Question 1

Figure 10-2
 
-Refer to Figure 10-2.Suppose that the production of soccer balls creates a social cost which is depicted in the graph above.Without any government regulation,how many soccer balls will be produced?

Accepted Answer

A)  3
B)  10
C)  25
D)  50E) A) and C)
F) A) and B)

Question 2

Since restored historic buildings convey a positive externality,local governments may choose to

Accepted Answer

A)  regulation the demolition of them.
B)  provide tax breaks to owners who restore them.
C)  increase property taxes in historic areas.
D)  Both a and b are correct.E) C) and D)
F) B) and D)

Question 3

Suppose that flower gardens create a positive externality equal to $1 per plant.Further suppose that the local government offers a $1 per-plant subsidy to growers.What is the relationship between the equilibrium quantity and the socially optimal quantity of plants grown?

Accepted Answer

A)  The equilibrium quantity is less than the socially optimal quantity.
B)  The equilibrium quantity is greater than the socially optimal quantity.
C)  They are equal.
D)  There is not enough information to answer the question.E) A) and C)
F) A) and B)

Question 4

When the government chooses a policy that aligns private incentives with social efficiency to solve an externality problem,it

Accepted Answer

A)  provides incentives to private decisionmakers to induce them to solve the externality problem on their own.
B)  typically uses command-and-control techniques.
C)  uses taxes more often than subsidies.
D)  uses subsidies more often than taxes.E) A) and B)
F) C) and D)

Question 5

Assume that your roommate is very messy.Suppose she gets a $100 benefit from being messy but imposes a $200 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 $100 but no more than $200 to clean up after herself.
B)  pay your roommate at least $201 to clean up after herself.
C)  charge your roommate at least $100 to have you clean up after her.
D)  charge your roommate at least $200 but no more than $300 to keep you from complaining about the mess.E) A) and B)
F) A) and C)

Question 6

When a beekeeper places his hives of bees in an orchard so that the bees can gather nectar to produce honey,the bees pollinate the orchard,which increases the yield of fruit.This benefits

Accepted Answer

A)  only the beekeeper.
B)  the beekeeper, but it creates a negative externality because the bees are a hazard to the orchard owner.
C)  only the owner of the orchard.
D)  both the beekeeper and the orchard owner.E) A) and B)
F) A) and C)

Question 7

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 8

In many cases the Coase theorem does not work well because

Accepted Answer

A)  there are too few parties at the negotiation table.
B)  the government does not know about the Coase theorem.
C)  transaction costs are too high.
D)  transaction costs are too low.E) A) and C)
F) A) and D)

Question 9

Which of the following require firms to pay to pollute? (i) 	corrective taxes
(ii) 	tradable pollution permits
(iii) 	pollution regulations

Accepted Answer

A)  (i)  only
B)  both (i)  and (ii) 
C)  (iii)  only
D)  both (ii)  and (iii) E) A) and B)
F) None of the above

Question 10

Suppose that electricity producers create a negative externality equal to $5 per unit.Further suppose that the government gives a $5 per-unit subsidy to producers.What is the relationship between the equilibrium quantity and the socially optimal quantity of electricity to be produced?

Accepted Answer

A)  They are equal.
B)  The equilibrium quantity is greater than the socially optimal quantity.
C)  The equilibrium quantity is less than the socially optimal quantity.
D)  There is not enough information to answer the question.E) None of the above
F) B) and C)

Question 11

Suppose that smoking creates a negative externality.If the government does not interfere in the cigarette market,then

Accepted Answer

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

Question 12

This figure reflects the market for outdoor concerts in a public park surrounded by residential neighborhoods.
Figure 10-3
 
-Refer to Figure 10-3.At the private market outcome,the equilibrium price will be

Accepted Answer

A)  P₀.
B)  P₁.
C)  P₂.
D)  None of the above is correct.E) A) and B)
F) A) and D)

Question 13

An externality

Accepted Answer

A)  is a type of market failure.
B)  causes markets to allocate resources efficiently.
C)  strengthens the role of the "invisible hand" in the marketplace.
D)  affects producers but not consumers.E) None of the above
F) A) and C)

Question 14

Figure 10-4
 
-Refer to Figure 10-4.The socially optimal quantity would be

Accepted Answer

A)  Q₁.
B)  Q₂.
C)  Q₃.
D)  Q₄.E) A) and B)
F) A) and C)

Question 15

Barking dogs cannot be considered an externality because externalities must be associated with some form of market exchange.

Accepted Answer

A) True 
 B)False

Question 16

Suppose that smoking creates a negative externality.If the government imposes a per-cigarette tax equal to the per-cigarette externality,then

Accepted Answer

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

Question 17

Figure 10-4
 
-Refer to Figure 10-4.If this market currently produces Q₃,total economic well-being would be increased if

Accepted Answer

A)  production decreased to Q₂.
B)  production increased to Q₄.
C)  this product were no longer produced.
D)  output stayed at Q₃.E) A) and B)
F) All of the above

Question 18

Which of the following is an example of a positive externality?

Accepted Answer

A)  A college student buys a new car when she graduates.
B)  The mayor of a small town plants flowers in the city park.
C)  Local high school teachers have pizza delivered every Friday for lunch.
D)  An avid fisherman buys new fishing gear for his next fishing trip.E) A) and D)
F) A) and C)

Question 19

Both pollution permits and corrective taxes are viewed as cost effective ways to keep the environment clean.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following statements is correct?

Accepted Answer

A)  Taxes are more difficult to administer than regulations.
B)  Taxes provide incentives for firms to adopt new methods to reduce negative externalities.
C)  Command-and-control policies provide incentives for private decisionmakers to solve their problems on their own.
D)  Corrective taxes distort incentives.E) None of the above
F) A) and D)

Exam 10: Externalities

Figure 10-4 -Refer to Figure 10-4.If this market currently produces Q₃,total economic well-being would be increased if

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Suppose that smoking creates a negative externality.If the government imposes a per-cigarette tax equal to the per-cigarette externality,then

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Suppose that smoking creates a negative externality.If the government does not interfere in the cigarette market,then

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Suppose that electricity producers create a negative externality equal to $5 per unit.Further suppose that the government gives a $5 per-unit subsidy to producers.What is the relationship between the equilibrium quantity and the socially optimal quantity of electricity to be produced?

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An externality

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Which of the following is an example of a positive externality?

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

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Since restored historic buildings convey a positive externality,local governments may choose to

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Figure 10-4 -Refer to Figure 10-4.The socially optimal quantity would be

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In many cases the Coase theorem does not work well because

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This figure reflects the market for outdoor concerts in a public park surrounded by residential neighborhoods. Figure 10-3 -Refer to Figure 10-3.At the private market outcome,the equilibrium price will be

Correct AnswerverifiedShow Answer

Barking dogs cannot be considered an externality because externalities must be associated with some form of market exchange.

Correct AnswerverifiedShow Answer

Figure 10-2 -Refer to Figure 10-2.Suppose that the production of soccer balls creates a social cost which is depicted in the graph above.Without any government regulation,how many soccer balls will be produced?

Correct AnswerverifiedShow Answer

When a beekeeper places his hives of bees in an orchard so that the bees can gather nectar to produce honey,the bees pollinate the orchard,which increases the yield of fruit.This benefits

Correct AnswerverifiedShow Answer

Both pollution permits and corrective taxes are viewed as cost effective ways to keep the environment clean.

Correct AnswerverifiedShow Answer

When the government chooses a policy that aligns private incentives with social efficiency to solve an externality problem,it

Correct AnswerverifiedShow Answer

Suppose that flower gardens create a positive externality equal to $1 per plant.Further suppose that the local government offers a $1 per-plant subsidy to growers.What is the relationship between the equilibrium quantity and the socially optimal quantity of plants grown?

Correct AnswerverifiedShow Answer

Assume that your roommate is very messy.Suppose she gets a $100 benefit from being messy but imposes a $200 cost on you.The Coase theorem would suggest that an efficient solution would be for you to

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

Which of the following require firms to pay to pollute? (i) corrective taxes (ii) tradable pollution permits (iii) pollution regulations

Correct AnswerverifiedShow Answer

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