Question 1

Which of the following statements is correct?

Accepted Answer

A)   Taxes are more difficult to administer than regulations.
B)   Taxes provide incentives for firms to adopt new methods to reduce negative externalities.
C)   Command-and-control policies provide incentives for private decisionmakers to solve their problems on their own.
D)   Corrective taxes distort incentives.E) A) and B)
F) None of the above

Question 2

Which of the following statements is not correct?

Accepted Answer

A)   Corrective taxes can be used to place a price on the right to pollute.
B)   Corrective taxes allocate pollution to those producers who face the highest cost of reducing pollution.
C)   Corrective taxes provide incentives to develop cleaner technologies.
D)   Corrective taxes require the government to set a target level of pollution.E) A) and B)
F) A) and C)

Question 3

Figure 10-17 
-Refer to Figure 10-17. How large would a corrective tax need to be to move this market from the equilibrium outcome to the socially-optimal outcome?

Accepted Answer

A)   An amount equal to P' minus P.
B)   An amount equal to P'.
C)   An amount equal to P.
D)   An amount equal to the external cost.E) All of the above
F) C) and D)

Question 4

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

Question 5

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. What is the appropriate label for the downward-sloping line on the graph?

Accepted Answer

A)   "Demand for clean air"
B)   "Demand for pollution rights"
C)   "Supply of pollution permits"
D)   "Tax paid to government"E) None of the above
F) A) and B)

Question 6

Private contracts between parties with mutual interests

Accepted Answer

A)   will reduce the well-being of society.
B)   will lead to market outcomes in which the public interest is sacrificed for personal gain.
C)   can solve some inefficiencies associated with positive externalities.
D)   will create negative externalities.E) A) and D)
F) C) and D)

Question 7

The patent system gives firms greater incentive to engage in research and other activities that advance technology.

Accepted Answer

A) True 
 B)False

Question 8

A negative externality arises when a person engages in an activity that has

Accepted Answer

A)   an adverse effect on a bystander who is not compensated by the person who causes the effect.
B)   an adverse effect on a bystander who is compensated by the person who causes the effect.
C)   a beneficial effect on a bystander who pays the person who causes the effect.
D)   a beneficial effect on a bystander who does not pay the person who causes the effect.E) A) and B)
F) C) and D)

Question 9

The impact of one person's actions on the well-being of a bystander is called

Accepted Answer

A)   an economic dilemma.
B)   deadweight loss.
C)   a multi-party problem.
D)   an externality.E) A) and D)
F) A) and C)

Question 10

Figure 10-19 
-Refer to Figure 10-19. Note that the lines labeled "Demand" and "Social Value"are parallel. Also, the slopes of the lines on the graph reflect the following facts: (1)  Private value and social value decrease by $1.00 with each additional unit of the good that is consumed, and (2)  private cost increases by $1.40 with each additional unit of the good that is produced. Thus, when the 74th unit of the good is produced and consumed, social well-being

Accepted Answer

A)   decreases by $2.40.
B)   decreases by $1.60.
C)   increases by $1.00.
D)   increases by $1.40.E) A) and B)
F) C) and D)

Question 11

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

Question 12

Table 10-4
 
-Refer to Table 10-4. The last unit of output for which private value exceeds social cost is the

Accepted Answer

A)   2nd unit.
B)   3rd unit.
C)   4th unit.
D)   5th unit.E) C) and D)
F) A) and B)

Question 13

Suppose the government levies a corrective tax on firms that pollute in order to limit the quantity of pollution. Under this policy, does the demand curve for pollution rights determine the quantity of pollution, or does it determine the price of pollution?

Accepted Answer

With a corrective ta...

Question 14

Which of the following is a problem that keeps people from privately solving externality problems?

Accepted Answer

A)   Each party involved holds out for a better deal.
B)   The externality is large.
C)   Only problems with a sufficiently large number of parties can be solved.
D)   There is a lack of government intervention.E) A) and C)
F) C) and D)

Question 15

Table 10-6
The following table shows the total costs for each of four firms (A, B, C, and D)  to eliminate units of pollution from their production processes. For example, for Firm A to eliminate one unit of pollution, it would cost $46, and for Firm A to eliminate two units of pollution, it would cost a total of $103.
 
-Refer to Table 10-6. Suppose there is presently no pollution fee, and the government wishes to eliminate exactly 8 units of pollution. Which of the following fees per unit of pollution would achieve that goal?

Accepted Answer

A)   $65
B)   $75
C)   $80
D)   $88E) A) and B)
F) A) and C)

Question 16

Buyers and sellers neglect the external effects of their actions when deciding how much to demand or supply.

Accepted Answer

A) True 
 B)False

Question 17

Figure 10-5 
-Refer to Figure 10-5. Which of the following statements is correct?

Accepted Answer

A)   The marginal benefit of the positive externality is measured by P3 - P1.
B)   The marginal cost of the negative externality is measured by P3 - P2.
C)   The marginal cost of the negative externality is measured by P3 - P1.
D)   The marginal cost of the negative externality is measured by P3 - P0.E) A) and B)
F) A) and C)

Question 18

The supply curve for a product reflects the

Accepted Answer

A)   willingness to pay of the marginal buyer.
B)   quantity buyers will ultimately purchase of the product.
C)   cost to sellers of producing the product.
D)   seller's profit from producing the product.E) A) and D)
F) A) and C)

Question 19

When an externality is present, the market equilibrium is

Accepted Answer

A)   efficient, and the equilibrium maximizes the total benefit to society as a whole.
B)   efficient, but the equilibrium does not maximize the total benefit to society as a whole.
C)   inefficient, but the equilibrium maximizes the total benefit to society as a whole.
D)   inefficient, and the equilibrium does not maximize the total benefit to society as a whole.E) All of the above
F) A) and B)

Question 20

When externalities cause markets to be inefficient,

Accepted Answer

A)   government action is always needed to solve the problem.
B)   private solutions can be developed to solve the problem.
C)   given enough time, externalities can be solved through normal market adjustments.
D)   there is no way to eliminate the problem of externalities in a market.E) All of the above
F) A) and D)

Exam 10: Externalities

Buyers and sellers neglect the external effects of their actions when deciding how much to demand or supply.

Correct Answer
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Table 10-4 -Refer to Table 10-4. The last unit of output for which private value exceeds social cost is the

Correct Answer
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Figure 10-17 -Refer to Figure 10-17. How large would a corrective tax need to be to move this market from the equilibrium outcome to the socially-optimal outcome?

Correct Answer
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Which of the following statements is correct?

Correct Answer
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The supply curve for a product reflects the

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

Correct Answer
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Private contracts between parties with mutual interests

Correct Answer
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The impact of one person's actions on the well-being of a bystander is called

Correct Answer
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The patent system gives firms greater incentive to engage in research and other activities that advance technology.

Correct Answer
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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. What is the appropriate label for the downward-sloping line on the graph?

Correct Answer
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Which of the following statements is not correct?

Correct Answer
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When an externality is present, the market equilibrium is

Correct Answer
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When externalities cause markets to be inefficient,

Correct Answer
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Suppose the government levies a corrective tax on firms that pollute in order to limit the quantity of pollution. Under this policy, does the demand curve for pollution rights determine the quantity of pollution, or does it determine the price of pollution?

Correct Answer
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With a corrective ta...
View Answer

Which of the following is a problem that keeps people from privately solving externality problems?

Correct Answer
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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
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Correct Answer
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Figure 10-5 -Refer to Figure 10-5. Which of the following statements is correct?

Correct Answer
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A negative externality arises when a person engages in an activity that has

Correct Answer
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Exam 10: Externalities

Buyers and sellers neglect the external effects of their actions when deciding how much to demand or supply.

Correct AnswerverifiedShow Answer

Table 10-4 -Refer to Table 10-4. The last unit of output for which private value exceeds social cost is the

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Figure 10-17 -Refer to Figure 10-17. How large would a corrective tax need to be to move this market from the equilibrium outcome to the socially-optimal outcome?

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

The supply curve for a product reflects the

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Private contracts between parties with mutual interests

Correct AnswerverifiedShow Answer

The impact of one person's actions on the well-being of a bystander is called

Correct AnswerverifiedShow Answer

The patent system gives firms greater incentive to engage in research and other activities that advance technology.

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. What is the appropriate label for the downward-sloping line on the graph?

Correct AnswerverifiedShow Answer

Which of the following statements is not correct?

Correct AnswerverifiedShow Answer

When an externality is present, the market equilibrium is

Correct AnswerverifiedShow Answer

When externalities cause markets to be inefficient,

Correct AnswerverifiedShow Answer

Suppose the government levies a corrective tax on firms that pollute in order to limit the quantity of pollution. Under this policy, does the demand curve for pollution rights determine the quantity of pollution, or does it determine the price of pollution?

Correct AnswerverifiedWith a corrective ta...View AnswerShow Answer

Which of the following is a problem that keeps people from privately solving externality problems?

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

Correct AnswerverifiedShow Answer

Figure 10-5 -Refer to Figure 10-5. Which of the following statements is correct?

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A negative externality arises when a person engages in an activity that has

Correct AnswerverifiedShow Answer

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With a corrective ta...
View Answer

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