Question 1

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

Question 2

The concept of external benefit is associated with a negative externality, but not with a positive externality.

Accepted Answer

A) True 
 B)False

Question 3

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

Accepted Answer

The restoration of h...

Question 4

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 are the socially optimal quantity and price?

Accepted Answer

The socially optimal...

Question 5

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

Question 6

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. What could the federal government do to equate the equilibrium quantity of university research and the socially optimal quantity of university research produced?

Accepted Answer

A)   tax university researchers
B)   offer grants to university researchers
C)   eliminate subsidized student loans
D)   nothingE) None of the above
F) A) and B)

Question 7

A cost imposed on someone who is neither the consumer nor the producer is called a

Accepted Answer

A)   corrective tax.
B)   command and control policy.
C)   positive externality.
D)   negative externality.E) A) and D)
F) None of the above

Question 8

Suppose that an MBA degree creates no externality because the benefits of an MBA are internalized by the student in the form of higher wages. If the government offers subsidies for MBAs, then which of the following statements is correct?

Accepted Answer

A)   The equilibrium quantity of MBAs will equal the socially optimal quantity of MBAs.
B)   The equilibrium quantity of MBAs will be greater than the socially optimal quantity of MBAs.
C)   The equilibrium quantity of MBAs will be less than the socially optimal quantity of MBAs.
D)   There is not enough information to answer the question.E) All of the above
F) A) and B)

Question 9

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) A) and B)
F) A) and C)

Question 10

A positive externality

Accepted Answer

A)   causes the product to be overproduced.
B)   provides an additional benefit to market participants.
C)   benefits consumers because it results in a lower equilibrium price.
D)   is a benefit to a market bystander.E) A) and B)
F) A) and C)

Question 11

Most taxes distort incentives and move the allocation of resources away from the social optimum. Why do corrective taxes avoid the disadvantages of most other taxes?

Accepted Answer

A)   Corrective taxes apply only to goods that are bad for people's health, such as cigarettes and alcohol.
B)   Because corrective taxes correct for market externalities, they take into consideration the well-being of bystanders.
C)   Corrective taxes provide incentives for the conservation of natural resources.
D)   Corrective taxes do not affect deadweight loss.E) None of the above
F) All of the above

Question 12

Which of the following is not an effective method of reducing negative externalities?

Accepted Answer

A)   relying on voluntary compliance
B)   taxing the output of industries that pollute
C)   creating legal environmental standards
D)   increasing public spending on cleanup and reduction of pollutionE) None of the above
F) A) and B)

Question 13

An externality is the impact of

Accepted Answer

A)   society's decisions on the well-being of society.
B)   a person's actions on that person's well-being.
C)   one person's actions on the well-being of a bystander.
D)   society's decisions on the poorest person in the society.E) A) and B)
F) A) and C)

Question 14

Table 10-1
The following table shows the private value, private cost, and external cost for various quantities of output in a market. 
-Refer to Table 10-1. 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)   $2
B)   $3
C)   $9
D)   $10E) All of the above
F) B) and C)

Question 15

Which of the following require firms to pay to pollute?

Accepted Answer

A)   (i)  only
B)   both (i)  and (ii) 
C)   (iii)  only
D)   both (ii)  and (iii) E) B) and C)
F) A) and D)

Question 16

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

Question 17

To determine the optimal level of output in a market with negative externalities, a benevolent social planner would look for the level of output at which private cost equals private value.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following problems can not be alleviated by a gasoline tax?

Accepted Answer

A)   traffic congestion
B)   traffic accidents
C)   the undersupply of goods that produce positive externalities
D)   air pollutionE) A) and B)
F) All of the above

Question 19

If an aluminum manufacturer does not bear the entire cost of the smoke it emits, it will

Accepted Answer

A)   emit a lower level of smoke than is socially efficient.
B)   emit a higher level of smoke than is socially efficient.
C)   emit an acceptable level of smoke.
D)   not emit any smoke in an attempt to avoid paying the entire cost.E) B) and C)
F) A) and B)

Question 20

Many charities like the Sierra Club are established to deal with externalities.

Accepted Answer

A) True 
 B)False

Exam 10: Externalities

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

Correct Answer
verified

Which of the following is not an effective method of reducing negative externalities?

Correct Answer
verified

Which of the following problems can not be alleviated by a gasoline tax?

Correct Answer
verified

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

Correct Answer
verified
The restoration of h...
View Answer

Suppose that an MBA degree creates no externality because the benefits of an MBA are internalized by the student in the form of higher wages. If the government offers subsidies for MBAs, then which of the following statements is correct?

Correct Answer
verified

An externality is the impact of

Correct Answer
verified

The concept of external benefit is associated with a negative externality, but not with a positive externality.

Correct Answer
verified

Most taxes distort incentives and move the allocation of resources away from the social optimum. Why do corrective taxes avoid the disadvantages of most other taxes?

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

Correct Answer
verified

If an aluminum manufacturer does not bear the entire cost of the smoke it emits, it will

Correct Answer
verified

To determine the optimal level of output in a market with negative externalities, a benevolent social planner would look for the level of output at which private cost equals private value.

Correct Answer
verified

Which of the following require firms to pay to pollute?

Correct Answer
verified

Correct Answer
verified
The socially optimal...
View Answer

Many charities like the Sierra Club are established to deal with externalities.

Correct Answer
verified

A cost imposed on someone who is neither the consumer nor the producer is called a

Correct Answer
verified

Correct Answer
verified

Table 10-1 The following table shows the private value, private cost, and external cost for various quantities of output in a market. -Refer to Table 10-1. How large would a corrective tax need to be to move this market from the equilibrium outcome to the socially-optimal outcome?

Correct Answer
verified

A positive externality

Correct Answer
verified

Private contracts between parties with mutual interests

Correct Answer
verified

When externalities exist, buyers and sellers

Correct Answer
verified

Exam 10: Externalities

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

Correct AnswerverifiedShow Answer

Which of the following is not an effective method of reducing negative externalities?

Correct AnswerverifiedShow Answer

Which of the following problems can not be alleviated by a gasoline tax?

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

Suppose that an MBA degree creates no externality because the benefits of an MBA are internalized by the student in the form of higher wages. If the government offers subsidies for MBAs, then which of the following statements is correct?

Correct AnswerverifiedShow Answer

An externality is the impact of

Correct AnswerverifiedShow Answer

The concept of external benefit is associated with a negative externality, but not with a positive externality.

Correct AnswerverifiedShow Answer

Most taxes distort incentives and move the allocation of resources away from the social optimum. Why do corrective taxes avoid the disadvantages of most other taxes?

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

If an aluminum manufacturer does not bear the entire cost of the smoke it emits, it will

Correct AnswerverifiedShow Answer

To determine the optimal level of output in a market with negative externalities, a benevolent social planner would look for the level of output at which private cost equals private value.

Correct AnswerverifiedShow Answer

Which of the following require firms to pay to pollute?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedThe socially optimal...View AnswerShow Answer

Many charities like the Sierra Club are established to deal with externalities.

Correct AnswerverifiedShow Answer

A cost imposed on someone who is neither the consumer nor the producer is called a

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Table 10-1 The following table shows the private value, private cost, and external cost for various quantities of output in a market. -Refer to Table 10-1. 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

A positive externality

Correct AnswerverifiedShow Answer

Private contracts between parties with mutual interests

Correct AnswerverifiedShow Answer

When externalities exist, buyers and sellers

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The restoration of h...
View 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

Correct Answer
verified
The socially optimal...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified