Question 1

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) C) and D)
F) None of the above

Question 2

Figure 10-9   
-Refer to Figure 10-9.The overuse of antibiotics leads to the development of antibiotic-resistant diseases.Therefore,the market for antibiotics is shown in

Accepted Answer

A)   Panel (a) .
B)   Panel (b) .
C)   Panel (c) .
D)   Both (b) and (c) are correct.E) A) and C)
F) A) and B)

Question 3

Altering incentives so that people take account of the external effects of their actions

Accepted Answer

A)   is called internalizing the externality.
B)   can be done by imposing a corrective tax.
C)   is the role of government in markets with externalities.
D)   all of the above.E) A) and B)
F) A) and C)

Question 4

Suppose that flu shots create a positive externality equal to $12 per shot.Further suppose that the government offers a $12 per-shot subsidy to producers.What is the relationship between the equilibrium quantity and the socially optimal quantity of flu shots 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) A) and D)
F) A) and C)

Question 5

Figure 10-11 
-Refer to Figure 10-11.This graph shows the market for pollution when permits are issued to firms and traded in the marketplace.The equilibrium number of permits is

Accepted Answer

A)   50
B)   100
C)   1,000
D)   2,000E) None of the above
F) C) and D)

Question 6

If the government wanted to ensure that the market reaches the socially optimal equilibrium in the presence of a technology spillover,it should

Accepted Answer

A)   impose a corrective tax on any firm producing a technology spillover.
B)   offer tax credits to consumers who are adversely affected by the new technology.
C)   subsidize producers by an amount equal to the value of the technology spillover.
D)   provide research grants to those firms not currently engaging in research to increase competition in the industry.E) None of the above
F) C) and D)

Question 7

A negative externality arises when a person engages in an activity that has

Accepted Answer

A)   an adverse effect on a bystander who is not compensated by the person who causes the effect.
B)   an adverse effect on a bystander who is compensated by the person who causes the effect.
C)   a beneficial effect on a bystander who pays the person who causes the effect.
D)   a beneficial effect on a bystander who does not pay the person who causes the effect.E) A) and C)
F) A) and D)

Question 8

Two firms,A and B,each currently dump 50 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 will sell 40 pollution permits for $75 each.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.Neither firm produces any less output,but they both conform to the law.It is likely that between the cost of permits and the cost of additional pollution abatement,

Accepted Answer

A)   Firm B will spend $3,500.
B)   Firm A will spend $4,000.
C)   Firm A will spend $4,500.
D)   Firm B will spend $3,000.E) A) and B)
F) None of the above

Question 9

If a sawmill creates too much noise for local residents,

Accepted Answer

A)   noise restrictions will force residents to move out of the area.
B)   a sense of social responsibility will cause owners of the mill to reduce noise levels.
C)   the government can raise economic well-being through noise-control regulations.
D)   the government should avoid intervening because the market will allocate resources efficiently.E) A) and C)
F) A) and D)

Question 10

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

Accepted Answer

A)   air pollution
B)   a person littering in a public park
C)   a nice garden in front of your neighbor's house
D)   the pollution of a streamE) B) and C)
F) None of the above

Question 11

Two firms,A and B,each currently emit 100 tons of chemicals into the air.The government has decided to reduce the pollution and from now on will require a pollution permit for each ton of pollution emitted into the air.The government gives each firm 40 pollution permits,which it can either use or sell to the other firm.It costs Firm A $200 for each ton of pollution that it eliminates before it is emitted into the air,and it costs Firm B $100 for each ton of pollution that it eliminates before it is emitted into the air.It is likely that

Accepted Answer

A)   Firm A will buy all of Firm B's pollution permits.Each one will cost between $100 and $200.
B)   Firm B will buy all of Firm A's pollution permits.Each one will cost between $100 and $200.
C)   Both firms will use their own pollution permits.
D)   Firm A will buy some of Firm B's pollution permits.Each one will cost less than $100.E) C) and D)
F) B) and C)

Question 12

John lives in an apartment building and gets a $700 benefit from playing his stereo.Mary,who lives next door to John and often loses sleep due to the music coming from John's stereo,bears a $1,000 cost from the noise.At which of the following offers from Mary could both Mary and John benefit from the silencing of John's stereo?

Accepted Answer

A)   $200
B)   $600
C)   $900
D)   $1,100E) None of the above
F) B) and C)

Question 13

Which of the following is not an argument for imposing a carbon tax to address global warming?

Accepted Answer

A)   Revenue from a carbon tax could be used to reduce payroll taxes leaving the total tax burden unchanged while reducing carbon emissions.
B)   A carbon tax would allow the government to set the quantity of carbon dioxide pollution.
C)   A carbon tax would be less costly to consumers and result in greater carbon reduction than regulations requiring increased fuel efficiency.
D)   A global carbon tax would be easier to negotiate with foreign governments than the terms of a tradable pollution permit system.E) A) and B)
F) A) and C)

Question 14

A patent is used to

Accepted Answer

A)   disseminate information.
B)   offset the negative effects of taxes.
C)   protect inventors for as long as they live.
D)   assign property rights.E) B) and C)
F) A) and D)

Question 15

Transaction costs

Accepted Answer

A)   can keep private parties from solving externality problems.
B)   are incurred in the production process due to externalities.
C)   increase when taxes are imposed to correct negative externalities.
D)   are eliminated when the government intervenes in a market with externalities.E) A) and D)
F) A) and C)

Question 16

Corrective taxes are unlike most other taxes because they

Accepted Answer

A)   distort incentives.
B)   move the allocation of resources away from the social optimum.
C)   raise revenue for the government.
D)   move the allocation of resources closer to the social optimum.E) None of the above
F) A) and D)

Question 17

According to recent research,the gas tax in the United States is lower than the optimal level.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following is a way to address an externality problem?

Accepted Answer

A)   command and control solution
B)   corrective tax
C)   corrective subsidy
D)   all of the above.E) A) and D)
F) None of the above

Question 19

Ed is a writer who works from his home.Ed lives nextdoor to Ricky,the drummer for a local band.Ricky needs lots of practice to earn his share of the bands profits,$250.Ed gets distracted by Ricky's drumming but needs to get his writing done to earn $500 for his current article.If Ed needs to hire a lawyer to help him reach an agreement with Ricky,what price is Ed willing to pay the lawyer?

Accepted Answer

A)   less than $250
B)   less than $450
C)   less than $500
D)   less than $750E) A) and B)
F) None of the above

Question 20

A negative externality will cause a private market to produce

Accepted Answer

A)   less than is socially desirable.
B)   more than is socially desirable.
C)   exactly the quantity that is socially desirable.
D)   less than the same market would produce in the presence of a positive externality.E) A) and B)
F) A) and C)

Exam 10: Externalities

If the government wanted to ensure that the market reaches the socially optimal equilibrium in the presence of a technology spillover,it should

Correct Answer
verified

Suppose that flu shots create a positive externality equal to $12 per shot.Further suppose that the government offers a $12 per-shot subsidy to producers.What is the relationship between the equilibrium quantity and the socially optimal quantity of flu shots produced?

Correct Answer
verified

According to recent research,the gas tax in the United States is lower than the optimal level.

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
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Correct Answer
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Altering incentives so that people take account of the external effects of their actions

Correct Answer
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If a sawmill creates too much noise for local residents,

Correct Answer
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Correct Answer
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Which of the following is a way to address an externality problem?

Correct Answer
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Correct Answer
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Figure 10-11 -Refer to Figure 10-11.This graph shows the market for pollution when permits are issued to firms and traded in the marketplace.The equilibrium number of permits is

Correct Answer
verified

Which of the following is not an argument for imposing a carbon tax to address global warming?

Correct Answer
verified

Figure 10-9 -Refer to Figure 10-9.The overuse of antibiotics leads to the development of antibiotic-resistant diseases.Therefore,the market for antibiotics is shown in

Correct Answer
verified

A negative externality will cause a private market to produce

Correct Answer
verified

Corrective taxes are unlike most other taxes because they

Correct Answer
verified

Correct Answer
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A negative externality arises when a person engages in an activity that has

Correct Answer
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Transaction costs

Correct Answer
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A patent is used to

Correct Answer
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Exam 10: Externalities

If the government wanted to ensure that the market reaches the socially optimal equilibrium in the presence of a technology spillover,it should

Correct AnswerverifiedShow Answer

Suppose that flu shots create a positive externality equal to $12 per shot.Further suppose that the government offers a $12 per-shot subsidy to producers.What is the relationship between the equilibrium quantity and the socially optimal quantity of flu shots produced?

Correct AnswerverifiedShow Answer

According to recent research,the gas tax in the United States is lower than the optimal level.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Altering incentives so that people take account of the external effects of their actions

Correct AnswerverifiedShow Answer

If a sawmill creates too much noise for local residents,

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following is a way to address an externality problem?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Figure 10-11 -Refer to Figure 10-11.This graph shows the market for pollution when permits are issued to firms and traded in the marketplace.The equilibrium number of permits is

Correct AnswerverifiedShow Answer

Which of the following is not an argument for imposing a carbon tax to address global warming?

Correct AnswerverifiedShow Answer

Figure 10-9 -Refer to Figure 10-9.The overuse of antibiotics leads to the development of antibiotic-resistant diseases.Therefore,the market for antibiotics is shown in

Correct AnswerverifiedShow Answer

A negative externality will cause a private market to produce

Correct AnswerverifiedShow Answer

Corrective taxes are unlike most other taxes because they

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A negative externality arises when a person engages in an activity that has

Correct AnswerverifiedShow Answer

Transaction costs

Correct AnswerverifiedShow Answer

A patent is used to

Correct AnswerverifiedShow Answer

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