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If an aluminum manufacturer does not bear the entire cost of the smoke it emits, it will


A) emit a lower level of smoke than is socially efficient.
B) emit a higher level of smoke than is socially efficient.
C) emit an acceptable level of smoke.
D) not emit any smoke in an attempt to avoid paying the entire cost.

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

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Figure 10-9 Figure 10-9 -Refer to Figure 10-9, Panel (b) and Panel (c) . The overuse of antibiotics leads to the development of antibiotic-resistant diseases. Therefore, the socially optimal quantity of antibiotics is represented by point A) Q2. B) Q3. C) Q4. D) Q5. Figure 10-9 -Refer to Figure 10-9, Panel (b) and Panel (c) . The overuse of antibiotics leads to the development of antibiotic-resistant diseases. Therefore, the socially optimal quantity of antibiotics is represented by point A) Q2. B) Q3. C) Q4. D) Q5. Figure 10-9 -Refer to Figure 10-9, Panel (b) and Panel (c) . The overuse of antibiotics leads to the development of antibiotic-resistant diseases. Therefore, the socially optimal quantity of antibiotics is represented by point A) Q2. B) Q3. C) Q4. D) Q5. -Refer to Figure 10-9, Panel (b) and Panel (c) . The overuse of antibiotics leads to the development of antibiotic-resistant diseases. Therefore, the socially optimal quantity of antibiotics is represented by point


A) Q2.
B) Q3.
C) Q4.
D) Q5.

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

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Dick owns a dog whose barking annoys Dick's neighbor Jane. Dick receives personal benefit from owning the dog, and Jane bears a cost of Dick's ownership of the dog. Assuming Jane has the legal right to peace and quiet, which of the following statements is correct?


A) If Dick's benefit exceeds Jane's cost, government intervention is necessary.
B) Dick will pay to keep his dog if his benefit exceeds Jane's cost.
C) If Jane's cost exceeds Dick's benefit, Dick will pay Jane to keep his dog.
D) If Jane has the legal right to peace and quiet, no further transactions will be mutually beneficial.

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

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


A) air pollution
B) a person littering in a public park
C) a nice garden in front of your neighbor's house
D) the pollution of a stream

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

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Scenario 10-3 Suppose the equation for the demand curve in a market is 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? , where 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? is the quantity demanded and 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? is the price. Also, suppose the equation for the supply curve in the same market is 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? , where 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? 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?

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A tax of $12 per uni...

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The Coase theorem asserts that, if externalities are present and if private parties can bargain over the allocation of resources at no cost, then


A) the private market will reach an equilibrium in which resources are allocated inefficiently.
B) the private market will reach an equilibrium in which resources are allocated efficiently.
C) the private market cannot reach an equilibrium.
D) a mixture of corrective taxes and subsidies is necessary for a socially optimal equilibrium.

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

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Why can't private individuals always internalize an externality without the help of government?


A) Legal restrictions prevent side payments between individuals.
B) Transactions costs may be too high.
C) Side payments between individuals are inefficient.
D) Side payments between individuals are insufficient.

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

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Figure 10-11 Figure 10-11 -Refer to Figure 10-11. The graph represents a market in which 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 graph. -Refer to Figure 10-11. The graph represents a market in which


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 graph.

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

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Even if possible, it would be inefficient to prohibit all polluting activity.

A) True
B) False

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The proposition that if private parties can bargain without cost over the allocation of resources, they can solve the problem of externalities on their own, is called


A) the Pigovian theorem.
B) a corrective tax.
C) the externality theorem.
D) the Coase theorem.

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

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Suppose the government issues a limited number of pollution permits in order to limit the quantity of pollution. Under this policy, does the demand curve for pollution rights determine the quantity of pollution, or does it determine the price of pollution?

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With pollution permi...

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Table 10-3 Table 10-3 -Refer to Table 10-3. Taking into account private and external costs, the maximum total surplus that can be achieved in this market is A) $18. B) $38. C) $46. D) $55. -Refer to Table 10-3. Taking into account private and external costs, the maximum total surplus that can be achieved in this market is


A) $18.
B) $38.
C) $46.
D) $55.

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

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Figure 10-12 Figure 10-12 -Refer to Figure 10-12. Which of the following is an appropriate label for Line 2? A) social cost minus social value B) social value minus private cost C) demand D) private value plus external benefit -Refer to Figure 10-12. Which of the following is an appropriate label for Line 2?


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

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

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In a market economy, government intervention


A) will always improve market outcomes.
B) reduces efficiency in the presence of externalities.
C) may improve market outcomes in the presence of externalities.
D) is necessary to control individual greed.

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

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At any given quantity, the cost of the marginal seller is the height of the __________.

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A positive externality occurs when


A) Jack receives a benefit from John's consumption of a certain good.
B) Jack receives personal benefits from his own consumption of a certain good.
C) Jack's benefit exceeds John's benefit when they each consume the same good.
D) Jack's receives a loss from John's consumption of a certain good.

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

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Bruce engages in an activity that diminishes the well-being of Shawna. Bruce pays no compensation to Shawna for her loss in well-being. What specific term do economists use to describe this situation?

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The term i...

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


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

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A positive externality


A) is a benefit to the producer of the good.
B) is a benefit to the consumer of the good.
C) is a benefit to someone other than the producer and consumer of the good.
D) results in an optimal level of output.

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

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Figure 10-12 Figure 10-12 -Refer to Figure 10-12. An alternative label for the quantity would be A) ) B) ) C) ) D) ) -Refer to Figure 10-12. An alternative label for the quantity Figure 10-12 -Refer to Figure 10-12. An alternative label for the quantity would be A) ) B) ) C) ) D) ) would be


A) Figure 10-12 -Refer to Figure 10-12. An alternative label for the quantity would be A) ) B) ) C) ) D) )
)
B) Figure 10-12 -Refer to Figure 10-12. An alternative label for the quantity would be A) ) B) ) C) ) D) )
)
C) Figure 10-12 -Refer to Figure 10-12. An alternative label for the quantity would be A) ) B) ) C) ) D) )
)
D) Figure 10-12 -Refer to Figure 10-12. An alternative label for the quantity would be A) ) B) ) C) ) D) )
)

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

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