Question 1

At any given quantity,the willingness to pay in the market for gasoline is reflected in the

Accepted Answer

A)   height of the demand curve at that quantity.
B)   height of the supply curve at that quantity.
C)   value to the producer of the last unit of gasoline sold.
D)   total quantity of gasoline exchanged in the market.E) All of the above
F) None of the above

Question 2

Suppose that flu shots create a positive externality equal to $12 per shot.Further suppose that the government offers a $5 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) All of the above
F) None of the above

Question 3

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

Question 4

Figure 10-9

-Refer to Figure 10-9,Panel (b) and Panel (c) .The overuse of antibiotics leads to the development of antibiotic-resistant diseases.Therefore,a government policy that internalized the externality would move the quantity of antibiotics used from point

Accepted Answer

A)   Q2 to point Q3.
B)   Q3 to point Q2.
C)   Q4 to point Q5.
D)   Q5 to point Q4.E) All of the above
F) A) and B)

Question 5

When negative externalities are present in a market

Accepted Answer

A)   private costs will be greater than social costs.
B)   social costs will be greater than private costs.
C)   only government regulation will solve the problem.
D)   the market will not be able to reach any equilibrium.E) A) and B)
F) B) and C)

Question 6

Since air pollution creates a negative externality,

Accepted Answer

A)   social welfare will be enhanced when some, but not all air pollution is eliminated.
B)   social welfare is optimal when all air pollution is eliminated.
C)   governments should encourage private firms to consider only private costs.
D)   the free market result maximizes social welfare.E) A) and C)
F) A) and B)

Question 7

Figure 10-9

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

Accepted Answer

A)   Q4, which is the socially optimal quantity.
B)   Q5, which is the socially optimal quantity.
C)   Q4, and the socially optimal quantity is Q5.
D)   Q5, and the socially optimal quantity is Q4.E) None of the above
F) B) and D)

Question 8

When a transaction between a buyer and seller directly affects a third party,the effect is called an externality.

Accepted Answer

A) True 
 B)False

Question 9

Corrective taxes differ from most taxes in that corrective taxes

Accepted Answer

A)   enhance economic efficiency.
B)   do not raise revenue for the government.
C)   cause deadweight loss.
D)   cannot be divided between the buyer and seller.E) A) and B)
F) B) and C)

Question 10

According to the Coase theorem,private markets will solve externality problems and allocate resources efficiently as long as

Accepted Answer

A)   the externalities that are present are positive, not negative.
B)   government assigns property rights to the harmed party.
C)   private parties can bargain with sufficiently low transaction costs.
D)   businesses determine an appropriate level of production.E) C) and D)
F) All of the above

Question 11

Negative externalities lead markets to produce a smaller quantity of a good than is socially desirable,while positive externalities lead markets to produce a larger quantity of a good than is socially desirable.

Accepted Answer

A) True 
 B)False

Question 12

Figure 10-19
 
-Refer to Figure 10-19.The socially optimal quantity of output is

Accepted Answer

A)   58 units.
B)   73 units.
C)   between 73 and 94 units.
D)   94 units.E) A) and B)
F) C) and D)

Question 13

Suppose that cigarette smokers create a negative externality.Further suppose that the government imposes a tax on cigarettes equal to the per-unit externality.What is the relationship between the after-tax equilibrium quantity and the socially optimal quantity of cigarettes?

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 C)
F) None of the above

Question 14

Assuming transaction costs are small,the Coase theorem would predict that private parties could arrive at an efficient solution for which of the following problems?

Accepted Answer

A)   One neighbor lets his dog run through another neighbor's garden, damaging her flowers.
B)   One neighbor doesn't mow her yard.
C)   One neighbor plays his music loudly.
D)   All of the above are correct.E) A) and B)
F) A) and C)

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 C)
F) A) and B)

Question 16

An externality is the impact of

Accepted Answer

A)   society's decisions on the well-being of society.
B)   a person's actions on that person's well-being.
C)   one person's actions on the well-being of a bystander.
D)   society's decisions on the poorest person in the society.E) B) and C)
F) A) and D)

Question 17

According to the Coase theorem,private parties can solve the problem of externalities if

Accepted Answer

A)   the cost of bargaining is small.
B)   the initial distribution of legal rights favors the person being adversely affected by the externality.
C)   the number of parties involved is sufficiently large.
D)   All of the above are correct.E) A) and B)
F) A) and D)

Question 18

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 D)
F) B) and D)

Question 19

Corrective taxes cause deadweight losses,reducing economic efficiency.

Accepted Answer

A) True 
 B)False

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) None of the above
F) All of the above

Exam 10: Externalities.

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

Figure 10-9 -Refer to Figure 10-9,Panel (b) and Panel (c) .The overuse of antibiotics leads to the development of antibiotic-resistant diseases.Therefore,a government policy that internalized the externality would move the quantity of antibiotics used from point

Correct AnswerverifiedShow Answer

According to the Coase theorem,private markets will solve externality problems and allocate resources efficiently as long as

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Figure 10-19 -Refer to Figure 10-19.The socially optimal quantity of output is

Correct AnswerverifiedShow Answer

Corrective taxes differ from most taxes in that corrective taxes

Correct AnswerverifiedShow Answer

Suppose that flu shots create a positive externality equal to $12 per shot.Further suppose that the government offers a $5 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

Since air pollution creates a negative externality,

Correct AnswerverifiedShow Answer

Negative externalities lead markets to produce a smaller quantity of a good than is socially desirable,while positive externalities lead markets to produce a larger quantity of a good than is socially desirable.

Correct AnswerverifiedShow Answer

Corrective taxes cause deadweight losses,reducing economic efficiency.

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

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

Correct AnswerverifiedShow Answer

When a transaction between a buyer and seller directly affects a third party,the effect is called an externality.

Correct AnswerverifiedShow Answer

An externality is the impact of

Correct AnswerverifiedShow Answer

Suppose that cigarette smokers create a negative externality.Further suppose that the government imposes a tax on cigarettes equal to the per-unit externality.What is the relationship between the after-tax equilibrium quantity and the socially optimal quantity of cigarettes?

Correct AnswerverifiedShow Answer

When negative externalities are present in a market

Correct AnswerverifiedShow Answer

According to the Coase theorem,private parties can solve the problem of externalities if

Correct AnswerverifiedShow Answer

Assuming transaction costs are small,the Coase theorem would predict that private parties could arrive at an efficient solution for which of the following problems?

Correct AnswerverifiedShow Answer

At any given quantity,the willingness to pay in the market for gasoline is reflected in the

Correct AnswerverifiedShow Answer

A negative externality will cause a private market to produce

Correct AnswerverifiedShow Answer

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