Question 1

Which of the following is not a necessary condition for the Coase theorem?

Accepted Answer

A)   Property rights are clearly defined.
B)   There are no bargaining costs.
C)   The government intervenes to internalize the externality.
D)   There are only a few parties involved.E) A) and B)
F) A) and C)

Question 2

Because there are positive externalities from higher education,

Accepted Answer

A)   private markets will under-supply college classes.
B)   private markets will over-supply college classes.
C)   the government should impose a tax on college students.
D)   government intervention cannot improve the market for college classes.E) A) and B)
F) C) and D)

Question 3

Suppose the market-equilibrium quantity of good x is 5,000 units and the socially-optimal quantity of good x is 4,000 units. Then

Accepted Answer

A)   the production of good x imposes external costs on society.
B)   the private value of good x exceeds the private cost of good x when 5,000 units are produced.
C)   the private cost of good x exceeds the private value of good x when 5,000 units are produced.
D)   the social cost of good x exceeds the private value of good x when 4,000 units are produced.E) C) and D)
F) B) and C)

Question 4

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

Question 5

The Environmental Protection Agency (EPA) requires that firms in a certain industry adopt a particular technology to reduce the emission of pollutants. Is this requirement a command- and-control policy or is it a market-based policy?

Accepted Answer

The requirement that...

Question 6

Assume that your roommate is very messy. Suppose she gets a $25 benefit from being messy but imposes a $50 cost on you. The Coase theorem would suggest that an efficient solution would be for you to

Accepted Answer

A)   pay your roommate at least $25 but no more than $50 to clean up after herself.
B)   pay your roommate at least $51 to clean up after herself.
C)   charge your roommate at least $25 to have you clean up after her.
D)   charge your roommate at least $50 but no more than $100 to keep you from complaining about the mess.E) A) and C)
F) All of the above

Question 7

The Coase theorem asserts that, in the presence of externalities,

Accepted Answer

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.E) A) and B)
F) C) and D)

Question 8

Figure 10-10 
-Refer to Figure 10-10. A decrease in output from 160 units to 120 units would

Accepted Answer

A)   move the market from a socially efficient outcome to a socially inefficient outcome.
B)   reduce the external cost per unit of output.
C)   increase total economic well-being.
D)   not be an action of which a benevolent social planner would approve.E) All of the above
F) A) and D)

Question 9

Figure 10-2. The graph depicts the market for plastic. 
-Refer to Figure 10-2. Suppose that the production of plastic creates a social cost which is depicted in the graph above. Without any government regulation, what price will the firm charge per unit of plastic?

Accepted Answer

A)   $4.00
B)   $6.00
C)   $7.00
D)   $10.00E) C) and D)
F) B) and C)

Question 10

Before the flu season begins, Jeremy gets a flu shot. As a result, Jeremy and several of his friends and relatives avoid the flu for the entire flu season. It would make sense to argue that

Accepted Answer

A)   flu shots provide a positive externality, and that flu shots should be subsidized.
B)   if flu shots are not subsidized, then the number of people getting flu shots will be smaller than the socially optimal number.
C)   the externality generated by flu shots is more like the externality generated by education than the externality generated by pollution.
D)   All of the above are correct.E) A) and B)
F) A) and D)

Question 11

Which of the following is not an advantage of corrective taxes?

Accepted Answer

A)   They raise revenues for the government.
B)   They enhance economic efficiency.
C)   They subsidize the production of goods with positive externalities.
D)   They move the allocation of resources closer to the social optimum.E) A) and B)
F) B) and C)

Question 12

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. Which of the following statements is correct?

Accepted Answer

A)   If the external benefit per unit of output were $0 instead of $2, then the socially efficient quantity of output would be 4 units.
B)   A tax of $4 per unit would enable this market to move from the equilibrium quantity of output to the socially optimal level of output.
C)   Taking the external cost into account, total surplus declines when the 3rd unit of output is produced and consumed.
D)   The market for flu shots is a market to which the concepts in this table apply very well.E) A) and B)
F) C) and D)

Question 13

According to the Coase theorem, in the presence of externalities

Accepted Answer

A)   private parties can bargain to reach an efficient outcome.
B)   government assistance is necessary to reach an efficient outcome.
C)   the assignment of legal rights can prevent externalities.
D)   the initial distribution of property rights will determine the efficient outcome.E) B) and C)
F) A) and B)

Question 14

With a corrective tax, the supply curve for pollution is

Accepted Answer

A)   vertical.
B)   horizontal.
C)   upward-sloping.
D)   downward-sloping.E) All of the above
F) None of the above

Question 15

Figure 10-9 
-Refer to Figure 10-9, Panel (b)  and Panel (c) . The installation of a scrubber in a smokestack reduces the emission of harmful chemicals from the smokestack. Therefore, the socially optimal quantity of smokestack scrubbers is represented by point

Accepted Answer

A)   Q2.
B)   Q3.
C)   Q4.
D)   Q5.E) A) and B)
F) A) and C)

Question 16

Which of the following statements is not correct?

Accepted Answer

A)   A patent is a way for the government to encourage the production of a good with technology spillovers.
B)   A tax is a way for the government to reduce the production of a good with a negative externality.
C)   A tax that accurately reflects social costs produces the socially optimal outcome.
D)   Government policies cannot improve upon private market outcomes.E) A) and B)
F) B) and D)

Question 17

In class action lawsuits interested parties to the lawsuit are not required to pay attorney fees directly. This is an example of an attempt to

Accepted Answer

A)   maximize attorney fees.
B)   reduce the incentive of attorneys to file class action lawsuits.
C)   reduce the transaction costs of finding a private solution to an externality.
D)   regulate attorney fees.E) A) and B)
F) B) and D)

Question 18

Social welfare can be enhanced by allowing firms to trade their rights to pollute.

Accepted Answer

A) True 
 B)False

Question 19

That some firms are engaged in more than one type of business is explained, in some cases, by

Accepted Answer

A)   moral injunctions such as the Golden Rule.
B)   the existence of charitable organizations.
C)   government regulations that discourage the internalization of externalities.
D)   the fact that the internalization of externalities sometimes coincides with the self-interest of the relevant parties.E) C) and D)
F) A) and B)

Question 20

In the case of a technology spillover, internalizing a positive externality will cause the supply curve of an industry to

Accepted Answer

A)   shift to the right.
B)   shift to the left.
C)   become more elastic.
D)   remain unchanged.E) A) and B)
F) B) and D)

Exam 10: Externalities

The Coase theorem asserts that, in the presence of externalities,

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Figure 10-10 -Refer to Figure 10-10. A decrease in output from 160 units to 120 units would

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According to the Coase theorem, in the presence of externalities

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Which of the following statements is not correct?

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Social welfare can be enhanced by allowing firms to trade their rights to pollute.

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Suppose the market-equilibrium quantity of good x is 5,000 units and the socially-optimal quantity of good x is 4,000 units. Then

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

Correct AnswerverifiedShow Answer

Figure 10-9 -Refer to Figure 10-9, Panel (b) and Panel (c) . The installation of a scrubber in a smokestack reduces the emission of harmful chemicals from the smokestack. Therefore, the socially optimal quantity of smokestack scrubbers is represented by point

Correct AnswerverifiedShow Answer

Assume that your roommate is very messy. Suppose she gets a $25 benefit from being messy but imposes a $50 cost on you. The Coase theorem would suggest that an efficient solution would be for you to

Correct AnswerverifiedShow Answer

Which of the following is not an advantage of corrective taxes?

Correct AnswerverifiedShow Answer

Before the flu season begins, Jeremy gets a flu shot. As a result, Jeremy and several of his friends and relatives avoid the flu for the entire flu season. It would make sense to argue that

Correct AnswerverifiedShow Answer

Which of the following is not a necessary condition for the Coase theorem?

Correct AnswerverifiedShow Answer

That some firms are engaged in more than one type of business is explained, in some cases, by

Correct AnswerverifiedShow Answer

The Environmental Protection Agency (EPA) requires that firms in a certain industry adopt a particular technology to reduce the emission of pollutants. Is this requirement a command- and-control policy or is it a market-based policy?

Correct AnswerverifiedThe requirement that...View AnswerShow Answer

With a corrective tax, the supply curve for pollution is

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. Which of the following statements is correct?

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Because there are positive externalities from higher education,

Correct AnswerverifiedShow Answer

In class action lawsuits interested parties to the lawsuit are not required to pay attorney fees directly. This is an example of an attempt to

Correct AnswerverifiedShow Answer

Figure 10-2. The graph depicts the market for plastic. -Refer to Figure 10-2. Suppose that the production of plastic creates a social cost which is depicted in the graph above. Without any government regulation, what price will the firm charge per unit of plastic?

Correct AnswerverifiedShow Answer

In the case of a technology spillover, internalizing a positive externality will cause the supply curve of an industry to

Correct AnswerverifiedShow Answer

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The requirement that...
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