Question 1

When market activity generates a negative externality, the level of output in the market equilibrium is lower than the socially optimal level.

Accepted Answer

A) True 
 B)False

Question 2

In recent years, the Canadian province of British Columbia has increased its carbon tax. Which of the following statements is correct?

Accepted Answer

A)   Despite the increase in the carbon tax, emissions of greenhouse gases in British Columbia have continued to increase at a rapid rate.
B)   Along with the increase in the carbon tax, British Columbia has decreased income-tax rates on individuals and corporations.
C)   Few, if any, economists favor carbon taxes such as the one that British Columbia has imposed.
D)   All of the above are correct.E) None of the above
F) B) and C)

Question 3

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 4

The Coase theorem suggests that private markets may not be able to solve the problem of externalities

Accepted Answer

A)   if the government does not become involved in the process.
B)   when the number of interested parties is large and bargaining costs are high.
C)   if the firm in the market is a monopoly.
D)   if some people benefit from the externality.E) A) and C)
F) A) and B)

Question 5

Since almost all forms of transportation produce some type of pollution,

Accepted Answer

A)   the government should ban all transportation.
B)   the government should ban all pollution.
C)   society has to weigh the cost and benefits when deciding how much pollution to allow.
D)   refrain from intervening because the market can best solve this problem.E) A) and B)
F) A) and C)

Question 6

Organizers of an outdoor concert in a park surrounded by residential neighborhoods are likely to consider the noise and traffic cost to residential neighborhoods when they assess the financial viability of the concert venture.

Accepted Answer

A) True 
 B)False

Question 7

Dick owns a dog whose barking annoys Dick's neighbor Jane. Dick receives personal benefit from owning the dog, and Jane bears a cost of Dick's ownership of the dog. Assuming Jane has the legal right to peace and quiet, which of the following statements is correct?

Accepted Answer

A)   If Dick's benefit exceeds Jane's cost, government intervention is necessary.
B)   Dick will pay to keep his dog if his benefit exceeds Jane's cost.
C)   If Jane's cost exceeds Dick's benefit, Dick will pay Jane to keep his dog.
D)   If Jane has the legal right to peace and quiet, no further transactions will be mutually beneficial.E) All of the above
F) B) and C)

Question 8

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

Accepted Answer

A)   Q4, which is the socially optimal quantity.
B)   Q5, which is the socially optimal quantity.
C)   Q4, and the socially optimal quantity is Q5.
D)   Q5, and the socially optimal quantity is Q4.E) B) and D)
F) None of the above

Question 9

In some situations, private economic actors cannot solve the problem of externalities among themselves because of substantial costs.

Accepted Answer

The answer of In some situations, private economic actors cannot...

Question 10

Mary and Cathy are roommates. Mary assigns a $30 value to smoking cigarettes. Cathy values smoke-free air at $15. Which of the following scenarios is a successful example of the Coase theorem?

Accepted Answer

A)   Cathy offers Mary $20 not to smoke. Mary accepts and does not smoke.
B)   Mary pays Cathy $16 so that Mary can smoke.
C)   Mary pays Cathy $14 so that Mary can smoke.
D)   Cathy offers Mary $15 not to smoke. Mary accepts and does not smoke.E) A) and D)
F) B) and D)

Question 11

In the case of a technology spillover, the government can encourage firms to internalize a positive externality by

Accepted Answer

A)   taxing production, which would decrease supply.
B)   taxing production, which would increase supply.
C)   subsidizing production, which would decrease supply.
D)   subsidizing production, which would increase supply.E) None of the above
F) C) and D)

Question 12

A positive externality

Accepted Answer

A)   is a benefit to the producer of the good.
B)   is a benefit to the consumer of the good.
C)   is a benefit to someone other than the producer and consumer of the good.
D)   results in an optimal level of output.E) A) and B)
F) A) and C)

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) A) and B)

Question 14

An optimal tax on pollution would result in which of the following?

Accepted Answer

A)   Producers will choose not to produce any pollution.
B)   Producers will internalize the cost of the pollution.
C)   Producers will maximize production.
D)   The value to consumers at market equilibrium will exceed the social cost of production.E) C) and D)
F) None of the above

Question 15

Education is heavily subsidized through public schools and government scholarships. This subsidization of education reflects the fact that

Accepted Answer

A)   a negative externality requires a subsidy to move the market equilibrium closer to the social optimum.
B)   the social cost of education exceeds the private cost of education.
C)   the social value of education exceeds the private value of education.
D)   the market-equilibrium quantity of education exceeds the optimal quantity of education.E) C) and D)
F) A) and D)

Question 16

Figure 10-11 
-Refer to Figure 10-11. The graph 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 graph.E) B) and D)
F) C) and D)

Question 17

Table 10-4 
-Refer to Table 10-4. Taking into account private and external costs, total surplus in the market equilibrium amounts to

Accepted Answer

A)   $28.
B)   $39.
C)   $45.
D)   $51.E) B) and D)
F) All of the above

Question 18

Two firms, A and B, each currently emit 100 tons of chemicals into the air. The government has decided to reduce the pollution and from now on will require a pollution permit for each ton of pollution emitted into the air. The government gives each firm 40 pollution permits, which it can either use or sell to the other firm. It costs Firm A $200 for each ton of pollution that it eliminates before it is emitted into the air, and it costs Firm B $100 for each ton of pollution that it eliminates before it is emitted into the air. It is likely that

Accepted Answer

A)   Firm A will buy all of Firm B's pollution permits. Each one will cost between $100 and $200.
B)   Firm B will buy all of Firm A's pollution permits. Each one will cost between $100 and $200.
C)   Both firms will use their own pollution permits.
D)   Firm A will buy some of Firm B's pollution permits. Each one will cost less than $100.E) B) and D)
F) None of the above

Question 19

When the production of a good results in a positive externality, the social value curve is

Accepted Answer

A)   below the demand curve, indicating that the total value to society is less than the private benefit.
B)   above the demand curve, indicating that the total value to society is greater than the private benefit.
C)   identical to the demand curve, indicating that the total cost to society is the equal to the private benefit.
D)   above the supply curve, indicating that the total cost to society exceeds the private cost.E) A) and C)
F) A) and B)

Question 20

A congestion toll imposed on a highway driver to force the driver to take into account the increase in travel time she imposes on all other drivers is an example of internalizing the externality.

Accepted Answer

A) True 
 B)False

Exam 10: Externalities

In the case of a technology spillover, the government can encourage firms to internalize a positive externality by

Correct Answer
verified

A congestion toll imposed on a highway driver to force the driver to take into account the increase in travel time she imposes on all other drivers is an example of internalizing the externality.

Correct Answer
verified

Correct Answer
verified

In some situations, private economic actors cannot solve the problem of externalities among themselves because of substantial costs.

Correct Answer
verified

In recent years, the Canadian province of British Columbia has increased its carbon tax. Which of the following statements is correct?

Correct Answer
verified

The Coase theorem suggests that private markets may not be able to solve the problem of externalities

Correct Answer
verified

Dick owns a dog whose barking annoys Dick's neighbor Jane. Dick receives personal benefit from owning the dog, and Jane bears a cost of Dick's ownership of the dog. Assuming Jane has the legal right to peace and quiet, which of the following statements is correct?

Correct Answer
verified

Since almost all forms of transportation produce some type of pollution,

Correct Answer
verified

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

Correct Answer
verified

An optimal tax on pollution would result in which of the following?

Correct Answer
verified

Education is heavily subsidized through public schools and government scholarships. This subsidization of education reflects the fact that

Correct Answer
verified

A positive externality

Correct Answer
verified

When the production of a good results in a positive externality, the social value curve is

Correct Answer
verified

When market activity generates a negative externality, the level of output in the market equilibrium is lower than the socially optimal level.

Correct Answer
verified

Organizers of an outdoor concert in a park surrounded by residential neighborhoods are likely to consider the noise and traffic cost to residential neighborhoods when they assess the financial viability of the concert venture.

Correct Answer
verified

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

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 10,000th 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 Answer
verified
For each gallon, the social co...
View Answer

Mary and Cathy are roommates. Mary assigns a $30 value to smoking cigarettes. Cathy values smoke-free air at $15. Which of the following scenarios is a successful example of the Coase theorem?

Correct Answer
verified

Table 10-4 -Refer to Table 10-4. Taking into account private and external costs, total surplus in the market equilibrium amounts to

Correct Answer
verified

Figure 10-11 -Refer to Figure 10-11. The graph represents a market in which

Correct Answer
verified

Exam 10: Externalities

In the case of a technology spillover, the government can encourage firms to internalize a positive externality by

Correct AnswerverifiedShow Answer

A congestion toll imposed on a highway driver to force the driver to take into account the increase in travel time she imposes on all other drivers is an example of internalizing the externality.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In some situations, private economic actors cannot solve the problem of externalities among themselves because of substantial costs.

Correct AnswerverifiedShow Answer

In recent years, the Canadian province of British Columbia has increased its carbon tax. Which of the following statements is correct?

Correct AnswerverifiedShow Answer

The Coase theorem suggests that private markets may not be able to solve the problem of externalities

Correct AnswerverifiedShow Answer

Dick owns a dog whose barking annoys Dick's neighbor Jane. Dick receives personal benefit from owning the dog, and Jane bears a cost of Dick's ownership of the dog. Assuming Jane has the legal right to peace and quiet, which of the following statements is correct?

Correct AnswerverifiedShow Answer

Since almost all forms of transportation produce some type of pollution,

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

An optimal tax on pollution would result in which of the following?

Correct AnswerverifiedShow Answer

Education is heavily subsidized through public schools and government scholarships. This subsidization of education reflects the fact that

Correct AnswerverifiedShow Answer

A positive externality

Correct AnswerverifiedShow Answer

When the production of a good results in a positive externality, the social value curve is

Correct AnswerverifiedShow Answer

When market activity generates a negative externality, the level of output in the market equilibrium is lower than the socially optimal level.

Correct AnswerverifiedShow Answer

Organizers of an outdoor concert in a park surrounded by residential neighborhoods are likely to consider the noise and traffic cost to residential neighborhoods when they assess the financial viability of the concert venture.

Correct AnswerverifiedShow Answer

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

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

Mary and Cathy are roommates. Mary assigns a $30 value to smoking cigarettes. Cathy values smoke-free air at $15. Which of the following scenarios is a successful example of the Coase theorem?

Correct AnswerverifiedShow Answer

Table 10-4 -Refer to Table 10-4. Taking into account private and external costs, total surplus in the market equilibrium amounts to

Correct AnswerverifiedShow Answer

Figure 10-11 -Refer to Figure 10-11. The graph represents a market in which

Correct AnswerverifiedShow Answer

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

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