positive externality,

The tax on cigarettes is an example of

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

Suppose the Environmental Protection Agency issues pollution permits in order to limit the quantity of pollution. Under this policy, is the supply of pollution rights perfectly elastic or is it perfectly inelastic?

Figure 10-12 -Refer to Figure 10-12. Which of the following is an appropriate label for Line 1?

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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