Question 1

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 2

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 3

Table 10-4 
-Refer to Table 10-4. The table represents a market in which

Accepted Answer

A)  there is no externality.
B)  there is a positive externality.
C)  there is a negative externality.
D)  The answer cannot be determined from inspection of the table.

Question 4

​Josiah installed a metal sculpture in his front yard. A positive externality arises if the sculpture

Accepted Answer

A)  ​increases the value of other properties in the neighborhood.
B)  ​increases the value of Josiah's home.
C)  ​is visually unappealing to Josiah's neighbors.
D)  ​creates a safety hazard for neighborhood children.

Question 5

In some situations, private economic actors cannot solve the problem of externalities among themselves because of substantial _________ costs.

Accepted Answer

The answer of In some situations, private economic actors cannot...

Question 6

Suppose the market-equilibrium quantity of good x is larger than the socially-optimal quantity of good x. Does the production of good x convey a positive externality or does it convey a negative externality?

Accepted Answer

The production of go...

Question 7

​Sophia sits behind Gabriel on an airplane. Gabriel owns the right to recline his seat and values this right at $10. Sophia values a non-reclined seat in front of her at $40. Assuming no transaction costs, which of the following represents an efficient solution?

Accepted Answer

A)  ​Sophia offers Gabriel between $10 and $40 to not recline his seat. Gabriel accepts, and both parties are better off.
B)  ​Sophia offers Gabriel between $0 and $10 to not recline his seat. Gabriel accepts, and Sophia is better off.
C)  ​Sophia offers Gabriel between $10 and $40 to not recline his seat. Gabriel declines because he has the right to recline his seat.
D)  ​Gabriel offers Sophia between $10 and $40 to recline his seat. Sophia accepts, and both parties are better off.

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 the government offers 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

Transaction costs

Accepted Answer

A)  can keep private parties from solving externality problems.
B)  are incurred in the production process due to externalities.
C)  increase when taxes are imposed to correct negative externalities.
D)  are eliminated when the government intervenes in a market with externalities.

Question 10

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.

Question 11

Scenario 10-4
The demand curve for fire extinguishers slopes downward and the supply curve for fire extinguishers slopes upward. The production of the 500S1U1P1thS1S1P0 fire 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^th fire extinguisher,...

Question 12

If the government wanted to ensure that the market reaches the socially optimal equilibrium in the presence of a technology spillover, it should

Accepted Answer

A)  impose a corrective tax on any firm producing a technology spillover.
B)  offer tax credits to consumers who are adversely affected by the new technology.
C)  subsidize producers by an amount equal to the value of the technology spillover.
D)  provide research grants to those firms not currently engaging in research to increase competition in the industry.

Question 13

Suppose a tax is imposed on producers of aluminum as a means of internalizing the externality associated with aluminum production. If the tax accurately reflects the external costs of pollutants released into the atmosphere, then the new supply curve for aluminum coincides with which other curve?

Accepted Answer

The new supply curve...

Question 14

In the case of a technology spillover, internalizing a positive externality will cause the supply curve of an industry to

Accepted Answer

A)  shift to the right.
B)  shift to the left.
C)  become more elastic.
D)  remain unchanged.

Question 15

Figure 10-5 0 and Q1. B) P2 and Q1. C) P1 and Q0. D) P2 and Q0." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 10-5. Which price and quantity combination represents the social optimum?

Accepted Answer

A)  P0 and Q1.
B)  P2 and Q1.
C)  P1 and Q0.
D)  P2 and Q0.

Question 16

Does research into new technologies create a positive externality or does it create a negative externality?

Accepted Answer

Research into new te...

Question 17

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 18

Figure 10-12 
-Refer to Figure 10-12. Which of the following is an appropriate label for Line 2?

Accepted Answer

A)  social cost minus social value
B)  social value minus private cost
C)  demand
D)  private value plus external benefit

Question 19

Suppose that Bill wants to dine at a fancy restaurant, but the only available table is in the smoking section. Bill dislikes the smell of cigarette smoke. He notices that only one person, Peter, is smoking in the smoking section. Bill values the absence of smoke at $15. Peter values the ability to smoke in the restaurant at $10. In order for Bill to pay Peter not to smoke, he will need to tip the waiter $10 to facilitate the transaction. Which of the following represents an efficient solution?

Accepted Answer

A)  Peter continues to smoke because the cost to Bill to pay him not to smoke is between $20 and $25, which exceeds the benefit to him of no smoking ($15) .
B)  Bill offers Peter between $10 and $15 not to smoke, and he pays the waiter $10. Peter accepts, and both parties are better off.
C)  Bill offers Peter between $10 and $15 not to smoke, and he pays the waiter $10. Peter declines because he has a right to smoke in the smoking section.
D)  Bill offers Peter $5 not to smoke, and he pays the waiter $10. Peter accepts, and both parties are better off.

Question 20

Suppose that electricity producers create a negative externality equal to $5 per unit. Further suppose that the government imposes a $5 per-unit tax on the producers. What is the relationship between the after-tax equilibrium quantity and the socially optimal quantity of electricity to be produced?

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.

Exam 10: Externalities

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

Correct Answer
verified
For each college degree, the s...
View Answer

Correct Answer
verified

Does research into new technologies create a positive externality or does it create a negative externality?

Correct Answer
verified
Research into new te...
View Answer

Suppose the market-equilibrium quantity of good x is larger than the socially-optimal quantity of good x. Does the production of good x convey a positive externality or does it convey a negative externality?

Correct Answer
verified
The production of go...
View Answer

When one firm sells its pollution permit to another firm,

Correct Answer
verified

Table 10-4 -Refer to Table 10-4. The table represents a market in which

Correct Answer
verified

Transaction costs

Correct Answer
verified

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

Correct Answer
verified

If the government wanted to ensure that the market reaches the socially optimal equilibrium in the presence of a technology spillover, it should

Correct Answer
verified

In the case of a technology spillover, internalizing a positive externality will cause the supply curve of an industry to

Correct Answer
verified

Figure 10-5 -Refer to Figure 10-5. Which price and quantity combination represents the social optimum?

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
For the 500^th fire extinguisher,...
View Answer

In some situations, private economic actors cannot solve the problem of externalities among themselves because of substantial _________ costs.

Correct Answer
verified

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 the government offers subsidies for MBAs, then which of the following statements is correct?

Correct Answer
verified

Suppose a tax is imposed on producers of aluminum as a means of internalizing the externality associated with aluminum production. If the tax accurately reflects the external costs of pollutants released into the atmosphere, then the new supply curve for aluminum coincides with which other curve?

Correct Answer
verified
The new supply curve...
View Answer

Josiah installed a metal sculpture in his front yard. A positive externality arises if the sculpture

Correct Answer
verified

Sophia sits behind Gabriel on an airplane. Gabriel owns the right to recline his seat and values this right at $10. Sophia values a non-reclined seat in front of her at $40. Assuming no transaction costs, which of the following represents an efficient solution?

Correct Answer
verified

Figure 10-12 -Refer to Figure 10-12. Which of the following is an appropriate label for Line 2?

Correct Answer
verified

Suppose that electricity producers create a negative externality equal to $5 per unit. Further suppose that the government imposes a $5 per-unit tax on the producers. What is the relationship between the after-tax equilibrium quantity and the socially optimal quantity of electricity to be produced?

Correct Answer
verified

Exam 10: Externalities

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?

Correct AnswerverifiedFor each college degree, the s...View AnswerShow Answer

Correct AnswerverifiedShow Answer

Does research into new technologies create a positive externality or does it create a negative externality?

Correct AnswerverifiedResearch into new te...View AnswerShow Answer

Suppose the market-equilibrium quantity of good x is larger than the socially-optimal quantity of good x. Does the production of good x convey a positive externality or does it convey a negative externality?

Correct AnswerverifiedThe production of go...View AnswerShow Answer

When one firm sells its pollution permit to another firm,

Correct AnswerverifiedShow Answer

Table 10-4 -Refer to Table 10-4. The table represents a market in which

Correct AnswerverifiedShow Answer

Transaction costs

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If the government wanted to ensure that the market reaches the socially optimal equilibrium in the presence of a technology spillover, it should

Correct AnswerverifiedShow Answer

In the case of a technology spillover, internalizing a positive externality will cause the supply curve of an industry to

Correct AnswerverifiedShow Answer

Figure 10-5 -Refer to Figure 10-5. Which price and quantity combination represents the social optimum?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedFor the 500th fire extinguisher,...View AnswerShow Answer

In some situations, private economic actors cannot solve the problem of externalities among themselves because of substantial _________ costs.

Correct AnswerverifiedShow Answer

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 the government offers subsidies for MBAs, then which of the following statements is correct?

Correct AnswerverifiedShow Answer

Suppose a tax is imposed on producers of aluminum as a means of internalizing the externality associated with aluminum production. If the tax accurately reflects the external costs of pollutants released into the atmosphere, then the new supply curve for aluminum coincides with which other curve?

Correct AnswerverifiedThe new supply curve...View AnswerShow Answer

​Josiah installed a metal sculpture in his front yard. A positive externality arises if the sculpture

Correct AnswerverifiedShow Answer

​Sophia sits behind Gabriel on an airplane. Gabriel owns the right to recline his seat and values this right at $10. Sophia values a non-reclined seat in front of her at $40. Assuming no transaction costs, which of the following represents an efficient solution?

Correct AnswerverifiedShow Answer

Figure 10-12 -Refer to Figure 10-12. Which of the following is an appropriate label for Line 2?

Correct AnswerverifiedShow Answer

Suppose that electricity producers create a negative externality equal to $5 per unit. Further suppose that the government imposes a $5 per-unit tax on the producers. What is the relationship between the after-tax equilibrium quantity and the socially optimal quantity of electricity to be produced?

Correct AnswerverifiedShow Answer

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

Correct Answer
verified
For each college degree, the s...
View Answer

Correct Answer
verified

Correct Answer
verified
Research into new te...
View Answer

Correct Answer
verified
The production of go...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
For the 500^th fire extinguisher,...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The new supply curve...
View Answer

Josiah installed a metal sculpture in his front yard. A positive externality arises if the sculpture

Correct Answer
verified

Sophia sits behind Gabriel on an airplane. Gabriel owns the right to recline his seat and values this right at $10. Sophia values a non-reclined seat in front of her at $40. Assuming no transaction costs, which of the following represents an efficient solution?

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified