Question 1

Which of the following is not an advantage of corrective taxes?

Accepted Answer

A)   They raise revenues for the government.
B)   They enhance economic efficiency.
C)   They subsidize the production of goods with positive externalities.
D)   They move the allocation of resources closer to the social optimum.

Question 2

An externality arises when a person engages in an activity that influences the well-being of

Accepted Answer

A)   buyers in the market for that activity and yet neither pays nor receives any compensation for that effect.
B)   sellers in the market for that activity and yet neither pays nor receives any compensation for that effect.
C)   bystanders in the market for that activity and yet neither pays nor receives any compensation for that effect.
D)   Both (a)  and (b)  are correct.

Question 3

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.

Question 4

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?

Accepted Answer

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.

Question 5

When the government intervenes in markets with externalities, it does so in order to

Accepted Answer

A)   increase production when negative externalities are present.
B)   protect the interests of bystanders.
C)   make certain all benefits are received by market participants.
D)   reduce production when positive externalities are present.

Question 6

Abe owns a dog; the dog's barking annoys Abe's neighbor, Jenny. Suppose that the benefit of owning the dog is worth $200 to Abe and that Jenny bears a cost of $400 from the barking. Assuming Abe has the legal right to keep the dog, a possible private solution to this problem is that

Accepted Answer

A)   Jenny pays Abe $150 to give the dog to his parents who live on an isolated farm.
B)   Abe pays Jenny $350 for her inconvenience.
C)   Jenny pays Abe $300 to give the dog to his parents who live on an isolated farm.
D)   There is no private transaction that would improve this situation.

Question 7

Suppose the market-equilibrium quantity of good x is 5,000 units and the socially-optimal quantity of good x is 4,000 units. Then

Accepted Answer

A)   the production of good x imposes external costs on society.
B)   the private value of good x exceeds the private cost of good x when 5,000 units are produced.
C)   the private cost of good x exceeds the private value of good x when 5,000 units are produced.
D)   the social cost of good x exceeds the private value of good x when 4,000 units are produced.

Question 8

Which of the following is an example of an externality?

Accepted Answer

A)   cigarette smoke that permeates an entire restaurant
B)   a flu shot that prevents a student from transmitting the virus to her roommate
C)   a beautiful flower garden outside of the local post office
D)   All of the above are correct.

Question 9

Which of the following statements is correct?

Accepted Answer

A)   Gasoline taxes are an example of an EPA regulation.
B)   Gasoline taxes are higher in many European countries than in the United States.
C)   Gasoline taxes contribute to global warming.
D)   Gasoline taxes are an example of a command-and-control policy.

Question 10

Figure 10-19 
-Refer to Figure 10-19. How many units of the good are produced in a market equilibrium?

Accepted Answer

A)   fewer than 58
B)   58
C)   73
D)   94

Question 11

Research into new technologies provides a

Accepted Answer

A)   negative externality, and too few resources are devoted to research as a result.
B)   negative externality, and too many resources are devoted to research as a result.
C)   positive externality, and too few resources are devoted to research as a result.
D)   positive externality, and too many resources are devoted to research as a result.

Question 12

Reaching an efficient bargain is difficult when the

Accepted Answer

A)   externality is large.
B)   number of interested parties is large.
C)   externality is negative.
D)   government becomes involved.

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

Most taxes distort incentives and move the allocation of resources away from the social optimum. Why do corrective taxes avoid the disadvantages of most other taxes?

Accepted Answer

A)   Corrective taxes apply only to goods that are bad for people's health, such as cigarettes and alcohol.
B)   Because corrective taxes correct for market externalities, they take into consideration the well-being of bystanders.
C)   Corrective taxes provide incentives for the conservation of natural resources.
D)   Corrective taxes do not affect deadweight loss.

Question 15

Industrial policy aims to

Accepted Answer

A)   reduce pollution by requiring factories to reduce their pollution by a certain number of tons per year.
B)   reduce pollution by levying a tax on factories of a certain number of dollars for every ton of pollution that the factory emits.
C)   encourage business firms to subsidize continuing education for their employees.
D)   promote technology-enhancing industries.

Question 16

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 17

Which of the following statements is correct?

Accepted Answer

A)   Internalizing a negative externality will cause an industry to decrease the quantity it supplies to the market and decrease the price of the good produced.
B)   Internalizing a negative externality will cause an industry to decrease the quantity it supplies to the market and increase the price of the good produced.
C)   Internalizing a negative externality will cause an industry to increase the quantity it supplies to the market and decrease the price of the good produced.
D)   Internalizing a negative externality will cause an industry to increase the quantity it supplies to the market and increase the price of the good produced.

Question 18

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. Suppose the government wants to reduce pollution from 16 units to 8 units and auctions off 8 pollution permits to achieve this goal. Which of the following is a likely auction price of the permits?

Accepted Answer

A)   $69
B)   $81
C)   $83
D)   $97

Question 19

Using a supply and demand diagram, demonstrate how a negative externality leads to market inefficiency. How might the government help to eliminate this inefficiency?

Accepted Answer

<img  loading="lazy" src="/assets/images/blured-textbook.svg" class="d-inline m-1" alt="blured image" width="139" height="30"> When a negative externality exists, the...

Question 20

Scenario 10-1
The demand curve for gasoline slopes downward and the supply curve for gasoline slopes upward. The production of the 1,000th gallon of gasoline entails the following:
-a private cost of $3.10;
-a social cost of $3.55;
-a value to consumers of $3.70.
-Refer to Scenario 10-1. Suppose the equilibrium quantity of gasoline is 1,150 gallons; that is, QMARKET = 1,150. Then the equilibrium price of a gallon could be

Accepted Answer

A)   $2.80.
B)   $3.00.
C)   $3.30.
D)   $3.80.

Exam 10: Externalities

An externality arises when a person engages in an activity that influences the well-being of

Correct Answer
verified

Abe owns a dog; the dog's barking annoys Abe's neighbor, Jenny. Suppose that the benefit of owning the dog is worth $200 to Abe and that Jenny bears a cost of $400 from the barking. Assuming Abe has the legal right to keep the dog, a possible private solution to this problem is that

Correct Answer
verified

Figure 10-19 -Refer to Figure 10-19. How many units of the good are produced in a market equilibrium?

Correct Answer
verified

Most taxes distort incentives and move the allocation of resources away from the social optimum. Why do corrective taxes avoid the disadvantages of most other taxes?

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

Which of the following is not an advantage of corrective taxes?

Correct Answer
verified

When the government intervenes in markets with externalities, it does so in order to

Correct Answer
verified

Using a supply and demand diagram, demonstrate how a negative externality leads to market inefficiency. How might the government help to eliminate this inefficiency?

Correct Answer
verified
When a negative externality exists, the...
View Answer

Correct Answer
verified

Research into new technologies provides a

Correct Answer
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Which of the following statements is correct?

Correct Answer
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Correct Answer
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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?

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

Correct Answer
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Which of the following is an example of an externality?

Correct Answer
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Suppose the market-equilibrium quantity of good x is 5,000 units and the socially-optimal quantity of good x is 4,000 units. Then

Correct Answer
verified

Which of the following statements is correct?

Correct Answer
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Industrial policy aims to

Correct Answer
verified

Reaching an efficient bargain is difficult when the

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

Exam 10: Externalities

An externality arises when a person engages in an activity that influences the well-being of

Correct AnswerverifiedShow Answer

Abe owns a dog; the dog's barking annoys Abe's neighbor, Jenny. Suppose that the benefit of owning the dog is worth $200 to Abe and that Jenny bears a cost of $400 from the barking. Assuming Abe has the legal right to keep the dog, a possible private solution to this problem is that

Correct AnswerverifiedShow Answer

Figure 10-19 -Refer to Figure 10-19. How many units of the good are produced in a market equilibrium?

Correct AnswerverifiedShow Answer

Most taxes distort incentives and move the allocation of resources away from the social optimum. Why do corrective taxes avoid the disadvantages of most other taxes?

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

Which of the following is not an advantage of corrective taxes?

Correct AnswerverifiedShow Answer

When the government intervenes in markets with externalities, it does so in order to

Correct AnswerverifiedShow Answer

Using a supply and demand diagram, demonstrate how a negative externality leads to market inefficiency. How might the government help to eliminate this inefficiency?

Correct Answerverified When a negative externality exists, the...View AnswerShow Answer

Correct AnswerverifiedShow Answer

Research into new technologies provides a

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following is an example of an externality?

Correct AnswerverifiedShow Answer

Suppose the market-equilibrium quantity of good x is 5,000 units and the socially-optimal quantity of good x is 4,000 units. Then

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

Industrial policy aims to

Correct AnswerverifiedShow Answer

Reaching an efficient bargain is difficult when the

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

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When a negative externality exists, the...
View Answer

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The new supply curve...
View Answer