Question 1

Which of the following statements is correct?

Accepted Answer

A)  The use of pollution permits and corrective taxes reduces the cost of environmental protection.
B)  Rich countries usually have cleaner environments than poor countries because a clean environment is like other normal goods in that it has a positive income elasticity.
C)  Clean water and clean air are goods to which the law of demand applies.
D)  All of the above are correct.E) B) and C)
F) A) and D)

Question 2

Figure 10-1 
-Refer to Figure 10-1. This graph represents the tobacco industry. The industry creates

Accepted Answer

A)  positive externalities.
B)  negative externalities.
C)  no externalities.
D)  no equilibrium in the market.E) B) and C)
F) A) and C)

Question 3

If the social value of producing a good is always higher than the private value of producing it, then there is a

Accepted Answer

A)  negative externality associated with the production of the good, and the market equilibrium quantity of the good is less than the socially optimal quantity.
B)  negative externality associated with the production of the good, and the socially optimal quantity of the good is less than the market equilibrium quantity.
C)  positive externality associated with the production of the good, and the market equilibrium quantity of the good is less than the socially optimal quantity.
D)  positive externality associated with the production of the good, and the socially optimal quantity of the good is less than the market equilibrium quantity.E) None of the above
F) B) and C)

Question 4

In class action lawsuits, interested parties to the lawsuit are not required to pay attorney fees directly. This is an example of an attempt to

Accepted Answer

A)  maximize attorney fees.
B)  reduce the incentive of attorneys to file class action lawsuits.
C)  reduce the transaction costs of finding a private solution to an externality.
D)  regulate attorney fees.E) All of the above
F) None of the above

Question 5

Some environmentalists argue that we should protect the environment as much as possible, regardless of cost. Which of the following is not a likely outcome of pursuing such a course of action?

Accepted Answer

A)  lower levels of nutrition, health care, and housing
B)  a lower standard of living
C)  slowing or reversing technological advancement
D)  the elimination of all pollutionE) B) and D)
F) A) and D)

Question 6

In some parts of the United States, sugar beets are grown and harvested. The process of producing usable sugar from the beets generates foul-smelling smoke. A government policy that limits the emission of smoke by sugar-beet-processing firms is an example of

Accepted Answer

A)  a market-based policy.
B)  a command-and-control policy.
C)  tradable pollution permits.
D)  transaction costs.E) B) and C)
F) A) and C)

Question 7

Suppose that smoking creates a negative externality. If the government does not interfere in the cigarette market, then

Accepted Answer

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

Question 8

According to recent research, the gas tax in the United States is lower than the optimal level.

Accepted Answer

A) True 
 B)False

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 50S1U1P1thS1S1P0 restored 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 the market equilibrium quantity of restored historic buildings less than, equal to, or greater than 50?

Accepted Answer

The market equilibri...

Question 10

Figure 10-12 
-Refer to Figure 10-12. An alternative label for the line labeled "Supply" would be

Accepted Answer

A)  private value.
B)  external value.
C)  private cost.
D)  external cost.E) B) and C)
F) A) and D)

Question 11

Which of the following is an advantage of tradable pollution permits?

Accepted Answer

A)  Each firm is allowed to pollute exactly the same amount.
B)  Revenue from the sale of permits is greater than revenue from a corrective tax.
C)  The initial allocation of permits to firms does not affect the efficiency of the market.
D)  Firms will engage in joint research efforts to reduce pollution.E) C) and D)
F) None of the above

Question 12

Figure 10-19 
-Refer to Figure 10-19. Each additional unit of the good that is produced yields an external

Accepted Answer

A)  benefit of $15.
B)  benefit of $36.
C)  cost of $15.
D)  cost of $36.E) A) and D)
F) All of the above

Question 13

In some cases, tradable pollution permits may be better than a corrective tax because

Accepted Answer

A)  pollution permits allow for a market solution while a corrective tax does not.
B)  pollution permits generate more revenue for the government than a corrective tax.
C)  pollution permits are never preferred over a corrective tax.
D)  the government can set a maximum level of pollution using permits.E) A) and B)
F) A) and C)

Question 14

Figure 10-12 
-Refer to Figure 10-12. Which of the following is an appropriate label for Line 1?

Accepted Answer

A)  social cost
B)  social value
C)  private cost
D)  private valueE) C) and D)
F) A) and D)

Question 15

In which of the following cases is the Coase theorem most likely to solve the externality?

Accepted Answer

A)  Ed is allergic to his roommate's cat.
B)  Chemicals from manufacturing plants in the Midwest are causing acid rain in Canada.
C)  Polluted water runoff from farms is making residents of a nearby town sick.
D)  Industrialization around the world is causing global warming.E) A) and D)
F) B) and D)

Question 16

Taxes that are enacted to mitigate the effects of negative externalities are sometimes called

Accepted Answer

A)  control taxes.
B)  command levies.
C)  Pigovian taxes.
D)  Marshallian taxes.E) B) and C)
F) A) and B)

Question 17

Suppose the market-equilibrium quantity of good x is 5,000 units and the socially-optimal quantity of good x is 4,000 units. Then

Accepted Answer

A)  the production of good x imposes external costs on society.
B)  the private value of good x exceeds the private cost of good x when 5,000 units are produced.
C)  the private cost of good x exceeds the private value of good x when 5,000 units are produced.
D)  the social cost of good x exceeds the private value of good x when 4,000 units are produced.E) None of the above
F) A) and C)

Question 18

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

Question 19

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 50S1U1P1thS1S1P0 restored 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 the socially optimal quantity of restored historic buildings less than, equal to, or greater than 50?

Accepted Answer

The socially optimal...

Question 20

Some policies toward externalities provide incentives so that private decision makers will choose to solve the problem on their own. What name do we use for these types of policies?

Accepted Answer

We call th...

Exam 10: Externalities

Some policies toward externalities provide incentives so that private decision makers will choose to solve the problem on their own. What name do we use for these types of policies?

Correct Answer
verified
We call th...
View 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 Answer
verified

According to recent research, the gas tax in the United States is lower than the optimal level.

Correct Answer
verified

Some environmentalists argue that we should protect the environment as much as possible, regardless of cost. Which of the following is not a likely outcome of pursuing such a course of action?

Correct Answer
verified

If the social value of producing a good is always higher than the private value of producing it, then there is a

Correct Answer
verified

Figure 10-12 -Refer to Figure 10-12. An alternative label for the line labeled "Supply" would be

Correct Answer
verified

In which of the following cases is the Coase theorem most likely to solve the externality?

Correct Answer
verified

In some parts of the United States, sugar beets are grown and harvested. The process of producing usable sugar from the beets generates foul-smelling smoke. A government policy that limits the emission of smoke by sugar-beet-processing firms is an example of

Correct Answer
verified

Which of the following statements is correct?

Correct Answer
verified

Suppose the market-equilibrium quantity of good x is 5,000 units and the socially-optimal quantity of good x is 4,000 units. Then

Correct Answer
verified

Figure 10-19 -Refer to Figure 10-19. Each additional unit of the good that is produced yields an external

Correct Answer
verified

Correct Answer
verified
The socially optimal...
View Answer

Suppose that smoking creates a negative externality. If the government does not interfere in the cigarette market, then

Correct Answer
verified

Taxes that are enacted to mitigate the effects of negative externalities are sometimes called

Correct Answer
verified

In some cases, tradable pollution permits may be better than a corrective tax because

Correct Answer
verified

Figure 10-12 -Refer to Figure 10-12. Which of the following is an appropriate label for Line 1?

Correct Answer
verified

In class action lawsuits, interested parties to the lawsuit are not required to pay attorney fees directly. This is an example of an attempt to

Correct Answer
verified

Correct Answer
verified
The market equilibri...
View Answer

Which of the following is an advantage of tradable pollution permits?

Correct Answer
verified

Figure 10-1 -Refer to Figure 10-1. This graph represents the tobacco industry. The industry creates

Correct Answer
verified

Exam 10: Externalities

Some policies toward externalities provide incentives so that private decision makers will choose to solve the problem on their own. What name do we use for these types of policies?

Correct AnswerverifiedWe call th...View AnswerShow 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

According to recent research, the gas tax in the United States is lower than the optimal level.

Correct AnswerverifiedShow Answer

Some environmentalists argue that we should protect the environment as much as possible, regardless of cost. Which of the following is not a likely outcome of pursuing such a course of action?

Correct AnswerverifiedShow Answer

If the social value of producing a good is always higher than the private value of producing it, then there is a

Correct AnswerverifiedShow Answer

Figure 10-12 -Refer to Figure 10-12. An alternative label for the line labeled "Supply" would be

Correct AnswerverifiedShow Answer

In which of the following cases is the Coase theorem most likely to solve the externality?

Correct AnswerverifiedShow Answer

In some parts of the United States, sugar beets are grown and harvested. The process of producing usable sugar from the beets generates foul-smelling smoke. A government policy that limits the emission of smoke by sugar-beet-processing firms is an example of

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

Suppose the market-equilibrium quantity of good x is 5,000 units and the socially-optimal quantity of good x is 4,000 units. Then

Correct AnswerverifiedShow Answer

Figure 10-19 -Refer to Figure 10-19. Each additional unit of the good that is produced yields an external

Correct AnswerverifiedShow Answer

Correct AnswerverifiedThe socially optimal...View AnswerShow Answer

Suppose that smoking creates a negative externality. If the government does not interfere in the cigarette market, then

Correct AnswerverifiedShow Answer

Taxes that are enacted to mitigate the effects of negative externalities are sometimes called

Correct AnswerverifiedShow Answer

In some cases, tradable pollution permits may be better than a corrective tax because

Correct AnswerverifiedShow Answer

Figure 10-12 -Refer to Figure 10-12. Which of the following is an appropriate label for Line 1?

Correct AnswerverifiedShow Answer

In class action lawsuits, interested parties to the lawsuit are not required to pay attorney fees directly. This is an example of an attempt to

Correct AnswerverifiedShow Answer

Correct AnswerverifiedThe market equilibri...View AnswerShow Answer

Which of the following is an advantage of tradable pollution permits?

Correct AnswerverifiedShow Answer

Figure 10-1 -Refer to Figure 10-1. This graph represents the tobacco industry. The industry creates

Correct AnswerverifiedShow Answer

Correct Answer
verified
We call th...
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
verified
The socially optimal...
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
verified
The market equilibri...
View Answer

Correct Answer
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Correct Answer
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