A) To induce firms to internalize the externality in this market, the government should impose a tax measured by P2 - P0.
B) To induce firms to internalize the externality in this market, the government should offer a subsidy measured by P2 - P0.
C) To induce firms to internalize the externality in this market, the government should impose a tax measured by P2 - P1.
D) There is no externality in this market.
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A) Phil offers Thurman $499 to allow Phil to continue drumming. Thurman accepts and both are better off.
B) Phil offers Thurman $249 to allow Phil to continue drumming. Thurman accepts and both are better off.
C) Thurman offers Phil $251 to stop practicing his drumming. Phil agrees and both are better off.
D) Thurman offers Phil $501 to stop practicing his drumming. Phil agrees and both are better off.
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A) the equilibrium quantity of cigarettes smoked will equal the socially optimal quantity of cigarettes smoked.
B) the equilibrium quantity of cigarettes smoked will be greater than the socially optimal quantity of cigarettes smoked.
C) the equilibrium quantity of cigarettes smoked will be less than the socially optimal quantity of cigarettes smoked.
D) There is not enough information to answer the question.
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A) the market for good x is characterized by an externality, but we cannot determine whether the externality is positive or negative from this fact alone.
B) the market for good x is characterized by a positive externality.
C) the market for good x is characterized by a negative externality.
D) the demand curve for good x fails to reflect the value to society of that good.
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A) The private value of the 420th unit of output is $15.
B) The social value of the 420th unit of output is $42.
C) The external benefit of the 420th unit of output is $27.
D) All of the above are correct.
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A) the externalities that are present are positive, not negative.
B) government assigns property rights to the harmed party.
C) private parties can bargain with sufficiently low transaction costs.
D) businesses determine an appropriate level of production.
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A) Corrective taxes are often preferred over direct regulation because they typically reduce externalities at a lower cost.
B) Corrective taxes distort economic incentives.
C) Corrective taxes are often preferred over direct regulation because they typically reduce externalities at a faster rate.
D) Both a and b are correct.
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A) Smelter, Inc. creates steel and pollution.
B) Your friend buys a new puppy that barks every night.
C) You have an adverse reaction to a medication your doctor prescribed for you.
D) Your neighbor plays loud music that you dislike through stereo speakers set up on his deck.
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A) a corrective tax, but not by regulation.
B) regulation, but not by a corrective tax.
C) either regulation or a corrective tax.
D) neither regulation nor a corrective tax.
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A) Q3 - Q2.
B) Q5 - Q4.
C) P3a - P3b.
D) P4a - P4b.
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A) $29.
B) $35.
C) $40.
D) $46.
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A) fire extinguishers.
B) immunizations such as flu shots.
C) education.
D) All of the above are correct.
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A) encourage the production of computer chips with subsidies.
B) discourage the production of potato chips with taxes.
C) encourage the production of potato chips with subsidies.
D) discourage the production of computer chips with taxes.
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A) The private cost of producing the 120th unit of output is $12.
B) The social cost of producing the 120th unit of output is $22.
C) The external cost of producing the 120th unit of output is $2.
D) All of the above are correct.
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A) private economic actors sometimes can reach a bargain that produces an efficient outcome.
B) private economic actors always can reach a bargain that makes everyone better off.
C) private solutions cannot be very effective.
D) corrective taxes cannot be very effective.
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A) Both policies internalize the externality of pollution.
B) Both policies require firms to pay for their pollution.
C) Both policies lead to the establishment of an equilibrium price of pollution.
D) All of the above are correct.
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A) 25
B) 50
C) 75
D) 100
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