Question 1

Scenario 10-4
The demand curve for fire extinguishers slopes downward and the supply curve for fire extinguishers slopes upward. The production of the 500S1U1P1thS1S1P0 fire extinguisher entails the following:
• a private cost of $10;
• an external cost of $0;
• a private value of $9;
• an external benefit of $3.
-Refer to Scenario 10-4. Is the market-equilibrium quantity of fire extinguishers less than, equal to, or greater than 500? Explain.

Accepted Answer

For the 500^th fire extinguisher,...

Question 2

Employing a lawyer to draft and enforce a private contract between parties wishing to solve an externality problem is an example of

Accepted Answer

A)  an opportunity cost.
B)  an implicit cost.
C)  a sunk cost.
D)  a transaction cost.E) B) and C)
F) A) and D)

Question 3

Figure 10-19 
-Refer to Figure 10-19. How many units of the good are produced in a market equilibrium?

Accepted Answer

A)  fewer than 58
B)  58
C)  73
D)  94E) None of the above
F) B) and C)

Question 4

Two farmers, A and B, each apply 100 tons of manure on their fields. To reduce manure runoff, the government has decided to require a permit for each ton of manure applied. The government gives each farmer 50 tradeable permits. Farmer A incurs losses of $25 for each ton of manure he does not apply, and Farmer B incurs losses of $50 for each ton of manure he does not apply. After permit trading, we would expect that

Accepted Answer

A)  ​farmer A will no longer apply manure, and farmer B will not reduce his manure application at all.
B)  ​farmer B will no longer apply manure, and farmer A will not reduce his manure application at all.
C)  ​farmer A and B will each apply 50 tons of manure.
D)  ​farmer A will apply 25 tons of manure, and farmer B will apply 50 tons of manure.E) B) and C)
F) C) and D)

Question 5

​Figure 10-20. ​ 
-Refer to Figure 10-20. Without government intervention,

Accepted Answer

A)  the equilibrium quantity is less than the socially optimal quantity.
B)  the equilibrium quantity is larger than the socially optimal quantity.
C)  the equilibrium quantity equals the socially optimal quantity.
D)  there is no clear relationship between the equilibrium quantity and socially optimal quantity.E) B) and C)
F) A) and D)

Question 6

Figure 10-8 
-Refer to Figure 10-8. What is the socially-optimal quantity of output in this market?

Accepted Answer

A)  8 units
B)  Between 8 and 10 units
C)  10 units
D)  More than 10 unitsE) None of the above
F) A) and D)

Question 7

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) A) and C)

Question 8

​Josiah installed a metal sculpture in his front yard. A negative externality arises if the sculpture

Accepted Answer

A)  ​increases the value of other properties in the neighborhood.
B)  ​decreases the value of Josiah's home.
C)  ​is visually appealing to Josiah's neighbors.
D)  ​creates a safety hazard for neighborhood children.E) A) and B)
F) A) and C)

Question 9

A benevolent social planner would prefer that the output of good x be increased from its current level if, at the current level of output of good x,

Accepted Answer

A)  social value = private value = private cost 
B)  social cost > private value = social value > private cost.
C)  social cost = private cost = private value 
D)  social value = private cost = social cost > private value.E) A) and D)
F) C) and D)

Question 10

In the case of a technology spillover, internalizing a positive externality through a government subsidy will cause the industry's supply curve to

Accepted Answer

A)  shift up by an amount equal to the subsidy.
B)  shift down by an amount less than the subsidy.
C)  shift down by an amount equal to the subsidy.
D)  shift down by an amount greater than the subsidy.E) B) and D)
F) B) and C)

Question 11

The best remedy for market failure is often

Accepted Answer

A)  a market-based solution.
B)  shutdown of the market.
C)  no government intervention.
D)  externalizing the externalities.E) C) and D)
F) A) and B)

Question 12

Which of the following policies is the government most inclined to use when faced with a positive externality?

Accepted Answer

A)  taxation
B)  permits
C)  subsidies
D)  usage feesE) All of the above
F) A) and B)

Question 13

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

Accepted Answer

A)  social cost minus social value
B)  social value minus private cost
C)  demand
D)  private costE) None of the above
F) C) and D)

Question 14

Suppose that electricity producers create a negative externality equal to $6 per unit. Further suppose that the government imposes a $8 per-unit tax on the producers. What is the relationship between the after-tax equilibrium quantity and the socially optimal quantity of electricity to be produced?

Accepted Answer

A)  They are equal.
B)  The after-tax equilibrium quantity is greater than the socially optimal quantity.
C)  The after-tax equilibrium quantity is less than the socially optimal quantity.
D)  There is not enough information to answer the question.E) B) and C)
F) A) and B)

Question 15

Which of the following is an example of a positive externality?

Accepted Answer

A)  A college student buys a new car when she graduates.
B)  The mayor of a small town plants flowers in the city park.
C)  Local high school teachers have pizza delivered every Friday for lunch.
D)  An avid fisherman buys new fishing gear for his next fishing trip.E) None of the above
F) C) and D)

Question 16

Despite the appealing logic of the Coase theorem, private actors often fail to resolve on their own the problems caused by externalities.

Accepted Answer

A) True 
 B)False

Question 17

The externality associated with technology spillovers

Accepted Answer

A)  cannot be internalized by government.
B)  is a negative externality.
C)  can be internalized, potentially, through taxation of firms that are responsible for technology spillovers.
D)  can be internalized, potentially, through patent protection.E) A) and B)
F) A) and C)

Question 18

Figure 10-5 0 and Q1. B) P2 and Q1. C) P1 and Q0. D) P2 and Q0." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 10-5. Which price and quantity combination represents the social optimum?

Accepted Answer

A)  P0 and Q1.
B)  P2 and Q1.
C)  P1 and Q0.
D)  P2 and Q0.E) All of the above
F) B) and D)

Question 19

Which of the following statements is correct?

Accepted Answer

A)  Government should tax goods with either positive or negative externalities.
B)  Government should tax goods with negative externalities and subsidize goods with positive externalities.
C)  Government should subsidize goods with either positive or negative externalities.
D)  Government should tax goods with positive externalities and subsidize goods with negative externalities.E) A) and B)
F) A) and C)

Question 20

Scenario 10-3
Suppose the equation for the demand curve in a market is  , where  is the quantity demanded and  is the price. Also, suppose the equation for the supply curve in the same market is  , where  is the quantity supplied.
-Refer to Scenario 10-3. Suppose there is an external cost of $12 associated with the production of each unit of the good. What is the social cost of producing 30 units of the good?

Accepted Answer

The social cost of p...

Exam 10: Externalities

Research into new technologies

Correct Answer
verified

Despite the appealing logic of the Coase theorem, private actors often fail to resolve on their own the problems caused by externalities.

Correct Answer
verified

Correct Answer
verified

Which of the following is an example of a positive externality?

Correct Answer
verified

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

Correct Answer
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Figure 10-8 -Refer to Figure 10-8. What is the socially-optimal quantity of output in this market?

Correct Answer
verified

Which of the following policies is the government most inclined to use when faced with a positive externality?

Correct Answer
verified

Suppose that electricity producers create a negative externality equal to $6 per unit. Further suppose that the government imposes a $8 per-unit tax on the producers. What is the relationship between the after-tax equilibrium quantity and the socially optimal quantity of electricity to be produced?

Correct Answer
verified

Josiah installed a metal sculpture in his front yard. A negative externality arises if the sculpture

Correct Answer
verified

Correct Answer
verified
For the 500^th fire extinguisher,...
View Answer

Figure 10-20. -Refer to Figure 10-20. Without government intervention,

Correct Answer
verified

Employing a lawyer to draft and enforce a private contract between parties wishing to solve an externality problem is an example of

Correct Answer
verified

A benevolent social planner would prefer that the output of good x be increased from its current level if, at the current level of output of good x,

Correct Answer
verified

The best remedy for market failure is often

Correct Answer
verified

Figure 10-19 -Refer to Figure 10-19. How many units of the good are produced in a market equilibrium?

Correct Answer
verified

In the case of a technology spillover, internalizing a positive externality through a government subsidy will cause the industry's supply curve to

Correct Answer
verified

Which of the following statements is correct?

Correct Answer
verified

The externality associated with technology spillovers

Correct Answer
verified

Figure 10-5 -Refer to Figure 10-5. Which price and quantity combination represents the social optimum?

Correct Answer
verified

Correct Answer
verified
The social cost of p...
View Answer

Exam 10: Externalities

Research into new technologies

Correct AnswerverifiedShow Answer

Despite the appealing logic of the Coase theorem, private actors often fail to resolve on their own the problems caused by externalities.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following is an example of a positive externality?

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

Figure 10-8 -Refer to Figure 10-8. What is the socially-optimal quantity of output in this market?

Correct AnswerverifiedShow Answer

Which of the following policies is the government most inclined to use when faced with a positive externality?

Correct AnswerverifiedShow Answer

Suppose that electricity producers create a negative externality equal to $6 per unit. Further suppose that the government imposes a $8 per-unit tax on the producers. What is the relationship between the after-tax equilibrium quantity and the socially optimal quantity of electricity to be produced?

Correct AnswerverifiedShow Answer

​Josiah installed a metal sculpture in his front yard. A negative externality arises if the sculpture

Correct AnswerverifiedShow Answer

Correct AnswerverifiedFor the 500th fire extinguisher,...View AnswerShow Answer

​Figure 10-20. ​ -Refer to Figure 10-20. Without government intervention,

Correct AnswerverifiedShow Answer

Employing a lawyer to draft and enforce a private contract between parties wishing to solve an externality problem is an example of

Correct AnswerverifiedShow Answer

A benevolent social planner would prefer that the output of good x be increased from its current level if, at the current level of output of good x,

Correct AnswerverifiedShow Answer

The best remedy for market failure is often

Correct AnswerverifiedShow Answer

Figure 10-19 -Refer to Figure 10-19. How many units of the good are produced in a market equilibrium?

Correct AnswerverifiedShow Answer

In the case of a technology spillover, internalizing a positive externality through a government subsidy will cause the industry's supply curve to

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

The externality associated with technology spillovers

Correct AnswerverifiedShow Answer

Figure 10-5 -Refer to Figure 10-5. Which price and quantity combination represents the social optimum?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedThe social cost of p...View AnswerShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Josiah installed a metal sculpture in his front yard. A negative externality arises if the sculpture

Correct Answer
verified

Correct Answer
verified
For the 500^th fire extinguisher,...
View Answer

Figure 10-20. -Refer to Figure 10-20. Without government intervention,

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The social cost of p...
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