Question 1

The Coase theorem asserts that,in the presence of externalities,

Accepted Answer

A)   private economic actors sometimes can reach a bargain that produces an efficient outcome.
B)   private economic actors always can reach a bargain that makes everyone better off.
C)   private solutions cannot be very effective.
D)   corrective taxes cannot be very effective.E) A) and C)
F) A) and D)

Question 2

Suppose that Bill wants to dine at a fancy restaurant,but the only available table is in the smoking section.Bill dislikes the smell of cigarette smoke.He notices that only one person,Peter,is smoking in the smoking section.Bill values the absence of smoke at $15.Peter values the ability to smoke in the restaurant at $10.In order for Bill to pay Peter not to smoke,he will need to tip the waiter $10 to facilitate the transaction.Which of the following represents an efficient solution?

Accepted Answer

A)   Peter continues to smoke because the cost to Bill to pay him not to smoke is between $20 and $25,which exceeds the benefit to him of no smoking ($15) .
B)   Bill offers Peter between $10 and $15 not to smoke,and he pays the waiter $10.Peter accepts,and both parties are better off.
C)   Bill offers Peter between $10 and $15 not to smoke,and he pays the waiter $10.Peter declines because he has a right to smoke in the smoking section.
D)   Bill offers Peter $5 not to smoke,and he pays the waiter $10.Peter accepts,and both parties are better off.E) A) and B)
F) A) and C)

Question 3

In Singapore,littering fines are strictly enforced.This is an example of a policy that

Accepted Answer

A)   relies on moral codes to reduce the pollution externality.
B)   relies on the Coase Theorem.
C)   discriminates against foreigners.
D)   relies on incentives to reduce the pollution externality.E) B) and D)
F) All of the above

Question 4

Figure 10-15 B must be equivalent to the corrective tax. B)  QA must be equivalent to the amount of pollution allowed to the pollution permit holders. C)  The equilibrium price and quantity of pollution must be the same in both graphs. D)  The amount of pollution emitted by each firm must be the same." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 10-15.Which of the following is not necessary in order for the corrective tax and pollution permit to have equivalent effects?

Accepted Answer

A)   PB must be equivalent to the corrective tax.
B)   QA must be equivalent to the amount of pollution allowed to the pollution permit holders.
C)   The equilibrium price and quantity of pollution must be the same in both graphs.
D)   The amount of pollution emitted by each firm must be the same.E) B) and D)
F) B) and C)

Question 5

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

Question 6

The impact of one person's actions on the well-being of a bystander is called

Accepted Answer

A)   an economic dilemma.
B)   deadweight loss.
C)   a multi-party problem.
D)   an externality.E) C) and D)
F) A) and D)

Question 7

Private solutions may not be possible due to the costs of negotiating and enforcing these solutions.Such costs are called

Accepted Answer

A)   transaction costs.
B)   corrective costs.
C)   input costs.
D)   private costs.E) B) and C)
F) C) and D)

Question 8

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 wanted to eliminate exactly 11 units of pollution,which of the following fees per unit of pollution would achieve that goal?

Accepted Answer

A)   $75
B)   $87
C)   $90
D)   $106E) B) and C)
F) A) and D)

Question 9

Social welfare can be enhanced by allowing firms to trade their rights to pollute.

Accepted Answer

A) True 
 B)False

Question 10

Corrective taxes that are imposed upon the producer of a nasty smell can be successful in reducing that smell because the tax makes the producer

Accepted Answer

A)   externalize the positive externality.
B)   externalize the negative externality.
C)   internalize the positive externality.
D)   internalize the negative externality.E) C) and D)
F) All of the above

Question 11

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

Accepted Answer

A)   $18.
B)   $38.
C)   $46.
D)   $55.E) B) and C)
F) All of the above

Question 12

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

Question 13

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 $93 per unit of pollution,how many units of pollution would the firms eliminate altogether?

Accepted Answer

A)   5
B)   8
C)   11
D)   13E) A) and C)
F) B) and C)

Question 14

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

Question 15

Table 10-4
 
-Refer to Table 10-4.Which of the following policies would move the market from the market equilibrium to the socially optimal equilibrium?

Accepted Answer

A)   a tax of $2 per unit of output
B)   a subsidy of $2 per unit of output
C)   a tax of $7 per unit of output
D)   a subsidy of $7 per unit of outputE) B) and D)
F) B) and C)

Question 16

Figure 10-14 2 - P0. B)  To induce firms to internalize the externality in this market,the government should offer a subsidy measured by P2 - P0. C)  To induce firms to internalize the externality in this market,the government should impose a tax measured by P2 - P1. D)  There is no externality in this market." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 10-14.Which of the following statements is correct?

Accepted Answer

A)   To induce firms to internalize the externality in this market,the government should impose a tax measured by P2 - P0.
B)   To induce firms to internalize the externality in this market,the government should offer a subsidy measured by P2 - P0.
C)   To induce firms to internalize the externality in this market,the government should impose a tax measured by P2 - P1.
D)   There is no externality in this market.E) None of the above
F) B) and C)

Question 17

An externality is the impact of

Accepted Answer

A)   society's decisions on the well-being of society.
B)   a person's actions on that person's well-being.
C)   one person's actions on the well-being of a bystander.
D)   society's decisions on the poorest person in the society.E) A) and D)
F) C) and D)

Question 18

Figure 10-11 th unit is equal to the cost incurred by the seller of the 160th unit. B)  160 units,since the value to society of the 160th unit is equal to the cost incurred by the seller of the 160th unit. C)  280 units,since the value to the buyer of the 280th unit is equal to the cost incurred by the seller of the 280th unit. D)  280 units,since the value to society of the 280th unit is equal to the cost incurred by the seller of the 280th unit." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 10-11.The socially optimal quantity of output is

Accepted Answer

A)   160 units,since the value to the buyer of the 160th unit is equal to the cost incurred by the seller of the 160th unit.
B)   160 units,since the value to society of the 160th unit is equal to the cost incurred by the seller of the 160th unit.
C)   280 units,since the value to the buyer of the 280th unit is equal to the cost incurred by the seller of the 280th unit.
D)   280 units,since the value to society of the 280th unit is equal to the cost incurred by the seller of the 280th unit.E) All of the above
F) B) and C)

Question 19

Two firms,A and B,each currently dump 50 tons of chemicals into the local river.The government has decided to reduce the pollution and from now on will require a pollution permit for each ton of pollution dumped into the river.It costs Firm A $100 for each ton of pollution that it eliminates before it reaches the river,and it costs Firm B $50 for each ton of pollution that it eliminates before it reaches the river.The government gives each firm 20 pollution permits.Government officials are not sure whether to allow the firms to buy or sell the pollution permits to each other.What is the total cost of reducing pollution if firms are not allowed to buy and sell pollution permits from each other? What is the total cost of reducing pollution if the firms are allowed to buy and sell permits from each other?

Accepted Answer

A)   $3,000;$1,500
B)   $4,500;$3,500
C)   $4,500;$4,000
D)   $4,500;$2,500E) All of the above
F) A) and C)

Question 20

For the purpose of protecting the environment,upon which of the following approaches do we rely more and more as time goes by?

Accepted Answer

A)   adherence to the notion of the invisible hand
B)   command-and-control policies
C)   the development and enforcement of regulations
D)   the requirement that decision makers bear the full costs of their actionsE) None of the above
F) B) and D)

Exam 10: Externalities

Correct Answer
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Corrective taxes that are imposed upon the producer of a nasty smell can be successful in reducing that smell because the tax makes the producer

Correct Answer
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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

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

Correct Answer
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The Coase theorem asserts that,in the presence of externalities,

Correct Answer
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Figure 10-14 -Refer to Figure 10-14.Which of the following statements is correct?

Correct Answer
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Table 10-4 -Refer to Table 10-4.Which of the following policies would move the market from the market equilibrium to the socially optimal equilibrium?

Correct Answer
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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
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Figure 10-11 -Refer to Figure 10-11.The socially optimal quantity of output is

Correct Answer
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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

Correct Answer
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In Singapore,littering fines are strictly enforced.This is an example of a policy that

Correct Answer
verified

For the purpose of protecting the environment,upon which of the following approaches do we rely more and more as time goes by?

Correct Answer
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Private solutions may not be possible due to the costs of negotiating and enforcing these solutions.Such costs are called

Correct Answer
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Figure 10-15 -Refer to Figure 10-15.Which of the following is not necessary in order for the corrective tax and pollution permit to have equivalent effects?

Correct Answer
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An externality is the impact of

Correct Answer
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The impact of one person's actions on the well-being of a bystander is called

Correct Answer
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Social welfare can be enhanced by allowing firms to trade their rights to pollute.

Correct Answer
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Exam 10: Externalities

Correct AnswerverifiedShow Answer

Corrective taxes that are imposed upon the producer of a nasty smell can be successful in reducing that smell because the tax makes the producer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

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The Coase theorem asserts that,in the presence of externalities,

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Figure 10-14 -Refer to Figure 10-14.Which of the following statements is correct?

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Table 10-4 -Refer to Table 10-4.Which of the following policies would move the market from the market equilibrium to the socially optimal equilibrium?

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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?

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Figure 10-11 -Refer to Figure 10-11.The socially optimal quantity of output is

Correct AnswerverifiedShow 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

In Singapore,littering fines are strictly enforced.This is an example of a policy that

Correct AnswerverifiedShow Answer

For the purpose of protecting the environment,upon which of the following approaches do we rely more and more as time goes by?

Correct AnswerverifiedShow Answer

Private solutions may not be possible due to the costs of negotiating and enforcing these solutions.Such costs are called

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Figure 10-15 -Refer to Figure 10-15.Which of the following is not necessary in order for the corrective tax and pollution permit to have equivalent effects?

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Correct AnswerverifiedShow Answer

An externality is the impact of

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The impact of one person's actions on the well-being of a bystander is called

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Social welfare can be enhanced by allowing firms to trade their rights to pollute.

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