Question 1

Figure 10-11  
-Refer to Figure 10-11. A benevolent social planner would prefer

Accepted Answer

A)  a $24 price to any other price. 
B)  420 units to any other quantity of output. 
C)  a subsidy of $24 per unit to a subsidy of $27 per unit. 
D)  All of the above are correct. 
A)  a $24 price to any other price. 
B)  420 units to any other quantity of output. 
C)  a subsidy of $24 per unit to a subsidy of $27 per unit. 
D)  All of the above are correct.

Question 2

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. Suppose that the federal government gives grants to these researchers equal to the their per-unit production externality. What is the relationship between the equilibrium quantity of university research and the socially optimal quantity of university research produced?

Accepted Answer

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

Question 3

Which of the following is not a characteristic of pollution permits?

Accepted Answer

A)  Prices are set by supply and demand. 
B)  Allowing firms to trade their permits reduces the total quantity of pollution beyond the initial allocation. 
C)  Real-world markets for pollution permits include sulfur dioxide and carbon. 
D)  Firms for whom pollution reduction is very expensive are willing to pay more for permits than firms for whom pollution reduction is less expensive. 
A)  Prices are set by supply and demand. 
B)  Allowing firms to trade their permits reduces the total quantity of pollution beyond the initial allocation. 
C)  Real-world markets for pollution permits include sulfur dioxide and carbon. 
D)  Firms for whom pollution reduction is very expensive are willing to pay more for permits than firms for whom pollution reduction is less expensive.

Question 4

Suppose that cigarette smokers create a negative externality. Further suppose that the government imposes a tax on cigarettes equal to the per-unit externality. What is the relationship between the after-tax equilibrium quantity and the socially optimal quantity of cigarettes?

Accepted Answer

A)  They are equal. 
B)  The after-tax equilibrium quantity is greater than the socially optimal quantity. 
C)  The after-tax 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 after-tax equilibrium quantity is greater than the socially optimal quantity. 
C)  The after-tax equilibrium quantity is less than the socially optimal quantity. 
D)  There is not enough information to answer the question.

Question 5

Some government policies provide incentives for private decision makers to choose to solve the problem of externalities on their own. What term do we use to describe such policies?

Accepted Answer

We use the term mark

Question 6

Figure 10-3  
-Refer to Figure 10-3. What price and quantity combination best represents the optimum price and number of concerts that should be organized?

Accepted Answer

A)  P1, Q1 
B)  P2, Q0 
C)  P2, Q1 
D)  The optimum quantity is zero concerts as long as residents in surrounding neighborhoods are adversely affected by noise and congestion. 
A)  P1, Q1 
B)  P2, Q0 
C)  P2, Q1 
D)  The optimum quantity is zero concerts as long as residents in surrounding neighborhoods are adversely affected by noise and congestion.

Question 7

Research into new technologies

Accepted Answer

A)  provides positive externalities because it creates knowledge others can use. 
B)  results in negative externalities because government funding for research causes less government spending in other areas. 
C)  is protected by patent laws, which eliminates the need for government intervention. 
D)  should only be funded by the corporations that will receive the profits from the research. 
A)  provides positive externalities because it creates knowledge others can use. 
B)  results in negative externalities because government funding for research causes less government spending in other areas. 
C)  is protected by patent laws, which eliminates the need for government intervention. 
D)  should only be funded by the corporations that will receive the profits from the research.

Question 8

Figure 10-9  
-Refer to Figure 10-9, Panel (b). The market equilibrium quantity is

Accepted Answer

A)  Q2, which is the socially optimal quantity. 
B)  Q3, which is the socially optimal quantity. 
C)  Q2, and the socially optimal quantity is Q3. 
D)  Q3, and the socially optimal quantity is Q2. 
A)  Q2, which is the socially optimal quantity. 
B)  Q3, which is the socially optimal quantity. 
C)  Q2, and the socially optimal quantity is Q3. 
D)  Q3, and the socially optimal quantity is Q2.

Question 9

Markets sometimes fail to allocate resources efficiently.

Accepted Answer

A) True 
 B)False

Question 10

Government can be used to solve externality problems that are too costly for private parties to solve.

Accepted Answer

A) True 
 B)False

Question 11

When an externality is present, the market equilibrium is

Accepted Answer

A)  efficient, and the equilibrium maximizes the total benefit to society as a whole. 
B)  efficient, but the equilibrium does not maximize the total benefit to society as a whole. 
C)  inefficient, but the equilibrium maximizes the total benefit to society as a whole. 
D)  inefficient, and the equilibrium does not maximize the total benefit to society as a whole. 
A)  efficient, and the equilibrium maximizes the total benefit to society as a whole. 
B)  efficient, but the equilibrium does not maximize the total benefit to society as a whole. 
C)  inefficient, but the equilibrium maximizes the total benefit to society as a whole. 
D)  inefficient, and the equilibrium does not maximize the total benefit to society as a whole.

Question 12

At any given quantity, the cost of the marginal seller is the height of the .

Accepted Answer

The answer of At any given quantity, the cost of...

Question 13

Figure 10-15  
-Refer to Figure 10-15. Which graph illustrates a pollution permit program?

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 14

Suppose the socially-optimal quantity of good x is 2,500 units and the market-equilibrium quantity of good x is 3,000 units. When 2,500 units of good x are produced, the

Accepted Answer

A)  external cost of good x exceeds the private value of good x. 
B)  external cost of good x equals the private value of good x. 
C)  social cost of good x exceeds the private value of good x. 
D)  social cost of good x equals the private value of good x. 
A)  external cost of good x exceeds the private value of good x. 
B)  external cost of good x equals the private value of good x. 
C)  social cost of good x exceeds the private value of good x. 
D)  social cost of good x equals the private value of good x.

Question 15

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. Suppose there is presently no pollution fee, and the government wishes to eliminate exactly 8 units of pollution. Which of the following fees per unit of pollution would achieve that goal?

Accepted Answer

A)  $65 
B)  $75 
C)  $80 
D)  $88 
A)  $65 
B)  $75 
C)  $80 
D)  $88

Question 16

Which of the following is an advantage of tradable pollution permits?

Accepted Answer

A)  Each firm is allowed to pollute exactly the same amount. 
B)  Revenue from the sale of permits is greater than revenue from a corrective tax. 
C)  The initial allocation of permits to firms does not affect the efficiency of the market. 
D)  Firms will engage in joint research efforts to reduce pollution. 
A)  Each firm is allowed to pollute exactly the same amount. 
B)  Revenue from the sale of permits is greater than revenue from a corrective tax. 
C)  The initial allocation of permits to firms does not affect the efficiency of the market. 
D)  Firms will engage in joint research efforts to reduce pollution.

Question 17

In a market characterized by externalities, the market equilibrium fails to maximize the total benefit to society as a whole.

Accepted Answer

A) True 
 B)False

Question 18

Figure 10-6  
-Refer to Figure 10-6. Which quantity represents the socially-optimal quantity of output in this market?

Accepted Answer

A)  Q 
B)  Q' 
C)  Either Q or Q'. It is necessary to know whether the externality is positive or negative to determine the socially-optimal quantity. 
D)  Some quantity between Q and Q'. The socially-optimal quantity depends on the negotiating skills of the interested parties. 
A)  Q 
B)  Q' 
C)  Either Q or Q'. It is necessary to know whether the externality is positive or negative to determine the socially-optimal quantity. 
D)  Some quantity between Q and Q'. The socially-optimal quantity depends on the negotiating skills of the interested parties.

Question 19

If we know that the demand curve for good x fails to reflect the total value to society of that good, then we know that

Accepted Answer

A)  the market for good x is characterized by an externality, but we cannot determine whether the externality is positive or negative from this fact alone. 
B)  the market for good x is characterized by a positive externality. 
C)  the market for good x is characterized by a negative externality. 
D)  the supply curve for good x fails to reflect the cost to society of producing that good. 
A)  the market for good x is characterized by an externality, but we cannot determine whether the externality is positive or negative from this fact alone. 
B)  the market for good x is characterized by a positive externality. 
C)  the market for good x is characterized by a negative externality. 
D)  the supply curve for good x fails to reflect the cost to society of producing that good.

Question 20

Government intervention is necessary to correct all externalities.

Accepted Answer

A) True 
 B)False

Exam 10: Externalities

Figure 10-11 -Refer to Figure 10-11. A benevolent social planner would prefer

Which of the following is not a characteristic of pollution permits?

Suppose that cigarette smokers create a negative externality. Further suppose that the government imposes a tax on cigarettes equal to the per-unit externality. What is the relationship between the after-tax equilibrium quantity and the socially optimal quantity of cigarettes?

Some government policies provide incentives for private decision makers to choose to solve the problem of externalities on their own. What term do we use to describe such policies?

Figure 10-3 -Refer to Figure 10-3. What price and quantity combination best represents the optimum price and number of concerts that should be organized?

Research into new technologies

Figure 10-9 -Refer to Figure 10-9, Panel (b). The market equilibrium quantity is

Markets sometimes fail to allocate resources efficiently.

Government can be used to solve externality problems that are too costly for private parties to solve.

When an externality is present, the market equilibrium is

At any given quantity, the cost of the marginal seller is the height of the .

Figure 10-15 -Refer to Figure 10-15. Which graph illustrates a pollution permit program?

Suppose the socially-optimal quantity of good x is 2,500 units and the market-equilibrium quantity of good x is 3,000 units. When 2,500 units of good x are produced, the

Which of the following is an advantage of tradable pollution permits?

In a market characterized by externalities, the market equilibrium fails to maximize the total benefit to society as a whole.

Figure 10-6 -Refer to Figure 10-6. Which quantity represents the socially-optimal quantity of output in this market?

If we know that the demand curve for good x fails to reflect the total value to society of that good, then we know that

Government intervention is necessary to correct all 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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