Question 1

Using a supply and demand diagram,demonstrate how a positive externality leads to market inefficiency.How might the government help to eliminate this inefficiency?

Accepted Answer

<img  loading="lazy" src="/assets/images/blured-textbook.svg" class="d-inline m-1" alt="blured image" width="139" height="30"> When a positive externality exists,the ...

Question 2

Which of the following is a difference between corrective taxes and tradable pollution permits?

Accepted Answer

A)   Corrective taxes are a market-based solution while tradable pollution permits are a command-and-control policy.
B)   With a corrective tax the government sets the price of pollution;with tradable pollution permits,demand and supply set the price of pollution.
C)   With corrective taxes firms pay for pollution;with tradable pollution permits firms do not.
D)   Corrective taxes internalize the pollution externality while tradable pollution permits do not.E) B) and C)
F) A) and B)

Question 3

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) All of the above

Question 4

What economic argument suggests that if transactions costs are sufficiently low,the equilibrium is economically efficient regardless of how property rights are distributed?

Accepted Answer

A)   the Coase theorem
B)   the laws of supply and demand
C)   the law of comparative advantage
D)   the law of externalitiesE) B) and C)
F) None of the above

Question 5

Regulations to reduce pollution

Accepted Answer

A)   cause pollution levels to drop below the regulated amount.
B)   are a more costly solution to society than a corrective tax.
C)   allow firms with the lowest cost to reduce pollution by more than those with highest costs.
D)   are a better solution for the environment than a corrective tax.E) None of the above
F) A) and C)

Question 6

Betty's cat causes Suzy to sneeze.Betty values her cat's companionship at $300 per year.The cost to Suzy of tissues and her allergy medication is $350 per year.Based on the Coase theorem,

Accepted Answer

A)   Betty should pay Suzy $400 so that she may keep her cat.
B)   Betty should pay Suzy $350 to purchase her tissues and allergy medication.
C)   Suzy should pay Betty $325 to give away her cat.
D)   Suzy should move.E) A) and D)
F) A) and B)

Question 7

Even if possible,it would be inefficient to prohibit all polluting activity.

Accepted Answer

A) True 
 B)False

Question 8

Suppose that large-scale pork production has the potential to create ground water pollution.Why might this type of pollution be considered an externality?

Accepted Answer

A)   The groundwater pollution reduces the cost of large-scale pork production.
B)   The economic impact of a large-scale pork production facility is localized in a small geographic area.
C)   The pollution has the potential for creating a health risk for water users in the region surrounding the pork production facility.
D)   Consumers will not reap the benefits of lower production cost from large-scale pork production.E) C) and D)
F) A) and C)

Question 9

University researchers create a positive externality because what they discover in their research labs can easily be learned by others who haven't contributed to the research costs.Suppose that the federal government gives grants to these researchers equal to the their per-unit production externality.What is the relationship between the equilibrium quantity of university research and the socially optimal quantity of university research produced?

Accepted Answer

A)   The equilibrium quantity is greater than the socially optimal quantity.
B)   They are equal.
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) A) and B)

Question 10

Assume that your roommate is very messy.Suppose she gets a $50 benefit from being messy but imposes a $100 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 $50 but no more than $100 to clean up after herself.
B)   pay your roommate at least $101 to clean up after herself.
C)   charge your roommate at least $50 to have you clean up after her.
D)   charge your roommate at least $100 but no more than $200 to keep you from complaining about the mess.E) B) and C)
F) All of the above

Question 11

When the production of a good results in a positive externality,the social value curve is:

Accepted Answer

A)   below the demand curve,indicating the total value to society is less than the private benefit.
B)   above the demand curve,indicating the total value to society is greater than the private benefit.
C)   identical to the demand curve,indicating the total cost to society is the equal to the private benefit.
D)   above the supply curve,indicating the total cost to society exceeds the private cost.E) A) and B)
F) A) and C)

Question 12

Mary and Cathy are roommates.Mary assigns a $30 value to smoking cigarettes.Cathy values smoke-free air at $15.Which of the following scenarios is a successful example of the Coase theorem?

Accepted Answer

A)   Cathy offers Mary $20 not to smoke.Mary accepts and does not smoke.
B)   Mary pays Cathy $16 so that Mary can smoke.
C)   Mary pays Cathy $14 so that Mary can smoke.
D)   Cathy offers Mary $15 not to smoke.Mary accepts and does not smoke.E) C) and D)
F) A) and C)

Question 13

In the case of a technology spillover,the government can encourage firms to internalize a positive externality by

Accepted Answer

A)   taxing production,which would decrease supply.
B)   taxing production,which would increase supply.
C)   subsidizing production,which would decrease supply.
D)   subsidizing production,which would increase supply.E) B) and C)
F) All of the above

Question 14

Flu shots provide a positive externality.Suppose that the market for vaccinations is perfectly competitive.Without government intervention in the vaccination market,which of the following statements is correct?

Accepted Answer

A)   At the current output level,the marginal social benefit exceeds the marginal private benefit.
B)   The current output level is inefficiently low.
C)   A per-shot subsidy could turn an inefficient situation into an efficient one.
D)   All of the above are correct.E) All of the above
F) A) and C)

Question 15

The Golden Rule is an example of a private solution for

Accepted Answer

A)   subsidizing higher education.
B)   internalizing externalities.
C)   increasing production.
D)   reducing scarcity.E) None of the above
F) A) and C)

Question 16

Which of the following statements is correct?

Accepted Answer

A)   Automotive manufacturers prefer stricter fuel economy regulations to higher gasoline taxes.
B)   Higher gasoline taxes have provided a market-based incentive for Europeans to buy more fuel-efficient vehicles.
C)   Higher gasoline taxes have had no effect on the U.S.demand for gasoline because the demand for gasoline is perfectly inelastic.
D)   Fuel efficiency regulations are more effective than gasoline taxes in reducing the demand for gasoline in the United States and Europe.E) C) and D)
F) A) and B)

Question 17

Some environmentalists argue that we should protect the environment as much as possible,regardless of cost.Which of the following is not a likely outcome of pursuing such a course of action?

Accepted Answer

A)   lower levels of nutrition,health care,and housing
B)   a lower standard of living
C)   slowing or reversing technological advancement
D)   the elimination of all pollutionE) None of the above
F) B) and C)

Question 18

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

Question 19

The difference between a corrective tax and a tradable pollution permit is that

Accepted Answer

A)   a corrective tax sets the price of pollution and a permit sets the quantity of pollution.
B)   a corrective tax creates a more efficient outcome than a permit.
C)   a corrective tax sets the quantity of pollution and a permit sets the price of pollution.
D)   a permit creates a more efficient outcome than a corrective tax.E) A) and C)
F) None of the above

Question 20

The difference between social cost and private cost is a measure of the

Accepted Answer

A)   loss in profit to the seller as the result of a negative externality.
B)   cost of an externality.
C)   cost reduction when the negative externality is eliminated.
D)   cost incurred by the government when it intervenes in the market.E) All of the above
F) A) and D)

Exam 10: Externalities

Which of the following is a difference between corrective taxes and tradable pollution permits?

Correct Answer
verified

In the case of a technology spillover,the government can encourage firms to internalize a positive externality by

Correct Answer
verified

Betty's cat causes Suzy to sneeze.Betty values her cat's companionship at $300 per year.The cost to Suzy of tissues and her allergy medication is $350 per year.Based on the Coase theorem,

Correct Answer
verified

Using a supply and demand diagram,demonstrate how a positive externality leads to market inefficiency.How might the government help to eliminate this inefficiency?

Correct Answer
verified
When a positive externality exists,the ...
View Answer

Suppose that large-scale pork production has the potential to create ground water pollution.Why might this type of pollution be considered an externality?

Correct Answer
verified

Regulations to reduce pollution

Correct Answer
verified

Even if possible,it would be inefficient to prohibit all polluting activity.

Correct Answer
verified

When the production of a good results in a positive externality,the social value curve is:

Correct Answer
verified

Mary and Cathy are roommates.Mary assigns a $30 value to smoking cigarettes.Cathy values smoke-free air at $15.Which of the following scenarios is a successful example of the Coase theorem?

Correct Answer
verified

Flu shots provide a positive externality.Suppose that the market for vaccinations is perfectly competitive.Without government intervention in the vaccination market,which of the following statements is correct?

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

The difference between social cost and private cost is a measure of the

Correct Answer
verified

Assume that your roommate is very messy.Suppose she gets a $50 benefit from being messy but imposes a $100 cost on you.The Coase theorem would suggest that an efficient solution would be for you to

Correct Answer
verified

The Golden Rule is an example of a private solution for

Correct Answer
verified

What economic argument suggests that if transactions costs are sufficiently low,the equilibrium is economically efficient regardless of how property rights are distributed?

Correct Answer
verified

Correct Answer
verified

The difference between a corrective tax and a tradable pollution permit is that

Correct Answer
verified

Which of the following statements is correct?

Correct Answer
verified

Some environmentalists argue that we should protect the environment as much as possible,regardless of cost.Which of the following is not a likely outcome of pursuing such a course of action?

Correct Answer
verified

Exam 10: Externalities

Which of the following is a difference between corrective taxes and tradable pollution permits?

Correct AnswerverifiedShow Answer

In the case of a technology spillover,the government can encourage firms to internalize a positive externality by

Correct AnswerverifiedShow Answer

Betty's cat causes Suzy to sneeze.Betty values her cat's companionship at $300 per year.The cost to Suzy of tissues and her allergy medication is $350 per year.Based on the Coase theorem,

Correct AnswerverifiedShow Answer

Using a supply and demand diagram,demonstrate how a positive externality leads to market inefficiency.How might the government help to eliminate this inefficiency?

Correct Answerverified When a positive externality exists,the ...View AnswerShow Answer

Suppose that large-scale pork production has the potential to create ground water pollution.Why might this type of pollution be considered an externality?

Correct AnswerverifiedShow Answer

Regulations to reduce pollution

Correct AnswerverifiedShow Answer

Even if possible,it would be inefficient to prohibit all polluting activity.

Correct AnswerverifiedShow Answer

When the production of a good results in a positive externality,the social value curve is:

Correct AnswerverifiedShow Answer

Mary and Cathy are roommates.Mary assigns a $30 value to smoking cigarettes.Cathy values smoke-free air at $15.Which of the following scenarios is a successful example of the Coase theorem?

Correct AnswerverifiedShow Answer

Flu shots provide a positive externality.Suppose that the market for vaccinations is perfectly competitive.Without government intervention in the vaccination market,which of the following statements is correct?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The difference between social cost and private cost is a measure of the

Correct AnswerverifiedShow Answer

Assume that your roommate is very messy.Suppose she gets a $50 benefit from being messy but imposes a $100 cost on you.The Coase theorem would suggest that an efficient solution would be for you to

Correct AnswerverifiedShow Answer

The Golden Rule is an example of a private solution for

Correct AnswerverifiedShow Answer

What economic argument suggests that if transactions costs are sufficiently low,the equilibrium is economically efficient regardless of how property rights are distributed?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The difference between a corrective tax and a tradable pollution permit is that

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

Some environmentalists argue that we should protect the environment as much as possible,regardless of cost.Which of the following is not a likely outcome of pursuing such a course of action?

Correct AnswerverifiedShow Answer

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When a positive externality exists,the ...
View Answer

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