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The Coase theorem asserts that, in the presence of externalities,


A) private economic actors sometimes can reach a bargain that produces an efficient outcome.
B) private economic actors always can reach a bargain that makes everyone better off.
C) private solutions cannot be very effective.
D) corrective taxes cannot be very effective.

E) A) and D)
F) B) and C)

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Figure 10-9 Figure 10-9       -Refer to Figure 10-9, Panel (b)  and Panel (c) . Which of the following is correct? A) A tax would move the market in Panel (b)  and the market in Panel (c)  closer to the socially optimal outcome. B) A subsidy would move the market in Panel (b)  and the market in Panel (c)  closer to the socially optimal outcome. C) A tax would move the market in Panel (b)  closer to the socially optimal outcome, but a subsidy would move the market in Panel (c)  closer to the socially optimal outcome. D) A subsidy would move the market in Panel (b)  closer to the socially optimal outcome, but a tax would move the market in Panel (c)  closer to the socially optimal outcome. Figure 10-9       -Refer to Figure 10-9, Panel (b)  and Panel (c) . Which of the following is correct? A) A tax would move the market in Panel (b)  and the market in Panel (c)  closer to the socially optimal outcome. B) A subsidy would move the market in Panel (b)  and the market in Panel (c)  closer to the socially optimal outcome. C) A tax would move the market in Panel (b)  closer to the socially optimal outcome, but a subsidy would move the market in Panel (c)  closer to the socially optimal outcome. D) A subsidy would move the market in Panel (b)  closer to the socially optimal outcome, but a tax would move the market in Panel (c)  closer to the socially optimal outcome. Figure 10-9       -Refer to Figure 10-9, Panel (b)  and Panel (c) . Which of the following is correct? A) A tax would move the market in Panel (b)  and the market in Panel (c)  closer to the socially optimal outcome. B) A subsidy would move the market in Panel (b)  and the market in Panel (c)  closer to the socially optimal outcome. C) A tax would move the market in Panel (b)  closer to the socially optimal outcome, but a subsidy would move the market in Panel (c)  closer to the socially optimal outcome. D) A subsidy would move the market in Panel (b)  closer to the socially optimal outcome, but a tax would move the market in Panel (c)  closer to the socially optimal outcome. -Refer to Figure 10-9, Panel (b) and Panel (c) . Which of the following is correct?


A) A tax would move the market in Panel (b) and the market in Panel (c) closer to the socially optimal outcome.
B) A subsidy would move the market in Panel (b) and the market in Panel (c) closer to the socially optimal outcome.
C) A tax would move the market in Panel (b) closer to the socially optimal outcome, but a subsidy would move the market in Panel (c) closer to the socially optimal outcome.
D) A subsidy would move the market in Panel (b) closer to the socially optimal outcome, but a tax would move the market in Panel (c) closer to the socially optimal outcome.

E) A) and B)
F) A) and C)

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


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.

E) None of the above
F) B) and C)

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Figure 10-13. On the graph, Q represents the quantity of plastics and P represents the price of plastics. Figure 10-13. On the graph, Q represents the quantity of plastics and P represents the price of plastics.   -Refer to Figure 10-13. Each unit of plastics that is produced results in an external A) cost of $6. B) cost of $8. C) benefit of $6. D) benefit of $8. -Refer to Figure 10-13. Each unit of plastics that is produced results in an external


A) cost of $6.
B) cost of $8.
C) benefit of $6.
D) benefit of $8.

E) B) and C)
F) None of the above

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Suppose that large-scale pork production has the potential to create ground water pollution. Why might this type of pollution be considered an externality?


A) The groundwater pollution reduces the cost of large-scale pork production.
B) The economic impact of a large-scale pork production facility is localized in a small geographic area.
C) The pollution has the potential for creating a health risk for water users in the region surrounding the pork production facility.
D) Consumers will not reap the benefits of lower production cost from large-scale pork production.

E) A) and D)
F) B) and C)

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Corrective taxes are more efficient than regulations for keeping the environment clean.

A) True
B) False

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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. 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 wanted to eliminate exactly 11 units of pollution, which of the following fees per unit of pollution would achieve that goal? A) $75 B) $87 C) $90 D) $106 -Refer to Table 10-5. If the government wanted to eliminate exactly 11 units of pollution, which of the following fees per unit of pollution would achieve that goal?


A) $75
B) $87
C) $90
D) $106

E) B) and C)
F) None of the above

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​A rain barrel is a container that captures and stores rainwater for landscape and garden use during dry periods. Rain barrels provide an external benefit to the community through water conservation. If the government offers a per unit subsidy on rain barrels equal to the per-unit externality, then


A) ​the after-subsidy equilibrium quantity of rain barrels will be less than the socially optimal quantity of rain barrels.
B) ​the after-subsidy equilibrium quantity of rain barrels will be more than the socially optimal quantity of rain barrels.
C) ​the after-subsidy equilibrium quantity of rain barrels will equal the socially optimal quantity of rain barrels.
D) ​market incentives will be distorted and move the allocation of resources away from the social optimum.

E) All of the above
F) A) and D)

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When negative externalities are present in a market,


A) producers will be affected but consumers will not.
B) producers will supply too much of the product.
C) demand will be too high.
D) the market will still maximize total benefits.

E) A) and C)
F) B) and C)

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Which of the following is NOT a way of internalizing technology spillovers?


A) subsidies
B) patent protection
C) industrial policy
D) taxes

E) B) and D)
F) A) and D)

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Suppose that flu shots create a positive externality equal to $8 per shot. Further suppose that the government offers a $11-per-shot subsidy to producers. What is the relationship between the equilibrium quantity and the socially optimal quantity of flu shots produced?


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

E) A) and D)
F) All of the above

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When the social cost curve is above a product's supply curve,


A) the government has intervened in the market.
B) a negative externality exists in the market.
C) a positive externality exists in the market.
D) the distribution of resources is unfair.

E) C) and D)
F) B) and C)

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Suppose that a negative externality is created by the production of good X. Which of the following statements is correct?


A) The social cost of producing good X includes the private cost plus the cost to bystanders of the externality.
B) The increased social cost can be graphed as a decrease in demand.
C) The market equilibrium quantity will be the socially optimal quantity as long as the government does not interfere.
D) Both a and b are correct.

E) None of the above
F) A) and B)

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Table 10-3 Table 10-3   -Refer to Table 10-3. The market equilibrium quantity of output is A) 3 units. B) 4 units. C) 5 units. D) 6 units. -Refer to Table 10-3. The market equilibrium quantity of output is


A) 3 units.
B) 4 units.
C) 5 units.
D) 6 units.

E) A) and B)
F) A) and C)

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Two firms, A and B, each currently emit 100 tons of chemicals into the air. The government has decided to reduce the pollution and from now on will require a pollution permit for each ton of pollution emitted into the air. The government gives each firm 40 pollution permits, which it can either use or sell to the other firm. It costs Firm A $200 for each ton of pollution that it eliminates before it is emitted into the air, and it costs Firm B $100 for each ton of pollution that it eliminates before it is emitted into the air. It is likely that


A) Firm A will buy all of Firm B's pollution permits. Each one will cost between $100 and $200.
B) Firm B will buy all of Firm A's pollution permits. Each one will cost between $100 and $200.
C) Both firms will use their own pollution permits.
D) Firm A will buy some of Firm B's pollution permits. Each one will cost less than $100.

E) All of the above
F) C) and D)

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Figure 10-5 Figure 10-5   -Refer to Figure 10-5. Which of the following statements is correct? A) The marginal benefit of the positive externality is measured by P<sub>3</sub> - P<sub>1</sub>. B) The marginal cost of the negative externality is measured by P<sub>3</sub> - P<sub>2</sub>. C) The marginal cost of the negative externality is measured by P<sub>3</sub> - P<sub>1</sub>. D) The marginal cost of the negative externality is measured by P<sub>3</sub> - P<sub>0</sub>. -Refer to Figure 10-5. Which of the following statements is correct?


A) The marginal benefit of the positive externality is measured by P3 - P1.
B) The marginal cost of the negative externality is measured by P3 - P2.
C) The marginal cost of the negative externality is measured by P3 - P1.
D) The marginal cost of the negative externality is measured by P3 - P0.

E) A) and D)
F) B) and D)

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Once tradable pollution permits have been allocated to firms,


A) the government controls the price of permits.
B) firms that can reduce pollution only at high cost will be willing to pay the most for the pollution permits.
C) the value of pollution-saving technology will be lower than the market value of a pollution permit.
D) the Coase theorem is no longer applicable as a solution to reducing pollution.

E) All of the above
F) A) and D)

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Despite the appealing logic of the Coase theorem, private actors often fail to resolve on their own the problems caused by externalities.

A) True
B) False

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A market for pollution permits can efficiently allocate the right to pollute by using the forces of supply and demand.

A) True
B) False

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​Figure 10-20. ​ ​Figure 10-20. ​   -Refer to Figure 10-20. The graph depicts the market for fertilizer. What is the socially optimal quantity of fertilizer? A) ​100 units B) 200 units C) 250 units D) ​300 units -Refer to Figure 10-20. The graph depicts the market for fertilizer. What is the socially optimal quantity of fertilizer?


A) ​100 units
B) 200 units
C) 250 units
D) ​300 units

E) A) and B)
F) B) and D)

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