Question 1

The Environmental Protection Agency (EPA)cannot reach a target level of pollution through the use of pollution permits.

Accepted Answer

A) True 
 B)False

Question 2

If the government were to impose a fine of $1,000 for each unit of air-pollution released by a steel mill,the policy would be considered

Accepted Answer

A)  a subsidy.
B)  a regulation.
C)  a corrective tax.
D)  an application of the Coase theorem.E) B) and C)
F) A) and D)

Question 3

Corrective taxes are typically advocated to correct for the effects of

Accepted Answer

A)  positive externalities.
B)  negative externalities.
C)  patents.
D)  All of the above are correct.E) B) and C)
F) None of the above

Question 4

When the government intervenes in markets with externalities,it does so in order to

Accepted Answer

A)  increase production when negative externalities are present.
B)  protect the interests of bystanders.
C)  make certain all benefits are received by market participants.
D)  reduce production when positive externalities are present.E) C) and D)
F) A) and D)

Question 5

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

Accepted Answer

A)  Richard is annoyed because his roommate smokes.
B)  Chemicals from farms in the Mississippi Valley are polluting the Gulf of Mexico.
C)  Car exhaust in a small town is making one of its residents ill.
D)  Industrialization around the world is causing acid rain.E) B) and C)
F) A) and D)

Question 6

Using a supply and demand diagram,demonstrate how a positive externality leads to market inefficiency.How might the government help to eliminate this inefficiency?

Accepted Answer

<img  loading="lazy" src="/assets/images/blured-textbook.svg" class="d-inline m-1" alt="blured image" width="139" height="30"> When a positive externality exists,the ...

Question 7

Suppose that smoking creates a negative externality.What can the government do to equate the equilibrium quantity of cigarettes and the socially optimal quantity of cigarettes smoked?

Accepted Answer

A)  impose a tax on cigarettes that is equal to the per-unit externality
B)  offer a subsidy on cigarettes that is equal to the per-unit externality
C)  impose a regulation limiting the number of cigarettes that each consumer can purchase
D)  nothingE) A) and B)
F) A) and C)

Question 8

If a market is characterized by a positive externality that is not the result of a technology spillover,

Accepted Answer

A)  the socially optimal level of output is less than the equilibrium level of output, and the optimal price is greater than the equilibrium price.
B)  the socially optimal level of output is greater than the equilibrium level of output, and the socially optimal price is less than the equilibrium price.
C)  the socially optimal level of output is greater than the equilibrium level of output, and the socially optimal price is greater than the equilibrium price.
D)  the socially optimal level of output is less than the equilibrium level of output, and the socially optimal price is less than the equilibrium price.E) C) and D)
F) A) and D)

Question 9

Externalities tend to cause markets to be

Accepted Answer

A)  inefficient.
B)  inequitable.
C)  unnecessary.
D)  overwhelmed.E) All of the above
F) A) and B)

Question 10

Which of the following best defines the situation where one firm's research yields knowledge that is used by society as a whole?

Accepted Answer

A)  social cost
B)  opportunity cost of technology
C)  internalization of an externality
D)  technology spilloverE) B) and D)
F) A) and C)

Question 11

This figure reflects the market for outdoor concerts in a public park surrounded by residential neighborhoods.
Figure 10-3
 
-Refer to Figure 10-3.The social cost curve is above the supply curve because

Accepted Answer

A)  it takes into account the external costs imposed on society by the concert.
B)  it takes into account the effect of local noise restrictions on concerts in parks surrounded by residential neighborhoods.
C)  concert tickets are likely to cost more than the concert actually costs the organizers.
D)  residents in the surrounding neighborhoods get to listen to the concert for free.E) A) and B)
F) B) and D)

Question 12

The Coase theorem states that

Accepted Answer

A)  taxes are an efficient way for governments to remedy negative externalities.
B)  subsidies are an efficient way for governments to remedy positive externalities.
C)  industrial policies encourage technology spillovers.
D)  in the absence of transaction costs, private parties can solve the problem of externalities on their own.E) None of the above
F) A) and B)

Question 13

Which of the following statements is not correct?

Accepted Answer

A)  Government policies may improve the market's allocation of resources when negative externalities are present.
B)  Government policies may improve the market's allocation of resources when positive externalities are present.
C)  A positive externality is an example of a market failure.
D)  Without government intervention, the market will tend to undersupply products that produce negative externalities.E) B) and C)
F) A) and D)

Question 14

Figure 10-7
 
-Refer to Figure 10-7.Which graph illustrates a regulation?

Accepted Answer

A)  the left graph
B)  the right graph
C)  both graphs
D)  neither graphE) A) and D)
F) B) and C)

Question 15

Government intervention that aims to promote technology-enhancing industries is called

Accepted Answer

A)  assisted technology.
B)  intervention policy.
C)  industrial technology assistance.
D)  industrial policy.E) A) and B)
F) All of the above

Question 16

The Coase theorem suggests that efficient solutions to externalities can be determined through bargaining.Under what circumstances will private bargaining fail to produce a solution?

Accepted Answer

Private parties may fail to bargain to a...

Question 17

Since externalities tend to keep markets from reaching a socially optimal equilibrium,government action

Accepted Answer

A)  is always needed because private solutions can never be attained.
B)  is needed when private solutions fail to arise.
C)  will be needed only to correct for positive externalities.
D)  will be needed only to correct for negative externalities.E) A) and B)
F) A) and C)

Question 18

The social cost of pollution includes the private costs of the producers plus the costs to those bystanders adversely affected by the pollution.

Accepted Answer

A) True 
 B)False

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

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 B)
F) A) and D)

Exam 10: Externalities

An externality is the impact of

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Which of the following best defines the situation where one firm's research yields knowledge that is used by society as a whole?

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Which of the following statements is not correct?

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Externalities tend to cause markets to be

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Suppose that smoking creates a negative externality.What can the government do to equate the equilibrium quantity of cigarettes and the socially optimal quantity of cigarettes smoked?

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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

Government intervention that aims to promote technology-enhancing industries is called

Correct AnswerverifiedShow Answer

The Coase theorem suggests that efficient solutions to externalities can be determined through bargaining.Under what circumstances will private bargaining fail to produce a solution?

Correct AnswerverifiedPrivate parties may fail to bargain to a...View AnswerShow Answer

If the government were to impose a fine of $1,000 for each unit of air-pollution released by a steel mill,the policy would be considered

Correct AnswerverifiedShow Answer

Using a supply and demand diagram,demonstrate how a positive externality leads to market inefficiency.How might the government help to eliminate this inefficiency?

Correct Answerverified When a positive externality exists,the ...View AnswerShow Answer

The Coase theorem states that

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The social cost of pollution includes the private costs of the producers plus the costs to those bystanders adversely affected by the pollution.

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When the government intervenes in markets with externalities,it does so in order to

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Since externalities tend to keep markets from reaching a socially optimal equilibrium,government action

Correct AnswerverifiedShow Answer

Figure 10-7 -Refer to Figure 10-7.Which graph illustrates a regulation?

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Corrective taxes are typically advocated to correct for the effects of

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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.The social cost curve is above the supply curve because

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The Environmental Protection Agency (EPA)cannot reach a target level of pollution through the use of pollution permits.

Correct AnswerverifiedShow Answer

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

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If a market is characterized by a positive externality that is not the result of a technology spillover,

Correct AnswerverifiedShow Answer

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Private parties may fail to bargain to a...
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When a positive externality exists,the ...
View Answer

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