Question 1

Negative externalities occur when one person's actions

Accepted Answer

A)   cause another person to lose money in a stock market transaction.
B)   cause his or her employer to lose business.
C)   reveal his or her preference for foreign-produced goods.
D)   adversely affect the well-being of a bystander who is not a party to the action.E) A) and B)
F) None of the above

Question 2

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) All of the above
F) A) and B)

Question 3

Figure 10-18. The graph represents a corrective tax to reduce pollution. On the axes, Q denotes the quantity of pollution and P represents the price of pollution. 
-Refer to Figure 10-18. The tax depicted on the graph

Accepted Answer

A)   gives polluting firms an incentive to develop cleaner technologies.
B)   is viewed by most economists as less effective than a command-and-control policy as a means of reducing pollution.
C)   has the effect of moving the allocation of resources further from the social optimum than it would be in the absence of the tax.
D)   All of the above are correct.E) All of the above
F) A) and C)

Question 4

Figure 10-9
 
-Refer to Figure 10-9. Which graph represents a market with no externality?

Accepted Answer

A)   Panel (a) 
B)   Panel (b) 
C)   Panel (c) 
D)   None of the above is correct.E) A) and D)
F) B) and D)

Question 5

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. What are the market equilibrium quantity and price?

Accepted Answer

The market equilibri...

Question 6

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) A) and D)
F) All of the above

Question 7

Suppose that beef producers create a negative externality. What is the relationship between the equilibrium quantity of beef and the socially optimal quantity of beef?

Accepted Answer

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

Question 8

If the government wanted to ensure that the market reaches the socially optimal equilibrium in the presence of a technology spillover, it should

Accepted Answer

A)   impose a corrective tax on any firm producing a technology spillover.
B)   offer tax credits to consumers who are adversely affected by the new technology.
C)   subsidize producers by an amount equal to the value of the technology spillover.
D)   provide research grants to those firms not currently engaging in research to increase competition in the industry.E) None of the above
F) A) and B)

Question 9

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, a government policy that internalized the externality would move the quantity of antibiotics used from point

Accepted Answer

A)   Q2 to point Q3.
B)   Q3 to point Q2.
C)   Q4 to point Q5.
D)   Q5 to point Q4.E) B) and C)
F) A) and D)

Question 10

At any given quantity, the willingness to pay in the market for gasoline is reflected in the

Accepted Answer

A)   height of the demand curve at that quantity.
B)   height of the supply curve at that quantity.
C)   value to the producer of the last unit of gasoline sold.
D)   total quantity of gasoline exchanged in the market.E) None of the above
F) All of the above

Question 11

To enhance the well-being of society, a social planner will encourage firms to increase production when

Accepted Answer

A)   the firms are producing basic goods.
B)   there is a shortage in the market.
C)   technology spillovers are associated with production.
D)   negative externalities "spill over" into production.E) B) and D)
F) A) and B)

Question 12

Use a graph to illustrate the quantity of pollution that would be emitted (a) after a corrective tax has been imposed and (b) after tradable pollution permits have been imposed. Could these two quantities ever be equivalent?

Accepted Answer

<img  loading="lazy" src="/assets/images/blured-textbook.svg" class="d-inline m-1" alt="blured image" width="139" height="30"> Yes, these two quantities cou...

Question 13

Does the phenomenon of externalities strengthen the argument that we should rely upon the "invisible hand" of the marketplace, or does it weaken that argument?

Accepted Answer

The phenomenon of ex...

Question 14

University researchers create a positive externality because what they discover in their research labs can easily be learned by others who haven't contributed to the research costs. If there are no subsidies, what is the relationship between the equilibrium quantity of university research and the optimal quantity of university research produced?

Accepted Answer

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

Question 15

A dentist shares an office building with a radio station. The electrical current from the dentist's drill causes static in the radio broadcast, causing the radio station to lose $10,000 in profits. The radio station could put up a shield at a cost of $30,000; the dentist could buy a new drill that causes less interference for $6,000. Either would restore the radio station's lost profits. What is the economically efficient outcome?

Accepted Answer

A)   The radio station puts up a shield, which it pays for.
B)   The radio station puts up a shield, which the dentist pays for.
C)   Neither the radio station nor the dentist purchase additional equipment.
D)   The dentist gets a new drill; it does not matter who pays for it.E) All of the above
F) B) and D)

Question 16

Some government policies provide incentives for private decision makers to choose to solve the problem of externalities on their own. What term do we use to describe such policies?

Accepted Answer

We use the term mark...

Question 17

Suppose a new market for tradable pollution permits is created. As long as there is a free market for the pollution rights, the final allocation will be , regardless of the initial allocation of permits.

Accepted Answer

The answer of Suppose a new market for tradable pollution...

Question 18

Figure 10-7 
-Refer to Figure 10-7. To internalize the externality in this market, the government should

Accepted Answer

A)   impose a tax on this product.
B)   provide a subsidy for this product.
C)   forbid production.
D)   produce the product itself.E) A) and C)
F) B) and D)

Question 19

William engages in an activity that influences the well-being of a bystander. In which of the following instances does an externality arise?

Accepted Answer

A)   The impact of William's activity on the bystander is adverse, and William compensates the bystander accordingly.
B)   The impact of William's activity on the bystander is adverse, but William fails to compensate the bystander.
C)   The impact of William's activity on the bystander is beneficial and the bystander compensates William accordingly.
D)   Externalities arise in all of the above cases.E) A) and B)
F) C) and D)

Question 20

When a particular negative externality affects a very large number of people, it is likely that

Accepted Answer

A)   government will not find it worthwhile to impose a corrective tax.
B)   private solutions to the problem will dominate any attempt by government to alleviate the problem.
C)   the solution to externalities suggested by the Coase theorem will work very well.
D)   the solution to externalities suggested by the Coase theorem will not work.E) A) and B)
F) A) and C)

Exam 10: Externalities

Suppose a new market for tradable pollution permits is created. As long as there is a free market for the pollution rights, the final allocation will be , regardless of the initial allocation of permits.

Correct Answer
verified

William engages in an activity that influences the well-being of a bystander. In which of the following instances does an externality arise?

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

To enhance the well-being of society, a social planner will encourage firms to increase production when

Correct Answer
verified

Suppose that beef producers create a negative externality. What is the relationship between the equilibrium quantity of beef and the socially optimal quantity of beef?

Correct Answer
verified

At any given quantity, the willingness to pay in the market for gasoline is reflected in the

Correct Answer
verified

Use a graph to illustrate the quantity of pollution that would be emitted (a) after a corrective tax has been imposed and (b) after tradable pollution permits have been imposed. Could these two quantities ever be equivalent?

Correct Answer
verified
Yes, these two quantities cou...
View Answer

Correct Answer
verified

If the government wanted to ensure that the market reaches the socially optimal equilibrium in the presence of a technology spillover, it should

Correct Answer
verified

Figure 10-18. The graph represents a corrective tax to reduce pollution. On the axes, Q denotes the quantity of pollution and P represents the price of pollution. -Refer to Figure 10-18. The tax depicted on the graph

Correct Answer
verified

When a particular negative externality affects a very large number of people, it is likely that

Correct Answer
verified

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, a government policy that internalized the externality would move the quantity of antibiotics used from point

Correct Answer
verified

Figure 10-7 -Refer to Figure 10-7. To internalize the externality in this market, the government should

Correct Answer
verified

Does the phenomenon of externalities strengthen the argument that we should rely upon the "invisible hand" of the marketplace, or does it weaken that argument?

Correct Answer
verified
The phenomenon of ex...
View Answer

Figure 10-9 -Refer to Figure 10-9. Which graph represents a market with no 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
verified

Some government policies provide incentives for private decision makers to choose to solve the problem of externalities on their own. What term do we use to describe such policies?

Correct Answer
verified
We use the term mark...
View Answer

Negative externalities occur when one person's actions

Correct Answer
verified

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. What are the market equilibrium quantity and price?

Correct Answer
verified
The market equilibri...
View Answer

Exam 10: Externalities

Suppose a new market for tradable pollution permits is created. As long as there is a free market for the pollution rights, the final allocation will be , regardless of the initial allocation of permits.

Correct AnswerverifiedShow Answer

William engages in an activity that influences the well-being of a bystander. In which of the following instances does an externality arise?

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

To enhance the well-being of society, a social planner will encourage firms to increase production when

Correct AnswerverifiedShow Answer

Suppose that beef producers create a negative externality. What is the relationship between the equilibrium quantity of beef and the socially optimal quantity of beef?

Correct AnswerverifiedShow Answer

At any given quantity, the willingness to pay in the market for gasoline is reflected in the

Correct AnswerverifiedShow Answer

Use a graph to illustrate the quantity of pollution that would be emitted (a) after a corrective tax has been imposed and (b) after tradable pollution permits have been imposed. Could these two quantities ever be equivalent?

Correct Answerverified Yes, these two quantities cou...View AnswerShow Answer

Correct AnswerverifiedShow Answer

If the government wanted to ensure that the market reaches the socially optimal equilibrium in the presence of a technology spillover, it should

Correct AnswerverifiedShow Answer

Figure 10-18. The graph represents a corrective tax to reduce pollution. On the axes, Q denotes the quantity of pollution and P represents the price of pollution. -Refer to Figure 10-18. The tax depicted on the graph

Correct AnswerverifiedShow Answer

When a particular negative externality affects a very large number of people, it is likely that

Correct AnswerverifiedShow Answer

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, a government policy that internalized the externality would move the quantity of antibiotics used from point

Correct AnswerverifiedShow Answer

Figure 10-7 -Refer to Figure 10-7. To internalize the externality in this market, the government should

Correct AnswerverifiedShow Answer

Does the phenomenon of externalities strengthen the argument that we should rely upon the "invisible hand" of the marketplace, or does it weaken that argument?

Correct AnswerverifiedThe phenomenon of ex...View AnswerShow Answer

Figure 10-9 -Refer to Figure 10-9. Which graph represents a market with no 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

Some government policies provide incentives for private decision makers to choose to solve the problem of externalities on their own. What term do we use to describe such policies?

Correct AnswerverifiedWe use the term mark...View AnswerShow Answer

Negative externalities occur when one person's actions

Correct AnswerverifiedShow Answer

Correct AnswerverifiedThe market equilibri...View AnswerShow 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
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Correct Answer
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Correct Answer
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Yes, these two quantities cou...
View Answer

Correct Answer
verified

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
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Correct Answer
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Correct Answer
verified
The phenomenon of ex...
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Correct Answer
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Correct Answer
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Correct Answer
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We use the term mark...
View Answer

Correct Answer
verified

Correct Answer
verified
The market equilibri...
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