Question 1

Figure 10-12
 
-Refer to Figure 10-12.The graph,as drawn,could apply to the market for

Accepted Answer

A)  fire extinguishers. 
B)  historic buildings. 
C)  robots. 
D)  All of the above are correct.

Question 2

Table 10-1
The following table shows the private value, private cost, and external cost for various quantities of output in a market.
 
-Refer to Table 10-1.What is the socially-optimal quantity of output in this market?

Accepted Answer

A)  1 unit 
B)  2 units 
C)  3 units 
D)  4 units

Question 3

Which of the following statements is correct about a market in which pollution is emitted?

Accepted Answer

A)  Both corrective taxes and pollution permits move the market toward the social optimum. 
B)  Corrective taxes move the market toward the social optimum, but pollution permits do not move the market toward the social optimum. 
C)  Pollution permits move the market toward the social optimum, but corrective taxes do not move the market toward the social optimum. 
D)  Neither corrective taxes nor pollution permits move the market toward the social optimum.

Question 4

Which of the following statements about a well-maintained yard best conveys the general nature of the externality?

Accepted Answer

A)  A well-maintained yard conveys a positive externality because it increases the home's market value. 
B)  A well-maintained yard conveys a negative externality because it increases the property tax liability of the owner. 
C)  A well-maintained yard conveys a positive externality because it increases the value of adjacent properties in the neighborhood. 
D)  A well-maintained yard cannot provide any type of externality.

Question 5

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

Question 6

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 $93 per unit of pollution,how many units of pollution would the firms eliminate altogether?

Accepted Answer

A)  5 
B)  8 
C)  11 
D)  13

Question 7

When externalities are present in a market,the well-being of market participants

Accepted Answer

A)  and market bystanders are both directly affected. 
B)  and market bystanders are both indirectly affected. 
C)  is directly affected, and market bystanders are indirectly affected. 
D)  is indirectly affected, and market bystanders are directly affected.

Question 8

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.

Question 9

Which of the following statements about the Coase theorem is true?

Accepted Answer

A)  Underlying the results of the Coase theorem is the idea that private parties can bargain without cost over the allocation of resources. 
B)  The Coase theorem asserts that private solutions to externalities invariably lead to inefficient allocations of resources. 
C)  The Coase theorem applies to negative externalities, but not to positive externalities. 
D)  All of the above are correct.

Question 10

Figure 10-12
 
-Refer to Figure 10-12.An alternative label for the line labeled "Supply" would be

Accepted Answer

A)  private value. 
B)  external value. 
C)  private cost. 
D)  external cost.

Question 11

Which of the following policies is not an example of a command-and-control policy?

Accepted Answer

A)  subsidies 
B)  Pigovian taxes 
C)  tradable pollution permits 
D)  None of the above is an example of a command-and-control policy.

Question 12

Assume that your roommate is very messy.Suppose she gets a $25 benefit from being messy but imposes a $50 cost on you.The Coase theorem would suggest that an efficient solution would be for you to

Accepted Answer

A)  pay your roommate at least $25 but no more than $50 to clean up after herself. 
B)  pay your roommate at least $51 to clean up after herself. 
C)  charge your roommate at least $25 to have you clean up after her. 
D)  charge your roommate at least $50 but no more than $100 to keep you from complaining about the mess.

Question 13

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 tax depicted on the graph

Accepted Answer

A)  gives polluting firms an incentive to develop cleaner technologies. 
B)  is viewed by most economists as less effective than a command-and-control policy as a means of reducing pollution. 
C)  has the effect of moving the allocation of resources further from the social optimum than it would be in the absence of the tax. 
D)  All of the above are correct.

Question 14

Figure 10-14
 
-Refer to Figure 10-14.Which of the following statements is correct?

Accepted Answer

A)  To induce firms to internalize the externality in this market, the government should impose a tax measured by P2 - P0. 
B)  To induce firms to internalize the externality in this market, the government should offer a subsidy measured by P2 - P0. 
C)  To induce firms to internalize the externality in this market, the government should impose a tax measured by P2 - P1. 
D)  There is no externality in this market.

Question 15

Suppose that cookie producers create a positive externality equal to $2 per dozen.Further suppose that the government offers a $2 per-dozen subsidy to the producers.What is the relationship between the equilibrium quantity and the socially optimal quantity of cookies to be produced?

Accepted Answer

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

Question 16

The impact of one person's actions on the well-being of a bystander is called

Accepted Answer

A)  an economic dilemma. 
B)  deadweight loss. 
C)  a multi-party problem. 
D)  an externality.

Question 17

In the case of a technology spillover,the government can encourage firms to internalize a positive externality by

Accepted Answer

A)  taxing production, which would decrease supply. 
B)  taxing production, which would increase supply. 
C)  subsidizing production, which would decrease supply. 
D)  subsidizing production, which would increase supply.

Question 18

When one firm sells its pollution permit to another firm,

Accepted Answer

A)  both firms benefit. 
B)  the total amount of pollution remains the same. 
C)  the total amount of pollution decreases. 
D)  Both a and b are correct.

Question 19

The least expensive way to clean up the environment is for all firms to reduce pollution by an equal percentage.

Accepted Answer

A) True 
 B)False

Question 20

Figure 10-4
 
-Refer to Figure 10-4.Without government intervention,the equilibrium quantity would be

Accepted Answer

A)  Q1. 
B)  Q2. 
C)  Q3. 
D)  Q4.

Exam 10: Externalities.

Figure 10-12 -Refer to Figure 10-12.The graph,as drawn,could apply to the market for

Table 10-1 The following table shows the private value, private cost, and external cost for various quantities of output in a market. -Refer to Table 10-1.What is the socially-optimal quantity of output in this market?