Question 1

Suppose that an MBA degree creates no externality because the benefits of an MBA are internalized by the student in the form of higher wages.If the government offers subsidies for MBAs,then which of the following statements is correct?

Accepted Answer

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

Question 2

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

Question 3

The business activities of Firm A confer positive externalities on Firm B,and the business activities of Firm B confer positive externalities on Firm A.If the two firms merged,then

Accepted Answer

A)   their respective markets would move closer to the social optimum.
B)   their respective markets would move further away from the social optimum.
C)   total surplus in their respective markets would decrease.
D)   the merger would serve as an example of a misguided public policy toward externalities.E) B) and D)
F) C) and D)

Question 4

Suppose that a steel factory emits a certain amount of air pollution,which constitutes a negative externality.If the market does not internalize the externality,

Accepted Answer

A)   the supply curve would adequately reflect the marginal social cost of production.
B)   consumers will be required to pay a higher price for steel than they would have if the externality were internalized.
C)   the market equilibrium quantity will not be the socially optimal quantity.
D)   producers will produce less steel than they otherwise would if the externality were internalized.E) B) and C)
F) A) and D)

Question 5

Private markets fail to account for externalities because

Accepted Answer

A)   externalities don't occur in private markets.
B)   sellers include costs associated with externalities in the price of their product.
C)   decisionmakers in the market fail to include the costs of their behavior to third parties.
D)   the government cannot easily estimate the optimal quantity of pollution.E) A) and B)
F) A) and D)

Question 6

Which of the following statements is correct?

Accepted Answer

A)   Because a clean environment is a public good,a feasible goal is to eliminate all pollution,regardless of the cost.
B)   Rich countries usually have cleaner environments than poor countries because a clean environment is like other normal goods in that it has a positive income elasticity.
C)   Clean water and clean air are priceless goods.
D)   All of the above are correct.E) None of the above
F) A) and B)

Question 7

Corrective taxes cause deadweight losses,reducing economic efficiency.

Accepted Answer

A) True 
 B)False

Question 8

If only a few people are affected by an externality,then it is likely that

Accepted Answer

A)   corrective taxes will provide the most efficient solution to the externality.
B)   command-and-control regulation will provide the most efficient solution to the externality.
C)   a private solution to the inefficiency will occur.
D)   a private solution will be very difficult to negotiate.E) B) and C)
F) None of the above

Question 9

Private parties may choose not to solve an externality problem if the transaction costs are large enough.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following is not a negative externality associated with driving cars?

Accepted Answer

A)   congestion
B)   pollution
C)   repairs
D)   accidentsE) B) and C)
F) A) and B)

Question 11

In Singapore,littering fines are strictly enforced.This is an example of a policy that

Accepted Answer

A)   relies on moral codes to reduce the pollution externality.
B)   relies on the Coase Theorem.
C)   discriminates against foreigners.
D)   relies on incentives to reduce the pollution externality.E) B) and C)
F) A) and B)

Question 12

Table 10-5
The following table shows the marginal costs for each of four firms (A,B,C,and D) to eliminate units of pollution from their production processes.For example,for Firm A to eliminate one unit of pollution,it would cost $54,and for Firm A to eliminate a second unit of pollution it would cost an additional $67.
 
-Refer to Table 10-5.If the government charged a fee of $69 per unit of pollution,how many units of pollution would the firms eliminate altogether?

Accepted Answer

A)   7
B)   8
C)   9
D)   10E) A) and D)
F) A) and C)

Question 13

Figure 10-3 1,Q1 B)  P2,Q0 C)  P2,Q1 D)  The optimum quantity is zero concerts as long as residents in surrounding neighborhoods are adversely affected by noise and congestion." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 10-3.What price and quantity combination best represents the optimum price and number of concerts that should be organized?

Accepted Answer

A)   P1,Q1
B)   P2,Q0
C)   P2,Q1
D)   The optimum quantity is zero concerts as long as residents in surrounding neighborhoods are adversely affected by noise and congestion.E) B) and C)
F) All of the above

Question 14

Internalizing a positive externality will cause the demand curve to

Accepted Answer

A)   shift to the right.
B)   shift to the left.
C)   become more elastic.
D)   remain unchanged.E) C) and D)
F) B) and C)

Question 15

Table 10-4
 
-Refer to Table 10-4.The table represents a market in which

Accepted Answer

A)   there is no externality.
B)   there is a positive externality.
C)   there is a negative externality.
D)   The answer cannot be determined from inspection of the table.E) B) and D)
F) None of the above

Question 16

Figure 10-11 th unit of output is $10. B)  The social value of the 280th unit of output is $28. C)  The external benefit of the 280th unit of output is $18. D)  All of the above are correct." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 10-11.Which of the following statements is correct?

Accepted Answer

A)   The private value of the 280th unit of output is $10.
B)   The social value of the 280th unit of output is $28.
C)   The external benefit of the 280th unit of output is $18.
D)   All of the above are correct.E) A) and B)
F) B) and C)

Question 17

Dog owners do not bear the full cost of the noise their barking dogs create and often take too few precautions to prevent their dogs from barking.Local governments address this problem by

Accepted Answer

A)   making it illegal to "disturb the peace."
B)   having a well-funded animal control department.
C)   subsidizing local animal shelters.
D)   encouraging people to adopt cats.E) None of the above
F) B) and C)

Question 18

A local manufacturing plant that emitted sulfur dioxide was forced to stop production because it did not comply with local clean air standards.This decision provides an example of

Accepted Answer

A)   a direct regulation of an externality.
B)   corrective taxes.
C)   a Coase theorem solution to an externality.
D)   the misuse of a subsidy.E) A) and C)
F) B) and C)

Question 19

In the case of a technology spillover,internalizing a positive externality through a government subsidy will cause the industry's supply curve to

Accepted Answer

A)   shift up by an amount equal to the subsidy.
B)   shift down by an amount less than the subsidy.
C)   shift down by an amount equal to the subsidy.
D)   shift down by an amount greater than the subsidy.E) B) and C)
F) A) and C)

Question 20

Most economists prefer regulation to taxation because regulation corrects market inefficiencies at a lower cost than taxation does.

Accepted Answer

A) True 
 B)False

Exam 10: Externalities

Most economists prefer regulation to taxation because regulation corrects market inefficiencies at a lower cost than taxation does.

Correct Answer
verified

Internalizing a positive externality will cause the demand curve to

Correct Answer
verified

Dog owners do not bear the full cost of the noise their barking dogs create and often take too few precautions to prevent their dogs from barking.Local governments address this problem by

Correct Answer
verified

Figure 10-3 -Refer to Figure 10-3.What price and quantity combination best represents the optimum price and number of concerts that should be organized?

Correct Answer
verified

If education produces positive externalities,we would expect

Correct Answer
verified

Which of the following statements is correct?

Correct Answer
verified

Figure 10-11 -Refer to Figure 10-11.Which of the following statements is correct?

Correct Answer
verified

Suppose that an MBA degree creates no externality because the benefits of an MBA are internalized by the student in the form of higher wages.If the government offers subsidies for MBAs,then which of the following statements is correct?

Correct Answer
verified

Private markets fail to account for externalities because

Correct Answer
verified

Correct Answer
verified

Private parties may choose not to solve an externality problem if the transaction costs are large enough.

Correct Answer
verified

In Singapore,littering fines are strictly enforced.This is an example of a policy that

Correct Answer
verified

Table 10-4 -Refer to Table 10-4.The table represents a market in which

Correct Answer
verified

A local manufacturing plant that emitted sulfur dioxide was forced to stop production because it did not comply with local clean air standards.This decision provides an example of

Correct Answer
verified

Which of the following is not a negative externality associated with driving cars?

Correct Answer
verified

In the case of a technology spillover,internalizing a positive externality through a government subsidy will cause the industry's supply curve to

Correct Answer
verified

If only a few people are affected by an externality,then it is likely that

Correct Answer
verified

The business activities of Firm A confer positive externalities on Firm B,and the business activities of Firm B confer positive externalities on Firm A.If the two firms merged,then

Correct Answer
verified

Suppose that a steel factory emits a certain amount of air pollution,which constitutes a negative externality.If the market does not internalize the externality,

Correct Answer
verified

Corrective taxes cause deadweight losses,reducing economic efficiency.

Correct Answer
verified

Exam 10: Externalities

Most economists prefer regulation to taxation because regulation corrects market inefficiencies at a lower cost than taxation does.

Correct AnswerverifiedShow Answer

Internalizing a positive externality will cause the demand curve to

Correct AnswerverifiedShow Answer

Dog owners do not bear the full cost of the noise their barking dogs create and often take too few precautions to prevent their dogs from barking.Local governments address this problem by

Correct AnswerverifiedShow Answer

Figure 10-3 -Refer to Figure 10-3.What price and quantity combination best represents the optimum price and number of concerts that should be organized?

Correct AnswerverifiedShow Answer

If education produces positive externalities,we would expect

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

Figure 10-11 -Refer to Figure 10-11.Which of the following statements is correct?

Correct AnswerverifiedShow Answer

Suppose that an MBA degree creates no externality because the benefits of an MBA are internalized by the student in the form of higher wages.If the government offers subsidies for MBAs,then which of the following statements is correct?

Correct AnswerverifiedShow Answer

Private markets fail to account for externalities because

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Private parties may choose not to solve an externality problem if the transaction costs are large enough.

Correct AnswerverifiedShow Answer

In Singapore,littering fines are strictly enforced.This is an example of a policy that

Correct AnswerverifiedShow Answer

Table 10-4 -Refer to Table 10-4.The table represents a market in which

Correct AnswerverifiedShow Answer

A local manufacturing plant that emitted sulfur dioxide was forced to stop production because it did not comply with local clean air standards.This decision provides an example of

Correct AnswerverifiedShow Answer

Which of the following is not a negative externality associated with driving cars?

Correct AnswerverifiedShow Answer

In the case of a technology spillover,internalizing a positive externality through a government subsidy will cause the industry's supply curve to

Correct AnswerverifiedShow Answer

If only a few people are affected by an externality,then it is likely that

Correct AnswerverifiedShow Answer

The business activities of Firm A confer positive externalities on Firm B,and the business activities of Firm B confer positive externalities on Firm A.If the two firms merged,then

Correct AnswerverifiedShow Answer

Suppose that a steel factory emits a certain amount of air pollution,which constitutes a negative externality.If the market does not internalize the externality,

Correct AnswerverifiedShow Answer

Corrective taxes cause deadweight losses,reducing economic efficiency.

Correct AnswerverifiedShow Answer

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