Question 1

When the government intervenes in markets with externalities, it does so in order to

Accepted Answer

A)   increase production when negative externalities are present.
B)   protect the interests of bystanders.
C)   make certain all benefits are received by market participants.
D)   reduce production when positive externalities are present.E) A) and B)
F) B) and C)

Question 2

In some circumstances, selling pollution permits may be better than levying a corrective tax.

Accepted Answer

A) True 
 B)False

Question 3

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

Question 4

Using a supply and demand diagram, demonstrate how a positive externality leads to market inefficiency. How might the government help to eliminate this inefficiency?

Accepted Answer

<img  loading="lazy" src="/assets/images/blured-textbook.svg" class="d-inline m-1" alt="blured image" width="139" height="30"> When a positive externality exists, the...

Question 5

Figure 10-15 
-Refer to Figure 10-15. The supply of pollution permits is

Accepted Answer

A)   elastic and represented by line A.
B)   inelastic and represented by line A.
C)   elastic and represented by line F
D)   inelastic and represented by line F.E) B) and D)
F) B) and C)

Question 6

In some situations, private economic actors cannot solve the problem of externalities among themselves because of substantial costs.

Accepted Answer

The answer of In some situations, private economic actors cannot...

Question 7

A corrective tax is also known as:

Accepted Answer

A)   a command-and-control regulation.
B)   a Coase tax.
C)   a Pigovian tax.
D)   a Smithian tax.E) A) and C)
F) All of the above

Question 8

An externality arises when a person engages in an activity that influences the well-being of

Accepted Answer

A)   buyers in the market for that activity and yet neither pays nor receives any compensation for that effect.
B)   sellers in the market for that activity and yet neither pays nor receives any compensation for that effect.
C)   bystanders in the market for that activity and yet neither pays nor receives any compensation for that effect.
D)   Both a)  and b)  are correct.E) A) and B)
F) B) and D)

Question 9

Suppose that Company A's railroad cars pass through Farmer B's corn fields. The railroad causes an externality to the farmer because the railroad cars emit sparks that cause $1,500 in damage to the farmer's crops. There is a special soy-based grease that the railroad could purchase that would eliminate the damaging sparks. The grease costs $1,200. Suppose that the farmer has the right to compensation for any damage that his crops suffer. Assume that there are no transaction costs. Which of the following characterizes the efficient outcome?

Accepted Answer

A)   The railroad will continue to operate but will pay the farmer $1,500 in damages.
B)   The railroad will purchase the grease for $1,200 and pay the farmer nothing because no crop damage will occur.
C)   The farmer will incur $1,500 in damages to his crops.
D)   The farmer will pay the railroad $1,200 to purchase the grease so that no crop damage will occur.E) B) and D)
F) A) and D)

Question 10

When we identify public policies toward externalities, we contrast command-and-control policies with what other type of policies?

Accepted Answer

The other type of po...

Question 11

Table 10-2
The following table shows the private value, private cost, and social value for a market with a positive externality.
 
-Refer to Table 10-2. What is the socially-optimal level of output in this market?

Accepted Answer

A)   3 units
B)   4 units
C)   5 units
D)   6 unitsE) B) and D)
F) None of the above

Question 12

An example of a private solution to externalities is charities. The government encourages this private solution by allowing .

Accepted Answer

tax deduct...

Question 13

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

Question 14

Karen's cat causes Danny to sneeze. Karen values her cat's companionship at $300 per year. The cost to Danny of tissues and her allergy medication is $350 per year. Based on the Coase theorem,

Accepted Answer

A)   Karen should pay Danny $400 so that she may keep her cat.
B)   Karen should pay Danny $350 for tissues and allergy medication.
C)   Danny should pay Karen $325 to give away her cat.
D)   Danny should move.E) A) and B)
F) B) and C)

Question 15

According to the Coase theorem, whatever the initial distribution of rights, the interested parties can bargain to an efficient outcome.

Accepted Answer

A) True 
 B)False

Question 16

Figure 10-16 
-Refer to Figure 10-16. This graph shows the market for pollution when permits are issued to firms and traded in the marketplace. In the absence of a pollution permit system, the quantity of pollution would be

Accepted Answer

A)   25
B)   50
C)   75
D)   100E) B) and C)
F) All of the above

Question 17

Figure 10-4 
-Refer to Figure 10-4. If this market is currently producing at Q2, then total economic well-being would increase if output

Accepted Answer

A)   increased beyond Q4.
B)   decreased to Q1.
C)   increased to Q3.
D)   stayed at Q2.E) A) and C)
F) C) and D)

Question 18

Figure 10-9
 
-Refer to Figure 10-9, Panel c) . The market equilibrium price is

Accepted Answer

A)   P4a.
B)   P4b.
C)   P5.
D)   P4a - P4b.E) All of the above
F) B) and D)

Question 19

A corrective tax

Accepted Answer

A)   can be used to internalize a negative externality.
B)   imposed on sellers shifts the supply curve to the left.
C)   imposed on buyers shifts the demand curve to the left.
D)   All of the above are correct.E) C) and D)
F) A) and D)

Question 20

A dentist shares an office building with a radio station. The electrical current from the dentist's drill causes static in the radio broadcast, causing the radio station to lose $10,000 in profits. The radio station could put up a shield at a cost of $30,000; the dentist could buy a new drill that causes less interference for $6,000. Either would restore the radio station's lost profits. What is the economically efficient outcome?

Accepted Answer

A)   The radio station puts up a shield, which it pays for.
B)   The radio station puts up a shield, which the dentist pays for.
C)   Neither the radio station nor the dentist purchase additional equipment.
D)   The dentist gets a new drill; it does not matter who pays for it.E) A) and B)
F) None of the above

Exam 10: Externalities

Figure 10-4 -Refer to Figure 10-4. If this market is currently producing at Q2, then total economic well-being would increase if output

Correct Answer
verified

In some circumstances, selling pollution permits may be better than levying a corrective tax.

Correct Answer
verified

A corrective tax

Correct Answer
verified

When we identify public policies toward externalities, we contrast command-and-control policies with what other type of policies?

Correct Answer
verified
The other type of po...
View Answer

According to the Coase theorem, whatever the initial distribution of rights, the interested parties can bargain to an efficient outcome.

Correct Answer
verified

An example of a private solution to externalities is charities. The government encourages this private solution by allowing .

Correct Answer
verified
tax deduct...
View Answer

When an externality is present, the market equilibrium is

Correct Answer
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Figure 10-9 -Refer to Figure 10-9, Panel c) . The market equilibrium price is

Correct Answer
verified

Figure 10-16 -Refer to Figure 10-16. This graph shows the market for pollution when permits are issued to firms and traded in the marketplace. In the absence of a pollution permit system, the quantity of pollution would be

Correct Answer
verified

A corrective tax is also known as:

Correct Answer
verified

Correct Answer
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Using a supply and demand diagram, demonstrate how a positive externality leads to market inefficiency. How might the government help to eliminate this inefficiency?

Correct Answer
verified
When a positive externality exists, the...
View Answer

Table 10-2 The following table shows the private value, private cost, and social value for a market with a positive externality. -Refer to Table 10-2. What is the socially-optimal level of output in this market?

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

Correct Answer
verified

When the government intervenes in markets with externalities, it does so in order to

Correct Answer
verified

Karen's cat causes Danny to sneeze. Karen values her cat's companionship at $300 per year. The cost to Danny of tissues and her allergy medication is $350 per year. Based on the Coase theorem,

Correct Answer
verified

Figure 10-15 -Refer to Figure 10-15. The supply of pollution permits is

Correct Answer
verified

In some situations, private economic actors cannot solve the problem of externalities among themselves because of substantial costs.

Correct Answer
verified

Correct Answer
verified

An externality arises when a person engages in an activity that influences the well-being of

Correct Answer
verified

Exam 10: Externalities

Figure 10-4 -Refer to Figure 10-4. If this market is currently producing at Q2, then total economic well-being would increase if output

Correct AnswerverifiedShow Answer

In some circumstances, selling pollution permits may be better than levying a corrective tax.

Correct AnswerverifiedShow Answer

A corrective tax

Correct AnswerverifiedShow Answer

When we identify public policies toward externalities, we contrast command-and-control policies with what other type of policies?

Correct AnswerverifiedThe other type of po...View AnswerShow Answer

According to the Coase theorem, whatever the initial distribution of rights, the interested parties can bargain to an efficient outcome.

Correct AnswerverifiedShow Answer

An example of a private solution to externalities is charities. The government encourages this private solution by allowing .

Correct Answerverifiedtax deduct...View AnswerShow Answer

When an externality is present, the market equilibrium is

Correct AnswerverifiedShow Answer

Figure 10-9 -Refer to Figure 10-9, Panel c) . The market equilibrium price is

Correct AnswerverifiedShow Answer

Figure 10-16 -Refer to Figure 10-16. This graph shows the market for pollution when permits are issued to firms and traded in the marketplace. In the absence of a pollution permit system, the quantity of pollution would be

Correct AnswerverifiedShow Answer

A corrective tax is also known as:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Using a supply and demand diagram, demonstrate how a positive externality leads to market inefficiency. How might the government help to eliminate this inefficiency?

Correct Answerverified When a positive externality exists, the...View AnswerShow Answer

Table 10-2 The following table shows the private value, private cost, and social value for a market with a positive externality. -Refer to Table 10-2. What is the socially-optimal level of output in this market?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When the government intervenes in markets with externalities, it does so in order to

Correct AnswerverifiedShow Answer

Karen's cat causes Danny to sneeze. Karen values her cat's companionship at $300 per year. The cost to Danny of tissues and her allergy medication is $350 per year. Based on the Coase theorem,

Correct AnswerverifiedShow Answer

Figure 10-15 -Refer to Figure 10-15. The supply of pollution permits is

Correct AnswerverifiedShow Answer

In some situations, private economic actors cannot solve the problem of externalities among themselves because of substantial costs.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

An externality arises when a person engages in an activity that influences the well-being of

Correct AnswerverifiedShow Answer

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The other type of po...
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tax deduct...
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When a positive externality exists, the...
View Answer

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