Question 1

An externality

Accepted Answer

A)  results in an equilibrium that does not maximize the total benefits to society.
B)  causes demand to exceed supply.
C)  strengthens the role of the "invisible hand" in the marketplace.
D)  affects buyers but not sellers.E) All of the above
F) A) and B)

Question 2

Figure 10-4 
-Refer to Figure 10-4. This market is characterized by

Accepted Answer

A)  government intervention.
B)  a positive externality.
C)  a negative externality.
D)  None of the above is correct.E) A) and B)
F) None of the above

Question 3

In a market characterized by externalities, the market equilibrium fails to maximize the total benefit to society as a whole.

Accepted Answer

A) True 
 B)False

Question 4

Honey producers provide a positive externality to orchards because

Accepted Answer

A)  the honey producers get more honey.
B)  the orchard owner frequently gets stung by the honey producer's bees.
C)  the orchard owner does not have to purchase bees to pollinate his flowers.
D)  the honey producers have to rent access to the orchard grounds.E) A) and C)
F) B) and C)

Question 5

If education produces positive externalities, we would expect

Accepted Answer

A)  the government to tax education.
B)  the government to subsidize education.
C)  people to realize the benefits, which would increase the demand for education.
D)  colleges to relax admission requirements.E) B) and C)
F) C) and D)

Question 6

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

Accepted Answer

A)  regulate 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) All of the above
F) None of the above

Question 7

Figure 10-5 3 - P1. B) The marginal cost of the negative externality is measured by P3 - P2. C) The marginal cost of the negative externality is measured by P3 - P1. D) The marginal cost of the negative externality is measured by P3 - P0." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 10-5. Which of the following statements is correct?

Accepted Answer

A)  The marginal benefit of the positive externality is measured by P3 - P1.
B)  The marginal cost of the negative externality is measured by P3 - P2.
C)  The marginal cost of the negative externality is measured by P3 - P1.
D)  The marginal cost of the negative externality is measured by P3 - P0.E) None of the above
F) All of the above

Question 8

Private contracts between parties with mutual interests

Accepted Answer

A)  will reduce the well-being of society.
B)  will lead to market outcomes in which the public interest is sacrificed for personal gain.
C)  can solve some inefficiencies associated with positive externalities.
D)  will create negative externalities.E) A) and B)
F) A) and D)

Question 9

When a market experiences a positive externality,

Accepted Answer

A)  the demand curve does not reflect the value to society of the good.
B)  too much of the good is being produced.
C)  the government can internalize the externality by imposing a tax on the product.
D)  the private value is greater than the social value.E) B) and D)
F) C) and D)

Question 10

To economists, good environmental policy begins by acknowledging one of the Ten Principles of Economics:

Accepted Answer

A)  Trade can make everyone better off.
B)  People face trade-offs.
C)  Markets are usually a good way to organize economic activity.
D)  A country's standard of living depends on its ability to produce goods and services.E) A) and D)
F) C) and D)

Question 11

Two firms, A and B, each currently dump 20 tons of chemicals into the local river. The government has decided to reduce the pollution and from now on will require a pollution permit for each ton of pollution dumped into the river. The government gives each firm 10 pollution permits, which it can either use or sell to the other firm. It costs Firm A $100 for each ton of pollution that it eliminates before it reaches the river, and it costs Firm B $50 for each ton of pollution that it eliminates before it reaches the river. After the two firms buy or sell pollution permits from each other, we would expect that

Accepted Answer

A)  Firm A will no longer pollute, and Firm B will not reduce its pollution at all.
B)  Firm B will no longer pollute, and Firm A will not reduce its pollution at all.
C)  Firm A will dump 10 tons of pollution into the river, and Firm B will dump 10 tons of pollution into the river.
D)  Firm A will increase its pollution and Firm B will reduce its pollution.E) None of the above
F) A) and B)

Question 12

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. The equilibrium price of pollution is

Accepted Answer

A)  $50
B)  $500
C)  $1,000
D)  $2,000E) B) and C)
F) A) and D)

Question 13

Figure 10-15 B must be equivalent to the corrective tax. B) QA must be equivalent to the amount of pollution allowed to the pollution permit holders. C) The equilibrium price and quantity of pollution must be the same in both graphs. D) The amount of pollution emitted by each firm must be the same." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 10-15. Which of the following is not necessary in order for the corrective tax and pollution permit to have equivalent effects?

Accepted Answer

A)  PB must be equivalent to the corrective tax.
B)  QA must be equivalent to the amount of pollution allowed to the pollution permit holders.
C)  The equilibrium price and quantity of pollution must be the same in both graphs.
D)  The amount of pollution emitted by each firm must be the same.E) A) and B)
F) B) and C)

Question 14

Which of the following statements about a well-maintained yard best conveys the general nature of the externality?

Accepted Answer

A)  A well-maintained yard conveys a positive externality because it increases the home's market value.
B)  A well-maintained yard conveys a negative externality because it increases the property tax liability of the owner.
C)  A well-maintained yard conveys a positive externality because it increases the value of adjacent properties in the neighborhood.
D)  A well-maintained yard cannot provide any type of externality.E) A) and B)
F) B) and D)

Question 15

Figure 10-1 
-Refer to Figure 10-1. This graph represents the tobacco industry. The industry creates

Accepted Answer

A)  positive externalities.
B)  negative externalities.
C)  no externalities.
D)  no equilibrium in the market.E) None of the above
F) A) and B)

Question 16

Figure 10-11 
-Refer to Figure 10-11. Taking only private value and private cost into account, total surplus at the market equilibrium amounts to

Accepted Answer

A)  $3,850.
B)  $4,320.
C)  $4,980.
D)  $5,530.E) None of the above
F) All of the above

Question 17

The gasoline tax

Accepted Answer

A)  is similar to most other taxes in that it causes deadweight losses.
B)  produces the unfortunate side-effect of making the roads more dangerous.
C)  can be viewed as a corrective tax aimed at multiple negative externalities associated with driving.
D)  can be viewed as a command-and-control policy aimed at discouraging people from driving.E) A) and C)
F) B) and C)

Question 18

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

Accepted Answer

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

Question 19

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, how much plastic will be produced?

Accepted Answer

A)  200
B)  500
C)  650
D)  900E) A) and B)
F) All of the above

Question 20

Figure 10-9   
-Refer to Figure 10-9, Panel (b) . The market equilibrium quantity is

Accepted Answer

A)  Q2, which is the socially optimal quantity.
B)  Q3, which is the socially optimal quantity.
C)  Q2, and the socially optimal quantity is Q3.
D)  Q3, and the socially optimal quantity is Q2.E) B) and C)
F) A) and B)

Exam 10: Externalities

When a market experiences a positive externality,

Correct Answer
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Figure 10-5 -Refer to Figure 10-5. Which of the following statements is correct?

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

Correct Answer
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Figure 10-1 -Refer to Figure 10-1. This graph represents the tobacco industry. The industry creates

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

Correct Answer
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To economists, good environmental policy begins by acknowledging one of the Ten Principles of Economics:

Correct Answer
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The gasoline tax

Correct Answer
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An externality

Correct Answer
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Figure 10-15 -Refer to Figure 10-15. Which of the following is not necessary in order for the corrective tax and pollution permit to have equivalent effects?

Correct Answer
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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, how much plastic will be produced?

Correct Answer
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Figure 10-9 -Refer to Figure 10-9, Panel (b) . The market equilibrium quantity is

Correct Answer
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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. The equilibrium price of pollution is

Correct Answer
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Private contracts between parties with mutual interests

Correct Answer
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If education produces positive externalities, we would expect

Correct Answer
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Figure 10-11 -Refer to Figure 10-11. Taking only private value and private cost into account, total surplus at the market equilibrium amounts to

Correct Answer
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Which of the following statements about a well-maintained yard best conveys the general nature of the externality?

Correct Answer
verified

In a market characterized by externalities, the market equilibrium fails to maximize the total benefit to society as a whole.

Correct Answer
verified

Honey producers provide a positive externality to orchards because

Correct Answer
verified

Figure 10-4 -Refer to Figure 10-4. This market is characterized by

Correct Answer
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Correct Answer
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Exam 10: Externalities

When a market experiences a positive externality,

Correct AnswerverifiedShow Answer

Figure 10-5 -Refer to Figure 10-5. Which of the following statements is correct?

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

Correct AnswerverifiedShow Answer

Figure 10-1 -Refer to Figure 10-1. This graph represents the tobacco industry. The industry creates

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

To economists, good environmental policy begins by acknowledging one of the Ten Principles of Economics:

Correct AnswerverifiedShow Answer

The gasoline tax

Correct AnswerverifiedShow Answer

An externality

Correct AnswerverifiedShow Answer

Figure 10-15 -Refer to Figure 10-15. Which of the following is not necessary in order for the corrective tax and pollution permit to have equivalent effects?

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, how much plastic will be produced?

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Figure 10-9 -Refer to Figure 10-9, Panel (b) . The market equilibrium quantity is

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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. The equilibrium price of pollution is

Correct AnswerverifiedShow Answer

Private contracts between parties with mutual interests

Correct AnswerverifiedShow Answer

If education produces positive externalities, we would expect

Correct AnswerverifiedShow Answer

Figure 10-11 -Refer to Figure 10-11. Taking only private value and private cost into account, total surplus at the market equilibrium amounts to

Correct AnswerverifiedShow Answer

Which of the following statements about a well-maintained yard best conveys the general nature of the externality?

Correct AnswerverifiedShow Answer

In a market characterized by externalities, the market equilibrium fails to maximize the total benefit to society as a whole.

Correct AnswerverifiedShow Answer

Honey producers provide a positive externality to orchards because

Correct AnswerverifiedShow Answer

Figure 10-4 -Refer to Figure 10-4. This market is characterized by

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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