Question 1

Figure 10-19  
-Refer to Figure 10-19. The socially optimal quantity of output is

Accepted Answer

A)  58 units. 
B)  73 units. 
C)  between 73 and 94 units. 
D)  94 units. 
A)  58 units. 
B)  73 units. 
C)  between 73 and 94 units. 
D)  94 units.

Question 2

Figure 10-19  
-Refer to Figure 10-19. Note that the lines labeled "Demand" and "Social Value"are parallel. Also, the slopes of the lines on the graph reflect the following facts: (1) Private value and social value decrease by $1.00 with each additional unit of the good that is consumed, and (2) private cost increases by $1.40 with each additional unit of the good that is produced. Thus, when the 59th unit of the good is produced and consumed, social well-being increases by

Accepted Answer

A)  $28.00. 
B)  $31.40. 
C)  $33.60. 
D)  $36.00. 
A)  $28.00. 
B)  $31.40. 
C)  $33.60. 
D)  $36.00.

Question 3

Which of the following is not correct?

Accepted Answer

A)  Markets allocate scarce resources with the forces of supply and demand. 
B)  The equilibrium of supply and demand is typically an efficient allocation of resources. 
C)  Governments can sometimes improve market outcomes. 
D)  Externalities cannot be positive. 
A)  Markets allocate scarce resources with the forces of supply and demand. 
B)  The equilibrium of supply and demand is typically an efficient allocation of resources. 
C)  Governments can sometimes improve market outcomes. 
D)  Externalities cannot be positive.

Question 4

Table 10-3  
-Refer to Table 10-3. The social value of the 4th unit of output that is produced is

Accepted Answer

A)  $10. 
B)  $16. 
C)  $26. 
D)  $30. 
A)  $10. 
B)  $16. 
C)  $26. 
D)  $30.

Question 5

Employing a lawyer to draft and enforce a private contract between parties wishing to solve an externality problem is an example of

Accepted Answer

A)  an opportunity cost. 
B)  an implicit cost. 
C)  a sunk cost. 
D)  a transaction cost. 
A)  an opportunity cost. 
B)  an implicit cost. 
C)  a sunk cost. 
D)  a transaction cost.

Question 6

According to the Coase theorem, the private market will need government intervention in order to reach an efficient outcome.

Accepted Answer

A) True 
 B)False

Question 7

Assume each college degree that is granted conveys an external benefit of $3,500. The granting of the 500th college degree entails a private cost of $15,000 and a private value of $25,000. What is the social value of the 500th college degree?

Accepted Answer

For each college degree, the s

Question 8

The term market failure refers to

Accepted Answer

A)  a market that fails to allocate resources efficiently. 
B)  an unsuccessful advertising campaign which reduces demand. 
C)  ruthless competition among firms. 
D)  a firm that is forced out of business because of losses. 
A)  a market that fails to allocate resources efficiently. 
B)  an unsuccessful advertising campaign which reduces demand. 
C)  ruthless competition among firms. 
D)  a firm that is forced out of business because of losses.

Question 9

The Coase theorem suggests that taxes should be enacted to alleviate the effects of negative externalities.

Accepted Answer

A) True 
 B)False

Question 10

Figure 10-12  
-Refer to Figure 10-12. An alternative label for the quantity   WOULD BE

Accepted Answer

The answer of Figure 10-12  
-Refer to Figure 10-12....

Question 11

Figure 10-16  
-Refer to Figure 10-16. This graph shows the market for pollution when permits are issued to firms and traded in the marketplace. In the absence of a pollution permit system, the quantity of pollution would be

Accepted Answer

A)  25 
B)  50 
C)  75 
D)  100 
A)  25 
B)  50 
C)  75 
D)  100

Question 12

Corrective taxes

Accepted Answer

A)  encourage consumers to avoid sales taxes by shopping online. 
B)  are frequently used to discourage imports. 
C)  are less efficient than direct regulation. 
D)  give factory owners an economic incentive to reduce pollution. 
A)  encourage consumers to avoid sales taxes by shopping online. 
B)  are frequently used to discourage imports. 
C)  are less efficient than direct regulation. 
D)  give factory owners an economic incentive to reduce pollution.

Question 13

A negative externality arises when a person engages in an activity that has

Accepted Answer

A)  an adverse effect on a bystander who is not compensated by the person who causes the effect. 
B)  an adverse effect on a bystander who is compensated by the person who causes the effect. 
C)  a beneficial effect on a bystander who pays the person who causes the effect. 
D)  a beneficial effect on a bystander who does not pay the person who causes the effect. 
A)  an adverse effect on a bystander who is not compensated by the person who causes the effect. 
B)  an adverse effect on a bystander who is compensated by the person who causes the effect. 
C)  a beneficial effect on a bystander who pays the person who causes the effect. 
D)  a beneficial effect on a bystander who does not pay the person who causes the effect.

Question 14

Which of the following statements is not correct?

Accepted Answer

A)  Corrective taxes can be used to place a price on the right to pollute. 
B)  Corrective taxes allocate pollution to those producers who face the highest cost of reducing pollution. 
C)  Corrective taxes provide incentives to develop cleaner technologies. 
D)  Corrective taxes require the government to set a target level of pollution. 
A)  Corrective taxes can be used to place a price on the right to pollute. 
B)  Corrective taxes allocate pollution to those producers who face the highest cost of reducing pollution. 
C)  Corrective taxes provide incentives to develop cleaner technologies. 
D)  Corrective taxes require the government to set a target level of pollution.

Question 15

The social cost of pollution includes the private costs of the producers plus the costs to those bystanders adversely affected by the pollution.

Accepted Answer

A) True 
 B)False

Question 16

According to the Coase theorem, whatever the initial distribution of rights, the interested parties can bargain to an efficient outcome.

Accepted Answer

A) True 
 B)False

Question 17

In Singapore, littering fines are strictly enforced. This is an example of a policy that

Accepted Answer

A)  relies on moral codes to reduce the pollution externality. 
B)  relies on the Coase Theorem. 
C)  discriminates against foreigners. 
D)  relies on incentives to reduce the pollution externality. 
A)  relies on moral codes to reduce the pollution externality. 
B)  relies on the Coase Theorem. 
C)  discriminates against foreigners. 
D)  relies on incentives to reduce the pollution externality.

Question 18

Figure 10-9  
-Refer to Figure 10-9, Panel (b) and Panel (c). The installation of a scrubber in a smokestack reduces the emission of harmful chemicals from the smokestack. Therefore, the external benefit of smokestack scrubber installation is represented by

Accepted Answer

A)  Q3 - Q2. 
B)  Q5 - Q4. 
C)  P3a - P3b. 
D)  P4a - P4b. 
A)  Q3 - Q2. 
B)  Q5 - Q4. 
C)  P3a - P3b. 
D)  P4a - P4b.

Question 19

Which of the following statements is not correct?

Accepted Answer

A)  Private markets tend to over-produce products with negative externalities. 
B)  Private markets tend to under-produce products with positive externalities. 
C)  Private parties can bargain to efficient outcomes even in the presence of externalities. 
D)  Private parties are usually more successful in achieving efficient outcomes than government policies. 
A)  Private markets tend to over-produce products with negative externalities. 
B)  Private markets tend to under-produce products with positive externalities. 
C)  Private parties can bargain to efficient outcomes even in the presence of externalities. 
D)  Private parties are usually more successful in achieving efficient outcomes than government policies.

Question 20

What is the difference between command-and-control policies and market-based policies toward externalities?

Accepted Answer

A)  Command-and-control policies provide incentives for private decision makers to solve the problems on their own, whereas market-based policies regulate behavior directly. 
B)  Command-and-control policies rely on taxes, whereas market-based policies rely on quotas. 
C)  Command-and-control policies regulate behavior directly, whereas market-based policies provide incentives for private decision makers to change their behavior. 
D)  Command-and-control policies are efficient, whereas market-based policies are inefficient. 
A)  Command-and-control policies provide incentives for private decision makers to solve the problems on their own, whereas market-based policies regulate behavior directly. 
B)  Command-and-control policies rely on taxes, whereas market-based policies rely on quotas. 
C)  Command-and-control policies regulate behavior directly, whereas market-based policies provide incentives for private decision makers to change their behavior. 
D)  Command-and-control policies are efficient, whereas market-based policies are inefficient.

Exam 10: Externalities

Figure 10-19 -Refer to Figure 10-19. The socially optimal quantity of output is

Which of the following is not correct?

Table 10-3 -Refer to Table 10-3. The social value of the 4th unit of output that is produced is

Employing a lawyer to draft and enforce a private contract between parties wishing to solve an externality problem is an example of

According to the Coase theorem, the private market will need government intervention in order to reach an efficient outcome.

Assume each college degree that is granted conveys an external benefit of $3,500. The granting of the 500th college degree entails a private cost of $15,000 and a private value of $25,000. What is the social value of the 500th college degree?

The term market failure refers to

The Coase theorem suggests that taxes should be enacted to alleviate the effects of negative externalities.

Figure 10-12 -Refer to Figure 10-12. An alternative label for the quantity WOULD BE

Figure 10-16 -Refer to Figure 10-16. This graph shows the market for pollution when permits are issued to firms and traded in the marketplace. In the absence of a pollution permit system, the quantity of pollution would be

Corrective taxes

A negative externality arises when a person engages in an activity that has

Which of the following statements is not correct?

The social cost of pollution includes the private costs of the producers plus the costs to those bystanders adversely affected by the pollution.

According to the Coase theorem, whatever the initial distribution of rights, the interested parties can bargain to an efficient outcome.

In Singapore, littering fines are strictly enforced. This is an example of a policy that

Figure 10-9 -Refer to Figure 10-9, Panel (b) and Panel (c). The installation of a scrubber in a smokestack reduces the emission of harmful chemicals from the smokestack. Therefore, the external benefit of smokestack scrubber installation is represented by

Which of the following statements is not correct?

What is the difference between command-and-control policies and market-based policies toward externalities?

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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