Question 1

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. Suppose the government wanted to reduce pollution from 16 units to exactly 6 units. Which one of the following fees per unit of pollution would achieve that goal?

Accepted Answer

A)  $65
B)  $70
C)  $75
D)  $95E) C) and D)
F) B) and D)

Question 2

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) None of the above
F) All of the above

Question 3

This figure reflects the market for outdoor concerts in a public park surrounded by residential neighborhoods.
Figure 10-3 0. B) P1. C) P2. D) None of the above is correct." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 10-3. At the private market outcome, the equilibrium price will be

Accepted Answer

A)  P0.
B)  P1.
C)  P2.
D)  None of the above is correct.E) B) and C)
F) C) and D)

Question 4

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 B)
F) A) and C)

Question 5

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.E) All of the above
F) B) and D)

Question 6

Which of the following is the most effective way to internalize a technology spillover?

Accepted Answer

A)  taxes
B)  patents
C)  government regulations
D)  free marketsE) All of the above
F) A) and D)

Question 7

Which of the following is true of markets characterized by positive externalities?

Accepted Answer

A)  Social value exceeds private value, and market quantity exceeds the socially optimal quantity.
B)  Social value is less than private value, and market quantity exceeds the socially optimal quantity.
C)  Social value exceeds private value, and market quantity is less than the socially optimal quantity.
D)  Social value seldom exceeds private value; therefore, social quantity is less than private quantity.E) None of the above
F) B) and C)

Question 8

Figure 10-9   
-Refer to Figure 10-9, Panel (b)  and Panel (c) . The installation of a scrubber in a smokestack reduces the emission of harmful chemicals from the smokestack. Therefore, the socially optimal quantity of smokestack scrubbers is represented by point

Accepted Answer

A)  Q2.
B)  Q3.
C)  Q4.
D)  Q5.E) None of the above
F) A) and B)

Question 9

According to the Coase Theorem, individuals can always work out a mutually beneficial agreement to solve the problems of externalities even when high transaction costs are involved.

Accepted Answer

A) True 
 B)False

Question 10

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

Question 11

If an externality is present in a market, economic efficiency may be enhanced by

Accepted Answer

A)  increased competition.
B)  weakening property rights.
C)  better informed market participants.
D)  government intervention.E) A) and B)
F) None of the above

Question 12

Barking dogs cannot be considered an externality because externalities must be associated with some form of market exchange.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following policies is not an example of a command-and-control policy?

Accepted Answer

A)  subsidies
B)  Pigovian taxes
C)  tradable pollution permits
D)  None of the above is an example of a command-and-control policy.E) A) and D)
F) None of the above

Question 14

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

Question 15

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

Question 16

Suppose the government imposes a tax in a certain market in order to internalize an externality. This type of policy is based on which of the Ten Principles of Economics?

Accepted Answer

A)  People face trade-offs.
B)  People respond to incentives.
C)  Markets are usually a good way to organize economic activity.
D)  The cost of something is what you give up to get it.E) B) and C)
F) A) and D)

Question 17

Figure 10-13. On the graph, Q represents the quantity of plastics and P represents the price of plastics. 
-Refer to Figure 10-13. If 325 units of plastics are produced and consumed, then the

Accepted Answer

A)  social optimum has been reached.
B)  market equilibrium has been reached.
C)  government must have imposed a corrective tax to guide the market to this outcome.
D)  government must have offered a corrective subsidy to guide the market to this outcome.E) All of the above
F) A) and C)

Question 18

Figure 10-9   
-Refer to Figure 10-9. The installation of a scrubber in a smokestack reduces the emission of harmful chemicals from the smokestack. Therefore, the market for smokestack scrubbers is shown in

Accepted Answer

A)  Panel (a) .
B)  Panel (b) .
C)  Panel (c) .
D)  Both (b)  and (c)  are correct.E) A) and B)
F) B) and C)

Question 19

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 charged a fee of $84 per unit of pollution, how many units of pollution would the firms eliminate altogether?

Accepted Answer

A)  7
B)  8
C)  9
D)  10E) A) and D)
F) None of the above

Question 20

When a driver enters a crowded highway he increases the travel times of all other drivers on the highway. This is an example of a negative externality.

Accepted Answer

A) True 
 B)False

Exam 10: Externalities

If an externality is present in a market, economic efficiency may be enhanced by

Correct Answer
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Figure 10-9 -Refer to Figure 10-9, Panel (b) and Panel (c) . The installation of a scrubber in a smokestack reduces the emission of harmful chemicals from the smokestack. Therefore, the socially optimal quantity of smokestack scrubbers is represented by point

Correct Answer
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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
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Barking dogs cannot be considered an externality because externalities must be associated with some form of market exchange.

Correct Answer
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Which of the following is the most effective way to internalize a technology spillover?

Correct Answer
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According to the Coase Theorem, individuals can always work out a mutually beneficial agreement to solve the problems of externalities even when high transaction costs are involved.

Correct Answer
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Which of the following policies is not an example of a command-and-control policy?

Correct Answer
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Suppose the government imposes a tax in a certain market in order to internalize an externality. This type of policy is based on which of the Ten Principles of Economics?

Correct Answer
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Which of the following is true of markets characterized by positive externalities?

Correct Answer
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This figure reflects the market for outdoor concerts in a public park surrounded by residential neighborhoods. Figure 10-3 -Refer to Figure 10-3. At the private market outcome, the equilibrium price will be

Correct Answer
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Figure 10-13. On the graph, Q represents the quantity of plastics and P represents the price of plastics. -Refer to Figure 10-13. If 325 units of plastics are produced and consumed, then the

Correct Answer
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When a driver enters a crowded highway he increases the travel times of all other drivers on the highway. This is an example of a negative externality.

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 correct?

Correct Answer
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Which of the following statements is not correct?

Correct Answer
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Figure 10-9 -Refer to Figure 10-9. The installation of a scrubber in a smokestack reduces the emission of harmful chemicals from the smokestack. Therefore, the market for smokestack scrubbers is shown in

Correct Answer
verified

Exam 10: Externalities

If an externality is present in a market, economic efficiency may be enhanced by

Correct AnswerverifiedShow Answer

Figure 10-9 -Refer to Figure 10-9, Panel (b) and Panel (c) . The installation of a scrubber in a smokestack reduces the emission of harmful chemicals from the smokestack. Therefore, the socially optimal quantity of smokestack scrubbers is represented by point

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

Barking dogs cannot be considered an externality because externalities must be associated with some form of market exchange.

Correct AnswerverifiedShow Answer

Which of the following is the most effective way to internalize a technology spillover?

Correct AnswerverifiedShow Answer

According to the Coase Theorem, individuals can always work out a mutually beneficial agreement to solve the problems of externalities even when high transaction costs are involved.

Correct AnswerverifiedShow Answer

Which of the following policies is not an example of a command-and-control policy?

Correct AnswerverifiedShow Answer

Suppose the government imposes a tax in a certain market in order to internalize an externality. This type of policy is based on which of the Ten Principles of Economics?

Correct AnswerverifiedShow Answer

Which of the following is true of markets characterized by positive externalities?

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. At the private market outcome, the equilibrium price will be

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Figure 10-13. On the graph, Q represents the quantity of plastics and P represents the price of plastics. -Refer to Figure 10-13. If 325 units of plastics are produced and consumed, then the

Correct AnswerverifiedShow Answer

When a driver enters a crowded highway he increases the travel times of all other drivers on the highway. This is an example of a negative externality.

Correct AnswerverifiedShow Answer

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 correct?

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Which of the following statements is not correct?

Correct AnswerverifiedShow Answer

Figure 10-9 -Refer to Figure 10-9. The installation of a scrubber in a smokestack reduces the emission of harmful chemicals from the smokestack. Therefore, the market for smokestack scrubbers is shown in

Correct AnswerverifiedShow Answer

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