Question 1

The Environmental Protection Agency (EPA)cannot reach a target level of pollution through the use of pollution permits.

Accepted Answer

A) True 
 B)False

Question 2

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

Question 3

Which of the following represents a way that a government can help the private market to internalize an externality?

Accepted Answer

A)   taxing goods that have negative externalities
B)   subsidizing goods that have positive externalities
C)   The government cannot improve upon the outcomes of private markets.
D)   Both a and b are correct.E) A) and D)
F) A) and C)

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

Figure 10-10
 
-Refer to Figure 10-10.An increase in output from 120 units to 160 units would

Accepted Answer

A)   move the market from a socially efficient outcome to a socially inefficient outcome.
B)   increase the external cost per unit of output.
C)   increase total economic well-being.
D)   be an action of which a benevolent social planner would approve.E) C) and D)
F) A) and B)

Question 6

Even if possible,it would be inefficient to prohibit all polluting activity.

Accepted Answer

A) True 
 B)False

Question 7

When a negative externality exists in a market,the cost to producers

Accepted Answer

A)   is greater than the cost to society.
B)   will be the same as the cost to society.
C)   will be less than the cost to society.
D)   will differ from the cost to society, regardless of whether an externality is present.E) B) and C)
F) A) and B)

Question 8

Figure 10-10
 
-Refer to Figure 10-10.The graph represents a market in which

Accepted Answer

A)   there is no externality.
B)   there is a positive externality.
C)   there is a negative externality.
D)   The answer cannot be determined from inspection of the graph.E) B) and C)
F) A) and C)

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,the external cost of antibiotic overuse is represented by

Accepted Answer

A)   Q3 - Q2.
B)   Q5 - Q4.
C)   P3a - P3b.
D)   P4a - P4b.E) B) and D)
F) A) and D)

Question 10

Dick owns a dog whose barking annoys Dick's neighbor Jane.Dick receives personal benefit from owning the dog,and Jane bears a cost of Dick's ownership of the dog.Assuming Jane has the legal right to peace and quiet,which of the following statements is correct?

Accepted Answer

A)   If Dick's benefit exceeds Jane's cost, government intervention is necessary.
B)   Dick will pay to keep his dog if his benefit exceeds Jane's cost.
C)   If Jane's cost exceeds Dick's benefit, Dick will pay Jane to keep his dog.
D)   If Jane has the legal right to peace and quiet, no further transactions will be mutually beneficial.E) B) and D)
F) A) and B)

Question 11

Patent protection is one way to deal with technology spillovers.

Accepted Answer

A) True 
 B)False

Question 12

Figure 10-11
 
-Refer to Figure 10-11.A benevolent social planner would prefer

Accepted Answer

A)   a $28 price to any other price.
B)   280 units to any other quantity of output.
C)   a subsidy of $18 per unit to a subsidy of $12 per unit.
D)   All of the above are correct.E) B) and C)
F) All of the above

Question 13

A corrective tax

Accepted Answer

A)   causes each factory to reduce pollution by the same amount.
B)   assigns a legal pollution limit for firms.
C)   places a price on the right to pollute.
D)   costs society more than pollution regulations.E) All of the above
F) A) and B)

Question 14

The Coase theorem asserts that,if externalities are present and if private parties can bargain over the allocation of resources at no cost,then

Accepted Answer

A)   the private market will reach an equilibrium in which resources are allocated inefficiently.
B)   the private market will reach an equilibrium in which resources are allocated efficiently.
C)   the private market cannot reach an equilibrium.
D)   a mixture of corrective taxes and subsidies is necessary for a socially optimal equilibrium.E) C) and D)
F) All of the above

Question 15

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 C)
F) B) and D)

Question 16

Figure 10-4
 
-Refer to Figure 10-4.This market

Accepted Answer

A)   has no need for government intervention.
B)   would benefit from a tax on the product.
C)   would benefit from a subsidy for the product.
D)   would maximize total well-being at Q3.E) None of the above
F) A) and D)

Question 17

Suppose that elementary education creates a positive externality.If the government subsidizes education by an amount equal to the per-unit externality it creates,then

Accepted Answer

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

Question 18

Figure 10-15
 
-Refer to Figure 10-15.Which graph illustrates a corrective tax?

Accepted Answer

A)   the left graph
B)   the right graph
C)   both graphs
D)   neither graphE) All of the above
F) None of the above

Question 19

Suppose that alcohol consumption creates a negative externality.What can the government do to equate the equilibrium quantity of alcohol and the socially optimal quantity of alcohol?

Accepted Answer

A)   impose a tax on alcohol that is equal to the per-unit externality
B)   offer a subsidy on alcohol that is equal to the per-unit externality
C)   impose a regulation limiting the amount of alcohol that each consumer can purchase
D)   nothingE) All of the above
F) A) and B)

Question 20

Figure 10-19
 
-Refer to Figure 10-19.Which of the following quantities decreases as the quantity of the good is increased?

Accepted Answer

A)   the private cost of the good
B)   the social cost of the good
C)   the private value of the good
D)   the external benefit of the goodE) A) and B)
F) A) and C)

Exam 10: Externalities.

Figure 10-11 -Refer to Figure 10-11.A benevolent social planner would prefer

Correct AnswerverifiedShow Answer

Figure 10-10 -Refer to Figure 10-10.An increase in output from 120 units to 160 units would

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Even if possible,it would be inefficient to prohibit all polluting activity.

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Patent protection is one way to deal with technology spillovers.

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Figure 10-4 -Refer to Figure 10-4.This market

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

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Which of the following represents a way that a government can help the private market to internalize an externality?

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When a negative externality exists in a market,the cost to producers

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The Environmental Protection Agency (EPA)cannot reach a target level of pollution through the use of pollution permits.

Correct AnswerverifiedShow Answer

The supply curve for a product reflects the

Correct AnswerverifiedShow Answer

Figure 10-10 -Refer to Figure 10-10.The graph represents a market in which

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Figure 10-15 -Refer to Figure 10-15.Which graph illustrates a corrective tax?

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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,the external cost of antibiotic overuse is represented by

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Suppose that elementary education creates a positive externality.If the government subsidizes education by an amount equal to the per-unit externality it creates,then

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Dick owns a dog whose barking annoys Dick's neighbor Jane.Dick receives personal benefit from owning the dog,and Jane bears a cost of Dick's ownership of the dog.Assuming Jane has the legal right to peace and quiet,which of the following statements is correct?

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Figure 10-19 -Refer to Figure 10-19.Which of the following quantities decreases as the quantity of the good is increased?

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The Coase theorem asserts that,if externalities are present and if private parties can bargain over the allocation of resources at no cost,then

Correct AnswerverifiedShow Answer

Suppose that alcohol consumption creates a negative externality.What can the government do to equate the equilibrium quantity of alcohol and the socially optimal quantity of alcohol?

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A corrective tax

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Research into new technologies

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