Question 1

Which of the following statements is not correct?

Accepted Answer

A)  Private markets tend to over-produce products with negative externalities.
B)  Private markets tend to under-produce products with positive externalities.
C)  Private parties can bargain to efficient outcomes even in the presence of externalities.
D)  Private parties are usually more successful in achieving efficient outcomes than government policies in the presence of externalities.E) A) and D)
F) A) and B)

Question 2

Suppose that flower gardens create a positive externality equal to $1 per plant. What is the relationship between the equilibrium quantity and the socially optimal quantity of plants grown?

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

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 internalize the externality of pollution.
B)  Corrective taxes internalize the externality of pollution, but pollution permits do not internalize that externality.
C)  Corrective taxes fail to internalize the externality of pollution, but corrective taxes internalize that externality.
D)  Neither corrective taxes nor pollution permits internalize the externality of pollution.E) B) and C)
F) B) and D)

Question 4

Markets sometimes fail to allocate resources efficiently.

Accepted Answer

A) True 
 B)False

Question 5

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. Let QMARKET represent the equilibrium quantity of gasoline, and let QOPTIMUM represent the socially optimal quantity of gasoline. Which of the following inequalities is correct?

Accepted Answer

A)  1,000 OPTIMUM MARKET
B)  QOPTIMUM MARKET
C)  QMARKET OPTIMUM
D)  QOPTIMUM MARKET < 1,000E) A) and C)
F) None of the above

Question 6

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.E) C) and D)
F) None of the above

Question 7

The tax on gasoline causes deadweight losses, as is the case with all taxes.

Accepted Answer

A) True 
 B)False

Question 8

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.E) A) and C)
F) None of the above

Question 9

Scenario 10-3
Suppose the equation for the demand curve in a market is  , where  is the quantity demanded and  is the price. Also, suppose the equation for the supply curve in the same market is  , where  is the quantity supplied.
-Refer to Scenario 10-3. Suppose there is an external cost of $12 associated with the production of each unit of the good. What particular tax or subsidy would move the market to the social optimum?

Accepted Answer

A tax of $12 per uni...

Question 10

Which of the following is an example of a positive externality?

Accepted Answer

A)  A college student buys a new car when she graduates.
B)  The mayor of a small town plants flowers in the city park.
C)  Local high school teachers have pizza delivered every Friday for lunch.
D)  An avid fisherman buys new fishing gear for his next fishing trip.E) B) and D)
F) None of the above

Question 11

Which of the following statements is correct?

Accepted Answer

A)  Taxes are more difficult to administer than regulations.
B)  Taxes provide incentives for firms to adopt new methods to reduce negative externalities.
C)  Command-and-control policies provide incentives for private decisionmakers to solve their problems on their own.
D)  Corrective taxes distort incentives.E) C) and D)
F) All of the above

Question 12

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 $85 per unit of pollution, how many units of pollution would the firms eliminate altogether?

Accepted Answer

A)  10
B)  12
C)  14
D)  16E) All of the above
F) B) and C)

Question 13

A paper plant produces water pollution during the production process. If the government forces the plant to internalize the negative externality, then the

Accepted Answer

A)  supply curve for paper would shift to the right.
B)  supply curve for paper would shift to the left.
C)  demand curve for paper would shift to the right.
D)  demand curve for paper would shift to the left.E) A) and D)
F) C) and D)

Question 14

Which of the following statements is not correct?

Accepted Answer

A)  A patent is a way for the government to encourage the production of a good with technology spillovers.
B)  A tax is a way for the government to reduce the production of a good with a negative externality.
C)  A tax that accurately reflects social costs produces the socially optimal outcome.
D)  Government policies cannot improve upon private market outcomes.E) B) and C)
F) B) and D)

Question 15

Figure 10-7 
-Refer to Figure 10-7. To internalize the externality in this market, the government should

Accepted Answer

A)  impose a tax on this product.
B)  provide a subsidy for this product.
C)  forbid production.
D)  produce the product itself.E) All of the above
F) A) and B)

Question 16

Which of the following would not be considered a negative externality?

Accepted Answer

A)  Smelter, Inc. creates steel and pollution.
B)  Your friend buys a new puppy that barks every night.
C)  You have an adverse reaction to a medication your doctor prescribed for you.
D)  Your neighbor plays loud music that you dislike through stereo speakers set up on his deck.E) A) and B)
F) All of the above

Question 17

This figure reflects the market for outdoor concerts in a public park surrounded by residential neighborhoods.
Figure 10-3 
-Refer to Figure 10-3. The difference between the social cost curve and the supply curve reflects the

Accepted Answer

A)  profit margin of each concert.
B)  cost of spillover effects from the concert (e.g., noise and traffic) .
C)  value of concerts to society as a whole.
D)  amount by which the city should subsidize the concert organizers.E) A) and D)
F) None of the above

Question 18

To produce honey, beekeepers place hives of bees in the fields of farmers. As bees gather nectar, they pollinate the crops in the fields, which increases the yields of these fields at no additional cost to the farmer. What might be a reasonable private solution to this externality, and how might the solution be reached?

Accepted Answer

One solution would be to have one person...

Question 19

Figure 10-19 
-Refer to Figure 10-19. The socially optimal quantity of output is

Accepted Answer

A)  58 units.
B)  73 units.
C)  between 73 and 94 units.
D)  94 units.E) C) and D)
F) A) and B)

Question 20

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.E) All of the above
F) None of the above

Exam 10: Externalities

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

Correct Answer
verified

A paper plant produces water pollution during the production process. If the government forces the plant to internalize the negative externality, then the

Correct Answer
verified

The tax on gasoline causes deadweight losses, as is the case with all taxes.

Correct Answer
verified

This figure reflects the market for outdoor concerts in a public park surrounded by residential neighborhoods. Figure 10-3 -Refer to Figure 10-3. The difference between the social cost curve and the supply curve reflects the

Correct Answer
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Which of the following statements is correct?

Correct Answer
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Figure 10-19 -Refer to Figure 10-19. The socially optimal quantity of output is

Correct Answer
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Which of the following statements is not correct?

Correct Answer
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Which of the following would not be considered a negative externality?

Correct Answer
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Correct Answer
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A tax of $12 per uni...
View Answer

Markets sometimes fail to allocate resources efficiently.

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

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

Correct Answer
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Correct Answer
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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?

Correct Answer
verified

Suppose that flower gardens create a positive externality equal to $1 per plant. What is the relationship between the equilibrium quantity and the socially optimal quantity of plants grown?

Correct Answer
verified

Figure 10-7 -Refer to Figure 10-7. To internalize the externality in this market, the government should

Correct Answer
verified

Correct Answer
verified
One solution would be to have one person...
View Answer

Which of the following statements is not correct?

Correct Answer
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Exam 10: Externalities

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

Correct AnswerverifiedShow Answer

A paper plant produces water pollution during the production process. If the government forces the plant to internalize the negative externality, then the

Correct AnswerverifiedShow Answer

The tax on gasoline causes deadweight losses, as is the case with all taxes.

Correct AnswerverifiedShow Answer

This figure reflects the market for outdoor concerts in a public park surrounded by residential neighborhoods. Figure 10-3 -Refer to Figure 10-3. The difference between the social cost curve and the supply curve reflects the

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

Figure 10-19 -Refer to Figure 10-19. The socially optimal quantity of output is

Correct AnswerverifiedShow Answer

Which of the following statements is not correct?

Correct AnswerverifiedShow Answer

Which of the following would not be considered a negative externality?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedA tax of $12 per uni...View AnswerShow Answer

Markets sometimes fail to allocate resources efficiently.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following is an example of a positive externality?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

Suppose that flower gardens create a positive externality equal to $1 per plant. What is the relationship between the equilibrium quantity and the socially optimal quantity of plants grown?

Correct AnswerverifiedShow Answer

Figure 10-7 -Refer to Figure 10-7. To internalize the externality in this market, the government should

Correct AnswerverifiedShow Answer

Correct AnswerverifiedOne solution would be to have one person...View AnswerShow Answer

Which of the following statements is not correct?

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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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A tax of $12 per uni...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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One solution would be to have one person...
View Answer

Correct Answer
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