Question 1

Negative externalities occur when one person's actions

Accepted Answer

A)  cause another person to lose money in a stock market transaction. 
B)  cause his or her employer to lose business. 
C)  reveal his or her preference for foreign-produced goods. 
D)  adversely affect the well-being of a bystander who is not a party to the action. 
A)  cause another person to lose money in a stock market transaction. 
B)  cause his or her employer to lose business. 
C)  reveal his or her preference for foreign-produced goods. 
D)  adversely affect the well-being of a bystander who is not a party to the action.

Question 2

Which theorem asserts that private economic actors can often solve the problem of externalities among themselves?

Accepted Answer

The Coase

Question 3

Scenario 10-1
The demand curve for gasoline slopes downward and the supply curve for gasoline slopes upward. The production of the 1,000S1U1P1tS1S1P0S1U1P1hS1S1P0S1U1P1 S1S1P0gallon of gasoline entails the following:
-a private cost of $3.10;
-a social cost of $3.55;
-a value to consumers of $3.70.
-Refer to Scenario 10-1. Suppose the equilibrium quantity of gasoline is 1,150 gallons; that is, QMARKET = 1,150. Then the equilibrium price of a gallon could be

Accepted Answer

A)  $2.80. 
B)  $3.00. 
C)  $3.30. 
D)  $3.80. 
A)  $2.80. 
B)  $3.00. 
C)  $3.30. 
D)  $3.80.

Question 4

Which of the following is NOT a way of internalizing technology spillovers?

Accepted Answer

A)  subsidies 
B)  patent protection 
C)  industrial policy 
D)  taxes 
A)  subsidies 
B)  patent protection 
C)  industrial policy 
D)  taxes

Question 5

Figure 10-9  
-Refer to Figure 10-9. Which graph represents a market with a negative externality?

Accepted Answer

A)  Panel (a) 
B)  Panel (b) 
C)  Panel (c) 
D)  Both (b) and (c) are correct. 
A)  Panel (a) 
B)  Panel (b) 
C)  Panel (c) 
D)  Both (b) and (c) are correct.

Question 6

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 socially optimal quantity of restored historic buildings less than, equal to, or greater than 50?

Accepted Answer

The socially optimal

Question 7

According to the Coase Theorem, individuals can always work out a mutually beneficial agreement to solve the problems of externalities even when high transaction costs are involved.

Accepted Answer

A) True 
 B)False

Question 8

In the absence of externalities, the "invisible hand" leads a market to maximize

Accepted Answer

A)  producer profit from that market. 
B)  total benefit to society from that market. 
C)  both equality and efficiency in that market. 
D)  output of goods or services in that market. 
A)  producer profit from that market. 
B)  total benefit to society from that market. 
C)  both equality and efficiency in that market. 
D)  output of goods or services in that market.

Question 9

Suppose that flu shots create a positive externality equal to $8 per shot. Further suppose that the government offers a $11-per-shot subsidy to producers. What is the relationship between the equilibrium quantity and the socially optimal quantity of flu shots 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 10

In many cases the Coase theorem does not work well because

Accepted Answer

A)  there are too few parties at the negotiation table. 
B)  the government does not know about the Coase theorem. 
C)  transaction costs are too high. 
D)  transaction costs are too low. 
A)  there are too few parties at the negotiation table. 
B)  the government does not know about the Coase theorem. 
C)  transaction costs are too high. 
D)  transaction costs are too low.

Question 11

Research into new technologies provides a

Accepted Answer

A)  negative externality, and too few resources are devoted to research as a result. 
B)  negative externality, and too many resources are devoted to research as a result. 
C)  positive externality, and too few resources are devoted to research as a result. 
D)  positive externality, and too many resources are devoted to research as a result. 
A)  negative externality, and too few resources are devoted to research as a result. 
B)  negative externality, and too many resources are devoted to research as a result. 
C)  positive externality, and too few resources are devoted to research as a result. 
D)  positive externality, and too many resources are devoted to research as a result.

Question 12

Figure 10-15  
-Refer to Figure 10-15. Which graph illustrates a corrective tax?

Accepted Answer

A)  the left graph 
B)  the right graph 
C)  both graphs 
D)  neither graph 
A)  the left graph 
B)  the right graph 
C)  both graphs 
D)  neither graph

Question 13

To produce honey, beekeepers place hives of bees in the fields of farmers. As bees gather nectar, they pollinate the crops in the fields, which increases the yields of these fields at no additional cost to the farmer. What might be a reasonable private solution to this externality, and how might the solution be reached?

Accepted Answer

One solution would be to have one person

Question 14

Table 10-4  
-Refer to Table 10-4. The social cost of the 2nd unit of output that is produced is

Accepted Answer

A)  $23. 
B)  $7. 
C)  $30. 
D)  $38. 
A)  $23. 
B)  $7. 
C)  $30. 
D)  $38.

Question 15

In summarizing the research on the externalities associated with driving cars, a 2007 Journal of Economic Literature article concluded that the optimal corrective tax on gasoline in the United States, in 2012 dollars, would be about

Accepted Answer

A)  $0.40 per gallon. 
B)  $0.90 per gallon. 
C)  $2.10 per gallon. 
D)  $2.70 per gallon. 
A)  $0.40 per gallon. 
B)  $0.90 per gallon. 
C)  $2.10 per gallon. 
D)  $2.70 per gallon.

Question 16

Why can't private individuals always internalize an externality without the help of government?

Accepted Answer

A)  Legal restrictions prevent side payments between individuals. 
B)  Transactions costs may be too high. 
C)  Side payments between individuals are inefficient. 
D)  Side payments between individuals are insufficient. 
A)  Legal restrictions prevent side payments between individuals. 
B)  Transactions costs may be too high. 
C)  Side payments between individuals are inefficient. 
D)  Side payments between individuals are insufficient.

Question 17

If the social value of producing robots is greater than the private value of producing robots, the private market produces too few robots.

Accepted Answer

A) True 
 B)False

Question 18

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 there are no government subsidies for MBAs, then which of the following statements is correct?

Accepted Answer

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

Question 19

Figure 10-1  
-Refer to Figure 10-1. This graph represents the tobacco industry. The industry creates

Accepted Answer

A)  positive externalities. 
B)  negative externalities. 
C)  no externalities. 
D)  no equilibrium in the market. 
A)  positive externalities. 
B)  negative externalities. 
C)  no externalities. 
D)  no equilibrium in the market.

Question 20

Scenario 10-4
The demand curve for fire extinguishers slopes downward and the supply curve for fire extinguishers slopes upward. The production of the 500S1U1P1tS1S1P0S1U1P1hS1S1P0S1U1P1 S1S1P0fire extinguisher entails the following:
-a private cost of $10;
-an external cost of $0;
-a private value of $9;
-an external benefit of $3.
-
-Refer to Scenario 10-4. Is the market-equilibrium quantity of fire extinguishers less than, equal to, or greater than 500? Explain.

Accepted Answer

For the 500^t^hfire extinguisher,

Exam 10: Externalities

Negative externalities occur when one person's actions

Which theorem asserts that private economic actors can often solve the problem of externalities among themselves?

Which of the following is NOT a way of internalizing technology spillovers?

Figure 10-9 -Refer to Figure 10-9. Which graph represents a market with a negative externality?

According to the Coase Theorem, individuals can always work out a mutually beneficial agreement to solve the problems of externalities even when high transaction costs are involved.

In the absence of externalities, the "invisible hand" leads a market to maximize

Suppose that flu shots create a positive externality equal to $8 per shot. Further suppose that the government offers a $11-per-shot subsidy to producers. What is the relationship between the equilibrium quantity and the socially optimal quantity of flu shots produced?

In many cases the Coase theorem does not work well because

Research into new technologies provides a

Figure 10-15 -Refer to Figure 10-15. Which graph illustrates a corrective tax?

Table 10-4 -Refer to Table 10-4. The social cost of the 2nd unit of output that is produced is

In summarizing the research on the externalities associated with driving cars, a 2007 Journal of Economic Literature article concluded that the optimal corrective tax on gasoline in the United States, in 2012 dollars, would be about

Why can't private individuals always internalize an externality without the help of government?

If the social value of producing robots is greater than the private value of producing robots, the private market produces too few robots.

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 there are no government subsidies for MBAs, then which of the following statements is correct?

Figure 10-1 -Refer to Figure 10-1. This graph represents the tobacco industry. The industry creates

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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