Question 1

When correcting for an externality, command-and-control policies are always preferable to market-based policies.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following is true of markets characterized by positive externalities?

Accepted Answer

A)   Social value exceeds private value, and market quantity exceeds the socially optimal quantity.
B)   Social value is less than private value, and market quantity exceeds the socially optimal quantity.
C)   Social value exceeds private value, and market quantity is less than the socially optimal quantity.
D)   Social value seldom exceeds private value; therefore, social quantity is less than private quantity.E) A) and C)
F) C) and D)

Question 3

Suppose that a firm produces electricity by burning coal. The production process creates a negative externality of air pollution. If the firm does not internalize the cost of the externality, it will produce where

Accepted Answer

A)   the value of electricity to consumers equals the private cost of producing electricity.
B)   the value of electricity to consumers equals the social cost of producing electricity.
C)   the cost of the externality is maximized.
D)   the transaction costs of private bargaining are minimized.E) None of the above
F) A) and B)

Question 4

Suppose planting flowering shrubs creates a positive externality equal to $7 per shrub. Further suppose that the local government offers a $7 per-shrub subsidy to planters. The number of shrubs that are planted is then

Accepted Answer

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

Question 5

Does the restoration of historic buildings create a positive externality or does it create a negative externality?

Accepted Answer

The restoration of h...

Question 6

Flu shots provide a positive externality. Suppose that the market for vaccinations is perfectly competitive. Without government intervention in the vaccination market, which of the following statements is correct?

Accepted Answer

A)   At the current output level, the marginal social benefit exceeds the marginal private benefit.
B)   The current output level is inefficiently low.
C)   A per-shot subsidy could turn an inefficient situation into an efficient one.
D)   All of the above are correct.E) B) and C)
F) A) and C)

Question 7

Alexander lives in an apartment building and gets a $250 benefit from playing his stereo. Mary, who lives next door to Alexander and often loses sleep due to the loud music coming from Alexander's stereo, bears a $350 cost from the noise. Mary would like to offer Alexander some money to turn down the volume on his stereo. If Mary had to hire a lawyer to draw up the contract, what is the maximum amount she could pay to the lawyer to ensure that both Alexander and Mary would benefit from the agreement?

Accepted Answer

A)   an amount less than $100
B)   an amount between $100 and $250
C)   an amount between $250 and $350
D)   Any amount could result in both parties benefiting from the agreement.E) A) and C)
F) A) and B)

Question 8

Scenario 10-2
The demand curve for restored historic buildings slopes downward and the supply curve for restored historic buildings slopes upward. The production of the 50th restored historic building entails the following:
• a private cost of $800,000;
• a private value of $650,000;
• a social value of $800,000.
-Refer to Scenario 10-2. Is the socially optimal quantity of restored historic buildings less than, equal to, or greater than 50?

Accepted Answer

The socially optimal...

Question 9

Scenario 10-4
The demand curve for fire extinguishers slopes downward and the supply curve for fire extinguishers slopes upward. The production of the 500th 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 500th fire extinguishe...

Question 10

Which of the following statements is correct about a market in which pollution is emitted?

Accepted Answer

A)   Both corrective taxes and pollution permits move the market toward the social optimum.
B)   Corrective taxes move the market toward the social optimum, but pollution permits do not move the market toward the social optimum.
C)   Pollution permits move the market toward the social optimum, but corrective taxes do not move the market toward the social optimum.
D)   Neither corrective taxes nor pollution permits move the market toward the social optimum.E) B) and C)
F) C) and D)

Question 11

When externalities exist, buyers and sellers

Accepted Answer

A)   neglect the external effects of their actions, but the market equilibrium is still efficient.
B)   do not neglect the external effects of their actions, and the market equilibrium is efficient.
C)   neglect the external effects of their actions, and the market equilibrium is not efficient.
D)   do not neglect the external effects of their actions, and the market equilibrium is not efficient.E) A) and B)
F) A) and C)

Question 12

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

Accepted Answer

A)   The private cost of producing the 160th unit of output is $16.
B)   The social cost of producing the 160th unit of output is $22.
C)   The external cost of producing the 160th unit of output is $6.
D)   All of the above are correct.E) All of the above
F) B) and D)

Question 13

Figure 10-13. On the graph, Q represents the quantity of plastics and P represents the price of plastics.  Multiple Choice - Section 02: Public Policies toward Externalities
-Refer to Figure 10-13. If 250 units of plastics are produced and consumed, then the

Accepted Answer

A)   social optimum has been reached.
B)   market equilibrium has been reached.
C)   negative externality associated with plastics has been eliminated.
D)   positive externality associated with plastics has been eliminated.E) All of the above
F) B) and D)

Question 14

Tradable pollution permits

Accepted Answer

A)   are widely viewed as a cost-effective way to reduce pollution.
B)   have helped reduce carbon emissions.
C)   have helped reduce sulfur dioxide emissions.
D)   All of the above are correct.E) C) and D)
F) None of the above

Question 15

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) A) and B)
F) A) and D)

Question 16

Figure 10-6 
-Refer to Figure 10-6. Which price represents the equilibrium price of the product in this market?

Accepted Answer

A)   P
B)   P'
C)   Either P or P'. It is necessary to know whether the externality is positive or negative to determine which of these is the equilibrium price.
D)   Some price between P and P'. The equilibrium price depends on the negotiating skills of the interested parties.E) A) and C)
F) A) and B)

Question 17

Figure 10-12 
-Refer to Figure 10-12. Which of the following is an appropriate label for Line 2?

Accepted Answer

A)   social cost
B)   social value
C)   private cost
D)   private valueE) A) and B)
F) A) and C)

Question 18

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 B)
F) B) and C)

Question 19

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 20

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) C) and D)
F) None of the above

Exam 10: Externalities

Figure 10-13. On the graph, Q represents the quantity of plastics and P represents the price of plastics. Multiple Choice - Section 02: Public Policies toward Externalities -Refer to Figure 10-13. If 250 units of plastics are produced and consumed, then the

Correct Answer
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Correct Answer
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The socially optimal...
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Figure 10-12 -Refer to Figure 10-12. Which of the following is an appropriate label for Line 2?

Correct Answer
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Suppose that a firm produces electricity by burning coal. The production process creates a negative externality of air pollution. If the firm does not internalize the cost of the externality, it will produce where

Correct Answer
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Figure 10-6 -Refer to Figure 10-6. Which price represents the equilibrium price of the product in this market?

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

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 statements is correct about a market in which pollution is emitted?

Correct Answer
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Correct Answer
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Correct Answer
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For the 500th fire extinguishe...
View Answer

Tradable pollution permits

Correct Answer
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When externalities exist, buyers and sellers

Correct Answer
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When correcting for an externality, command-and-control policies are always preferable to market-based policies.

Correct Answer
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Flu shots provide a positive externality. Suppose that the market for vaccinations is perfectly competitive. Without government intervention in the vaccination market, which of the following statements is correct?

Correct Answer
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Which of the following is true of markets characterized by positive externalities?

Correct Answer
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Does the restoration of historic buildings create a positive externality or does it create a negative externality?

Correct Answer
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The restoration of h...
View Answer

Figure 10-3 -Refer to Figure 10-3. The social cost curve is above the supply curve because

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

Correct Answer
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Suppose planting flowering shrubs creates a positive externality equal to $7 per shrub. Further suppose that the local government offers a $7 per-shrub subsidy to planters. The number of shrubs that are planted is then

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

Correct Answer
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Exam 10: Externalities

Figure 10-13. On the graph, Q represents the quantity of plastics and P represents the price of plastics. Multiple Choice - Section 02: Public Policies toward Externalities -Refer to Figure 10-13. If 250 units of plastics are produced and consumed, then the

Correct AnswerverifiedShow Answer

Correct AnswerverifiedThe socially optimal...View AnswerShow Answer

Figure 10-12 -Refer to Figure 10-12. Which of the following is an appropriate label for Line 2?

Correct AnswerverifiedShow Answer

Suppose that a firm produces electricity by burning coal. The production process creates a negative externality of air pollution. If the firm does not internalize the cost of the externality, it will produce where

Correct AnswerverifiedShow Answer

Figure 10-6 -Refer to Figure 10-6. Which price represents the equilibrium price of the product in this market?

Correct AnswerverifiedShow Answer

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

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 statements is correct about a market in which pollution is emitted?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedFor the 500th fire extinguishe...View AnswerShow Answer

Tradable pollution permits

Correct AnswerverifiedShow Answer

When externalities exist, buyers and sellers

Correct AnswerverifiedShow Answer

When correcting for an externality, command-and-control policies are always preferable to market-based policies.

Correct AnswerverifiedShow Answer

Flu shots provide a positive externality. Suppose that the market for vaccinations is perfectly competitive. Without government intervention in the vaccination market, which of the following statements is correct?

Correct AnswerverifiedShow Answer

Which of the following is true of markets characterized by positive externalities?

Correct AnswerverifiedShow Answer

Does the restoration of historic buildings create a positive externality or does it create a negative externality?

Correct AnswerverifiedThe restoration of h...View AnswerShow Answer

Figure 10-3 -Refer to Figure 10-3. The social cost curve is above the supply curve because

Correct AnswerverifiedShow Answer

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

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Suppose planting flowering shrubs creates a positive externality equal to $7 per shrub. Further suppose that the local government offers a $7 per-shrub subsidy to planters. The number of shrubs that are planted is then

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

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The socially optimal...
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With a corrective ta...
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Correct Answer
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Correct Answer
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For the 500th fire extinguishe...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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The restoration of h...
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