Question 1

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

Accepted Answer

A)   the Pigovian theorem.
B)   a corrective tax.
C)   the externality theorem.
D)   the Coase theorem.E) None of the above
F) C) and D)

Question 2

Flu shots provide a positive externality. Suppose that the market for vaccinations is perfectly competitive. Without government intervention in the vaccination market, which of the following statements is correct?

Accepted Answer

A)   At the current output level, the marginal social benefit exceeds the marginal private benefit.
B)   The current output level is inefficiently low.
C)   A per-shot subsidy could turn an inefficient situation into an efficient one.
D)   All of the above are correct.E) None of the above
F) B) and C)

Question 3

Research into new technologies

Accepted Answer

A)   provides positive externalities because it creates knowledge others can use.
B)   results in negative externalities because government funding for research causes less government spending in other areas.
C)   is protected by patent laws, which eliminates the need for government intervention.
D)   should only be funded by the corporations that will receive the profits from the research.E) None of the above
F) B) and C)

Question 4

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

Accepted Answer

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

Question 5

Which of the following is not an effective method of reducing negative externalities?

Accepted Answer

A)   relying on voluntary compliance
B)   taxing the output of industries that pollute
C)   creating legal environmental standards
D)   increasing public spending on cleanup and reduction of pollutionE) All of the above
F) A) and B)

Question 6

A patent is used to

Accepted Answer

A)   disseminate information.
B)   offset the negative effects of taxes.
C)   protect inventors for as long as they live.
D)   assign property rights.E) A) and B)
F) B) and D)

Question 7

Dee loves to landscape her yard, but her neighbor Marvin places a low value on his landscaping. When Marvin's grass is neglected and gets long, Dee will mow it for Marvin. This is an example of

Accepted Answer

A)   a situation in which the Coase theorem fails to explain the lawn mowing arrangement.
B)   an improper allocation of resources.
C)   a private solution to a negative externality problem.
D)   an exploitation of a common resource.E) C) and D)
F) B) and C)

Question 8

Why are Pigovian taxes preferred to regulatory policies as methods to remedy negative externalities?

Accepted Answer

Pigovian taxes allow markets to coordina...

Question 9

Scenario 10-2
The demand curve for restored historic buildings slopes downward and the supply curve for restored historic buildings slopes upward. The production of the 50S1U1P1tS1S1P0S1U1P1hS1S1P0S1U1P1 S1S1P0restored historic building entails the following:
-a private cost of $800,000;
-a private value of $650,000;
-a social value of $800,000.
-Refer to Scenario 10-2. Is there an externality associated with this market? If your answer is "Yes," is the externality positive or negative?

Accepted Answer

There is a positive ...

Question 10

Scenario 10-4
The demand curve for fire extinguishers slopes downward and the supply curve for fire extinguishers slopes upward. The production of the 500S1U1P1tS1S1P0S1U1P1hS1S1P0S1U1P1 S1S1P0fire extinguisher entails the following:
-a private cost of $10;
-an external cost of $0;
-a private value of $9;
-an external benefit of $3.
-
-Refer to Scenario 10-4. What is the social value of the 500th fire extinguisher?

Accepted Answer

The social value is equal to t...

Question 11

Figure 10-13. On the graph, Q represents the quantity of plastics and P represents the price of plastics.  Multiple Choice - Section 02: Public Policies toward Externalities
-Refer to Figure 10-13. In order to reach the social optimum, the government could

Accepted Answer

A)   impose a tax of $2 per unit on plastics.
B)   impose a tax of $6 per unit on plastics.
C)   impose a tax of $8 per unit on plastics.
D)   offer a subsidy of $6 per unit on plastics.E) All of the above
F) A) and B)

Question 12

That some firms are engaged in more than one type of business is explained, in some cases, by

Accepted Answer

A)   moral injunctions such as the Golden Rule.
B)   the existence of charitable organizations.
C)   government regulations that discourage the internalization of externalities.
D)   the fact that the internalization of externalities sometimes coincides with the self-interest of the relevant parties.E) B) and C)
F) A) and D)

Question 13

Figure 10-9
 
-Refer to Figure 10-9, Panel (c) . The market equilibrium price is

Accepted Answer

A)   P4a.
B)   P4b.
C)   P5.
D)   P4a - P4b.E) A) and C)
F) All of the above

Question 14

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

Question 15

What are the three externalities that are associated with driving cars and trucks?

Accepted Answer

The negative externa...

Question 16

If an objective of public policy is to allocate pollution to those factories that face the highest cost of reducing it, then that objective could be achieved by

Accepted Answer

A)   a corrective tax, but not by regulation.
B)   regulation, but not by a corrective tax.
C)   either regulation or a corrective tax.
D)   neither regulation nor a corrective tax.E) A) and D)
F) A) and C)

Question 17

In summarizing the research on the externalities associated with driving cars, a 2007 Journal of Economic Literature article concluded that the optimal corrective tax on gasoline in the United States, in 2012 dollars, would be about

Accepted Answer

A)   $0.40 per gallon.
B)   $0.90 per gallon.
C)   $2.10 per gallon.
D)   $2.70 per gallon.E) All of the above
F) A) and C)

Question 18

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?

Accepted Answer

With pollution permi...

Question 19

Negative externalities lead markets to produce a smaller quantity of a good than is socially desirable, while positive externalities lead markets to produce a larger quantity of a good than is socially desirable.

Accepted Answer

A) True 
 B)False

Question 20

The Coase theorem states that

Accepted Answer

A)   under certain circumstances government intervention is not needed to reach efficient outcomes when an externality is present.
B)   government intervention is always required to reach an efficient outcome when an externality is present.
C)   government intervention cannot lead to an efficient outcome when an externality is present.
D)   only negative externalities can be resolved using government intervention.E) B) and D)
F) A) and D)

Exam 10: Externalities

Research into new technologies

Correct Answer
verified

Negative externalities lead markets to produce a smaller quantity of a good than is socially desirable, while positive externalities lead markets to produce a larger quantity of a good than is socially desirable.

Correct Answer
verified

Figure 10-13. On the graph, Q represents the quantity of plastics and P represents the price of plastics. Multiple Choice - Section 02: Public Policies toward Externalities -Refer to Figure 10-13. In order to reach the social optimum, the government could

Correct Answer
verified

If an objective of public policy is to allocate pollution to those factories that face the highest cost of reducing it, then that objective could be achieved by

Correct Answer
verified

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?

Correct Answer
verified
With pollution permi...
View Answer

What are the three externalities that are associated with driving cars and trucks?

Correct Answer
verified
The negative externa...
View Answer

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

Correct Answer
verified

Correct Answer
verified
The social value is equal to t...
View Answer

That some firms are engaged in more than one type of business is explained, in some cases, by

Correct Answer
verified

Dee loves to landscape her yard, but her neighbor Marvin places a low value on his landscaping. When Marvin's grass is neglected and gets long, Dee will mow it for Marvin. This is an example of

Correct Answer
verified

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
verified

A patent is used to

Correct Answer
verified

Why are Pigovian taxes preferred to regulatory policies as methods to remedy negative externalities?

Correct Answer
verified
Pigovian taxes allow markets to coordina...
View Answer

In summarizing the research on the externalities associated with driving cars, a 2007 Journal of Economic Literature article concluded that the optimal corrective tax on gasoline in the United States, in 2012 dollars, would be about

Correct Answer
verified

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

Correct Answer
verified

Figure 10-9 -Refer to Figure 10-9, Panel (c) . The market equilibrium price is

Correct Answer
verified

Flu shots provide a positive externality. Suppose that the market for vaccinations is perfectly competitive. Without government intervention in the vaccination market, which of the following statements is correct?

Correct Answer
verified

The Coase theorem states that

Correct Answer
verified

Correct Answer
verified
There is a positive ...
View Answer

Which of the following is not an effective method of reducing negative externalities?

Correct Answer
verified

Exam 10: Externalities

Research into new technologies

Correct AnswerverifiedShow Answer

Negative externalities lead markets to produce a smaller quantity of a good than is socially desirable, while positive externalities lead markets to produce a larger quantity of a good than is socially desirable.

Correct AnswerverifiedShow Answer

Figure 10-13. On the graph, Q represents the quantity of plastics and P represents the price of plastics. Multiple Choice - Section 02: Public Policies toward Externalities -Refer to Figure 10-13. In order to reach the social optimum, the government could

Correct AnswerverifiedShow Answer

If an objective of public policy is to allocate pollution to those factories that face the highest cost of reducing it, then that objective could be achieved by

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedWith pollution permi...View AnswerShow Answer

What are the three externalities that are associated with driving cars and trucks?

Correct AnswerverifiedThe negative externa...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedThe social value is equal to t...View AnswerShow Answer

That some firms are engaged in more than one type of business is explained, in some cases, by

Correct AnswerverifiedShow Answer

Dee loves to landscape her yard, but her neighbor Marvin places a low value on his landscaping. When Marvin's grass is neglected and gets long, Dee will mow it for Marvin. This is an example of

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

A patent is used to

Correct AnswerverifiedShow Answer

Why are Pigovian taxes preferred to regulatory policies as methods to remedy negative externalities?

Correct AnswerverifiedPigovian taxes allow markets to coordina...View AnswerShow Answer

In summarizing the research on the externalities associated with driving cars, a 2007 Journal of Economic Literature article concluded that the optimal corrective tax on gasoline in the United States, in 2012 dollars, would be about

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Figure 10-9 -Refer to Figure 10-9, Panel (c) . The market equilibrium price is

Correct AnswerverifiedShow Answer

Flu shots provide a positive externality. Suppose that the market for vaccinations is perfectly competitive. Without government intervention in the vaccination market, which of the following statements is correct?

Correct AnswerverifiedShow Answer

The Coase theorem states that

Correct AnswerverifiedShow Answer

Correct AnswerverifiedThere is a positive ...View AnswerShow Answer

Which of the following is not an effective method of reducing negative externalities?

Correct AnswerverifiedShow 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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With pollution permi...
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Correct Answer
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The negative externa...
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Correct Answer
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The social value is equal to t...
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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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Pigovian taxes allow markets to coordina...
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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There is a positive ...
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Correct Answer
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