Question 1

Table 10-3 
-Refer to Table 10-3. The table represents a market in which

Accepted Answer

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

Question 2

The tax on gasoline

Accepted Answer

A)  reduces efficiency by causing large deadweight losses.
B)  reduces efficiency by decreasing consumer surplus and producer surplus.
C)  enhances efficiency by serving as a corrective device in a market with positive externalities.
D)  enhances efficiency by serving as a corrective device in a market with negative externalities.E) A) and D)
F) B) and C)

Question 3

According to the Coase theorem, whatever the initial distribution of rights, the interested parties can bargain to an efficient outcome.

Accepted Answer

A) True 
 B)False

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

The tax on cigarettes is an example of

Accepted Answer

A)  a consumption tax.
B)  a corrective tax.
C)  an income tax.
D)  a command-and-control policy.E) A) and B)
F) A) and C)

Question 6

Assuming transaction costs are small, the Coase theorem would predict that private parties could arrive at an efficient solution for which of the following problems?

Accepted Answer

A)  One neighbor doesn't mow his lawn.
B)  One neighbor doesn't paint her house.
C)  One neighbor comes home on his noisy motorcycle late at night.
D)  All of the above are correct.E) None of the above
F) All of the above

Question 7

Assume each gallon of gasoline that is produced gives rise to an external cost of $1.25. On any given day, the production of the 10,000th gallon of gasoline entails a private value of $4.00 and a social cost of $3.50. What is the private cost of the 10,000th gallon?

Accepted Answer

For each gallon, the social co...

Question 8

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

Question 9

Figure 10-8 
-Refer to Figure 10-8. If the government wanted to tax or subsidize this good to achieve the socially-optimal level of output, it would

Accepted Answer

A)  introduce a subsidy of $2 per unit.
B)  impose a tax of $2 per unit.
C)  introduce a subsidy of $4 per unit.
D)  impose a tax of $4 per unit.E) A) and C)
F) A) and D)

Question 10

Markets are often inefficient when negative externalities are present because

Accepted Answer

A)  private costs exceed social costs at the private market solution.
B)  externalities cannot be corrected without government regulation.
C)  social costs exceed private costs at the private market solution.
D)  production externalities lead to consumption externalities.E) None of the above
F) A) and B)

Question 11

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 external cost of antibiotic overuse is represented by

Accepted Answer

A)  Q3 - Q2.
B)  Q5 - Q4.
C)  P3a - P3b.
D)  P4a - P4b.E) B) and D)
F) A) and C)

Question 12

Figure 10-10 th unit of output is $16. B) The social cost of producing the 160th unit of output is $22. C) The external cost of producing the 160th unit of output is $6. D) All of the above are correct." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 10-10. Which of the following statements is correct?

Accepted Answer

A)  The private cost of producing the 160th unit of output is $16.
B)  The social cost of producing the 160th unit of output is $22.
C)  The external cost of producing the 160th unit of output is $6.
D)  All of the above are correct.E) A) and B)
F) B) and C)

Question 13

Figure 10-17 
-Refer to Figure 10-17. How large would a corrective tax need to be to move this market from the equilibrium outcome to the socially-optimal outcome?

Accepted Answer

A)  An amount equal to P' minus P.
B)  An amount equal to P'.
C)  An amount equal to P.
D)  An amount equal to the external cost.E) All of the above
F) A) and D)

Question 14

Suppose that elementary education creates a positive externality. If the government does not subsidize education, then

Accepted Answer

A)  the equilibrium quantity of education will be equal to the socially optimal quantity of education.
B)  the equilibrium quantity of education will be greater than the socially optimal quantity of education.
C)  the equilibrium quantity of education will be less than the socially optimal quantity of education.
D)  There is not enough information to answer the question.E) A) and B)
F) A) and C)

Question 15

The concept of external cost is associated with a negative externality, but not with a positive externality.

Accepted Answer

A) True 
 B)False

Question 16

Suppose that Company A's railroad cars pass through Farmer B's corn fields. The railroad causes an externality to the farmer because the railroad cars emit sparks that cause $1,500 in damage to the farmer's crops. There is a special soy-based grease that the railroad could purchase that would eliminate the damaging sparks. The grease costs $1,200. Suppose that the farmer has the right to compensation for any damage that his crops suffer. Assume that there are no transaction costs. Which of the following characterizes the efficient outcome?

Accepted Answer

A)  The railroad will continue to operate but will pay the farmer $1,500 in damages.
B)  The railroad will purchase the grease for $1,200 and pay the farmer nothing because no crop damage will occur.
C)  The farmer will incur $1,500 in damages to his crops.
D)  The farmer will pay the railroad $1,200 to purchase the grease so that no crop damage will occur.E) A) and D)
F) A) and C)

Question 17

To economists, good environmental policy begins by acknowledging one of the Ten Principles of Economics:

Accepted Answer

A)  Trade can make everyone better off.
B)  People face trade-offs.
C)  Markets are usually a good way to organize economic activity.
D)  A country's standard of living depends on its ability to produce goods and services.E) C) and D)
F) None of the above

Question 18

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. From the given information, it is apparent that

Accepted Answer

A)  the production of gasoline involves a negative externality, so the market will produce a smaller quantity of gasoline than is socially desirable.
B)  the production of gasoline involves a negative externality, so the market will produce a larger quantity of gasoline than is socially desirable.
C)  the production of gasoline involves a positive externality, so the market will produce a smaller quantity of gasoline than is socially desirable.
D)  the production of gasoline involves a positive externality, so the market will produce a larger quantity of gasoline than is socially desirable.E) None of the above
F) A) and B)

Question 19

An externality is an example of

Accepted Answer

A)  a corrective tax.
B)  a tradable pollution permit.
C)  a market failure.
D)  Both a and b are correct.E) C) and D)
F) A) and D)

Question 20

Which of the following helped reduce sulfur dioxide emissions, a leading cause of acid rain?
(i) corrective taxes
(ii) tradable pollution permits
(iii) amendments to the Clean Air Act

Accepted Answer

A)  (i)  only
B)  both (i)  and (ii) 
C)  (iii)  only
D)  both (ii)  and (iii) E) B) and D)
F) A) and B)

Exam 10: Externalities

Suppose that elementary education creates a positive externality. If the government does not subsidize education, then

Correct Answer
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Markets are often inefficient when negative externalities are present because

Correct Answer
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Figure 10-8 -Refer to Figure 10-8. If the government wanted to tax or subsidize this good to achieve the socially-optimal level of output, it would

Correct Answer
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Assuming transaction costs are small, the Coase theorem would predict that private parties could arrive at an efficient solution for which of the following problems?

Correct Answer
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Table 10-3 -Refer to Table 10-3. The table represents a market in which

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

Correct Answer
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According to the Coase theorem, whatever the initial distribution of rights, the interested parties can bargain to an efficient outcome.

Correct Answer
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Figure 10-17 -Refer to Figure 10-17. How large would a corrective tax need to be to move this market from the equilibrium outcome to the socially-optimal outcome?

Correct Answer
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An externality is an example of

Correct Answer
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The tax on gasoline

Correct Answer
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To economists, good environmental policy begins by acknowledging one of the Ten Principles of Economics:

Correct Answer
verified

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

Correct Answer
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Correct Answer
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Research into new technologies

Correct Answer
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The concept of external cost is associated with a negative externality, but not with a positive externality.

Correct Answer
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Correct Answer
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The tax on cigarettes is an example of

Correct Answer
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Which of the following helped reduce sulfur dioxide emissions, a leading cause of acid rain? (i) corrective taxes (ii) tradable pollution permits (iii) amendments to the Clean Air Act

Correct Answer
verified

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 external cost of antibiotic overuse is represented by

Correct Answer
verified

Assume each gallon of gasoline that is produced gives rise to an external cost of $1.25. On any given day, the production of the 10,000^th gallon of gasoline entails a private value of $4.00 and a social cost of $3.50. What is the private cost of the 10,000^th gallon?

Correct Answer
verified
For each gallon, the social co...
View Answer

Exam 10: Externalities

Suppose that elementary education creates a positive externality. If the government does not subsidize education, then

Correct AnswerverifiedShow Answer

Markets are often inefficient when negative externalities are present because

Correct AnswerverifiedShow Answer

Figure 10-8 -Refer to Figure 10-8. If the government wanted to tax or subsidize this good to achieve the socially-optimal level of output, it would

Correct AnswerverifiedShow Answer

Assuming transaction costs are small, the Coase theorem would predict that private parties could arrive at an efficient solution for which of the following problems?

Correct AnswerverifiedShow Answer

Table 10-3 -Refer to Table 10-3. The table represents a market in which

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

According to the Coase theorem, whatever the initial distribution of rights, the interested parties can bargain to an efficient outcome.

Correct AnswerverifiedShow Answer

Figure 10-17 -Refer to Figure 10-17. How large would a corrective tax need to be to move this market from the equilibrium outcome to the socially-optimal outcome?

Correct AnswerverifiedShow Answer

An externality is an example of

Correct AnswerverifiedShow Answer

The tax on gasoline

Correct AnswerverifiedShow Answer

To economists, good environmental policy begins by acknowledging one of the Ten Principles of Economics:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Research into new technologies

Correct AnswerverifiedShow Answer

The concept of external cost is associated with a negative externality, but not with a positive externality.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The tax on cigarettes is an example of

Correct AnswerverifiedShow Answer

Which of the following helped reduce sulfur dioxide emissions, a leading cause of acid rain? (i) corrective taxes (ii) tradable pollution permits (iii) amendments to the Clean Air Act

Correct AnswerverifiedShow Answer

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 external cost of antibiotic overuse is represented by

Correct AnswerverifiedShow Answer

Assume each gallon of gasoline that is produced gives rise to an external cost of $1.25. On any given day, the production of the 10,000th gallon of gasoline entails a private value of $4.00 and a social cost of $3.50. What is the private cost of the 10,000th gallon?

Correct AnswerverifiedFor each gallon, the social co...View AnswerShow Answer

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Assume each gallon of gasoline that is produced gives rise to an external cost of $1.25. On any given day, the production of the 10,000^th gallon of gasoline entails a private value of $4.00 and a social cost of $3.50. What is the private cost of the 10,000^th gallon?

Correct Answer
verified
For each gallon, the social co...
View Answer