Question 1

Corrective taxes are typically advocated to correct for the effects of

Accepted Answer

A)  positive externalities. 
B)  negative externalities. 
C)  patents. 
D)  All of the above are correct. 
A)  positive externalities. 
B)  negative externalities. 
C)  patents. 
D)  All of the above are correct.

Question 2

Corrective taxes differ from most taxes in that corrective taxes

Accepted Answer

A)  reduce economic efficiency. 
B)  do not raise revenue for the government. 
C)  do not cause deadweight losses. 
D)  always result in a high burden on sellers of goods to which the corrective tax applies. 
A)  reduce economic efficiency. 
B)  do not raise revenue for the government. 
C)  do not cause deadweight losses. 
D)  always result in a high burden on sellers of goods to which the corrective tax applies.

Question 3

Which of the following statements is correct?

Accepted Answer

A)  Government should tax goods with either positive or negative externalities. 
B)  Government should tax goods with negative externalities and subsidize goods with positive externalities. 
C)  Government should subsidize goods with either positive or negative externalities. 
D)  Government should tax goods with positive externalities and subsidize goods with negative externalities. 
A)  Government should tax goods with either positive or negative externalities. 
B)  Government should tax goods with negative externalities and subsidize goods with positive externalities. 
C)  Government should subsidize goods with either positive or negative externalities. 
D)  Government should tax goods with positive externalities and subsidize goods with negative externalities.

Question 4

Negative externalities lead markets to produce

Accepted Answer

A)  greater than efficient output levels and positive externalities lead markets to produce smaller than efficient output levels. 
B)  smaller than efficient output levels and positive externalities lead markets to produce greater than efficient output levels. 
C)  greater than efficient output levels and positive externalities lead markets to produce efficient output levels. 
D)  efficient output levels and positive externalities lead markets to produce greater than efficient output levels. 
A)  greater than efficient output levels and positive externalities lead markets to produce smaller than efficient output levels. 
B)  smaller than efficient output levels and positive externalities lead markets to produce greater than efficient output levels. 
C)  greater than efficient output levels and positive externalities lead markets to produce efficient output levels. 
D)  efficient output levels and positive externalities lead markets to produce greater than efficient output levels.

Question 5

An externality

Accepted Answer

A)  results in an equilibrium that does not maximize the total benefits to society. 
B)  causes demand to exceed supply. 
C)  strengthens the role of the "invisible hand" in the marketplace. 
D)  affects buyers but not sellers. 
A)  results in an equilibrium that does not maximize the total benefits to society. 
B)  causes demand to exceed supply. 
C)  strengthens the role of the "invisible hand" in the marketplace. 
D)  affects buyers but not sellers.

Question 6

Suppose planting flowering shrubs creates a positive externality equal to $7 per shrub. Further suppose that the local government offers a $7 per-shrub subsidy to planters. The number of shrubs that are planted is then

Accepted Answer

A)  less than the socially optimal quantity. 
B)  greater than the socially optimal quantity. 
C)  equal to the socially optimal quantity. 
D)  There is not enough information to answer the question. 
A)  less than the socially optimal quantity. 
B)  greater than the socially optimal quantity. 
C)  equal to the socially optimal quantity. 
D)  There is not enough information to answer the question.

Question 7

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 74th unit of the good is produced and consumed, social well-being

Accepted Answer

A)  decreases by $2.40. 
B)  decreases by $1.60. 
C)  increases by $1.00. 
D)  increases by $1.40. 
A)  decreases by $2.40. 
B)  decreases by $1.60. 
C)  increases by $1.00. 
D)  increases by $1.40.

Question 8

The supply curve for a product reflects the

Accepted Answer

A)  willingness to pay of the marginal buyer. 
B)  quantity buyers will ultimately purchase of the product. 
C)  cost to sellers of producing the product. 
D)  seller's profit from producing the product. 
A)  willingness to pay of the marginal buyer. 
B)  quantity buyers will ultimately purchase of the product. 
C)  cost to sellers of producing the product. 
D)  seller's profit from producing the product.

Question 9

Regulations to reduce pollution

Accepted Answer

A)  cause pollution levels to drop below the regulated amount. 
B)  are a more costly solution to society than a corrective tax. 
C)  allow firms with the lowest cost to reduce pollution by more than those with highest costs. 
D)  are a better solution for the environment than a corrective tax. 
A)  cause pollution levels to drop below the regulated amount. 
B)  are a more costly solution to society than a corrective tax. 
C)  allow firms with the lowest cost to reduce pollution by more than those with highest costs. 
D)  are a better solution for the environment than a corrective tax.

Question 10

If education produces positive externalities and the government does not intervene in the market, we would expect

Accepted Answer

A)  the equilibrium price to be higher than the optimal price. 
B)  the equilibrium quantity to be lower than the optimal level. 
C)  the equilibrium quantity to be higher than the optimal level. 
D)  both a and b are correct 
A)  the equilibrium price to be higher than the optimal price. 
B)  the equilibrium quantity to be lower than the optimal level. 
C)  the equilibrium quantity to be higher than the optimal level. 
D)  both a and b are correct

Question 11

Buyers and sellers neglect the external effects of their actions when deciding how much to demand or supply.

Accepted Answer

A) True 
 B)False

Question 12

In some circumstances, selling pollution permits may be better than levying a corrective tax.

Accepted Answer

A) True 
 B)False

Question 13

When negative externalities are present in a market

Accepted Answer

A)  private costs will be greater than social costs. 
B)  social costs will be greater than private costs. 
C)  only government regulation will solve the problem. 
D)  the market will not be able to reach any equilibrium. 
A)  private costs will be greater than social costs. 
B)  social costs will be greater than private costs. 
C)  only government regulation will solve the problem. 
D)  the market will not be able to reach any equilibrium.

Question 14

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. The equilibrium number of permits is

Accepted Answer

A)  50 
B)  100 
C)  1,000 
D)  2,000 
A)  50 
B)  100 
C)  1,000 
D)  2,000

Question 15

Table 10-5
The following table shows the marginal 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 $54, and for Firm A to eliminate a second unit of pollution it would cost an additional $67.  
-Refer to Table 10-5. If the government charged a fee of $69 per unit of pollution, how many units of pollution would the firms eliminate altogether?

Accepted Answer

A)  7 
B)  8 
C)  9 
D)  10 
A)  7 
B)  8 
C)  9 
D)  10

Question 16

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. The line labeled "Corrective tax" could accurately be re­labeled as

Accepted Answer

A)  "Demand for clean air." 
B)  "Demand for pollution rights." 
C)  "Price of pollution." 
D)  "Rate of subsidy." 
A)  "Demand for clean air." 
B)  "Demand for pollution rights." 
C)  "Price of pollution." 
D)  "Rate of subsidy."

Question 17

Figure 10-3  
-Refer to Figure 10-3. At the private market outcome, the equilibrium price will be

Accepted Answer

A)  P0. 
B)  P1. 
C)  P2. 
D)  None of the above is correct. 
A)  P0. 
B)  P1. 
C)  P2. 
D)  None of the above is correct.

Question 18

Figure 10-10  
-Refer to Figure 10-10. Which of the following statements is correct?

Accepted Answer

A)  The private cost of producing the 120th unit of output is $12. 
B)  The social cost of producing the 120th unit of output is $22. 
C)  The external cost of producing the 120th unit of output is $2. 
D)  All of the above are correct. 
A)  The private cost of producing the 120th unit of output is $12. 
B)  The social cost of producing the 120th unit of output is $22. 
C)  The external cost of producing the 120th unit of output is $2. 
D)  All of the above are correct.

Question 19

Table 10-4  
-Refer to Table 10-4. The last unit of output for which private value exceeds social cost is the

Accepted Answer

A)  2nd unit. 
B)  3rd unit. 
C)  4th unit. 
D)  5th unit. 
A)  2nd unit. 
B)  3rd unit. 
C)  4th unit. 
D)  5th unit.

Question 20

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. The equilibrium price of pollution is

Accepted Answer

A)  $50 
B)  $500 
C)  $1,000 
D)  $2,000 
A)  $50 
B)  $500 
C)  $1,000 
D)  $2,000

Exam 10: Externalities

Corrective taxes are typically advocated to correct for the effects of

Corrective taxes differ from most taxes in that corrective taxes

Which of the following statements is correct?

Negative externalities lead markets to produce

An externality

Suppose planting flowering shrubs creates a positive externality equal to $7 per shrub. Further suppose that the local government offers a $7 per-shrub subsidy to planters. The number of shrubs that are planted is then

The supply curve for a product reflects the

Regulations to reduce pollution

If education produces positive externalities and the government does not intervene in the market, we would expect

Buyers and sellers neglect the external effects of their actions when deciding how much to demand or supply.

In some circumstances, selling pollution permits may be better than levying a corrective tax.

When negative externalities are present in a market

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. The equilibrium number of permits is

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. The line labeled "Corrective tax" could accurately be re­labeled as

Figure 10-3 -Refer to Figure 10-3. At the private market outcome, the equilibrium price will be

Figure 10-10 -Refer to Figure 10-10. Which of the following statements is correct?

Table 10-4 -Refer to Table 10-4. The last unit of output for which private value exceeds social cost is the

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. The equilibrium price of pollution is

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

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. The line labeled "Corrective tax" could accurately be relabeled as