Question 1

A dentist shares an office building with a radio station.The electrical current from the dentist's drill causes static in the radio broadcast,causing the radio station to lose $10,000 in profits.The radio station could put up a shield at a cost of $30,000;the dentist could buy a new drill that causes less interference for $6,000.Either would restore the radio station's lost profits.What is the economically efficient outcome?

Accepted Answer

A)   The radio station puts up a shield,which it pays for.
B)   The radio station puts up a shield,which the dentist pays for.
C)   Neither the radio station nor the dentist purchase additional equipment.
D)   The dentist gets a new drill;it does not matter who pays for it.E) A) and B)
F) All of the above

Question 2

Which of the following policies is not an example of a command-and-control policy?

Accepted Answer

A)   subsidies
B)   Pigovian taxes
C)   tradable pollution permits
D)   None of the above is an example of a command-and-control policy.E) A) and B)
F) B) and C)

Question 3

Figure 10-13.On the graph,Q represents the quantity of plastics and P represents the price of plastics. 
-Refer to Figure 10-13.In order to reach the social optimum,the government could

Accepted Answer

A)   impose a tax of $2 per unit on plastics.
B)   impose a tax of $6 per unit on plastics.
C)   impose a tax of $8 per unit on plastics.
D)   offer a subsidy of $6 per unit on plastics.E) B) and C)
F) B) and D)

Question 4

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) B) and D)
F) A) and B)

Question 5

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

Question 6

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

Accepted Answer

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

Question 7

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

Question 8

The Coase theorem suggests that taxes should be enacted to alleviate the effects of negative externalities.

Accepted Answer

A) True 
 B)False

Question 9

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

Accepted Answer

A)   A college student buys a new car when she graduates.
B)   The mayor of a small town plants flowers in the city park.
C)   Local high school teachers have pizza delivered every Friday for lunch.
D)   An avid fisherman buys new fishing gear for his next fishing trip.E) None of the above
F) All of the above

Question 10

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

Question 11

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) B) and C)
F) C) and D)

Question 12

A corrective tax

Accepted Answer

A)   allocates pollution to those factories that face the highest cost of reducing it.
B)   is a form of regulation.
C)   works well for all types of externalities.
D)   is inferior to regulatory policy according to most economists.E) A) and B)
F) A) and C)

Question 13

Suppose that electricity producers create a negative externality equal to $5 per unit.What is the relationship between the equilibrium quantity and the socially optimal quantity of electricity to be 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 B)
F) B) and C)

Question 14

Employing a lawyer to draft and enforce a private contract between parties wishing to solve an externality problem is an example of

Accepted Answer

A)   an opportunity cost.
B)   an implicit cost.
C)   a sunk cost.
D)   a transaction cost.E) A) and C)
F) A) and D)

Question 15

Which of the following policies is an example of a command-and-control policy?

Accepted Answer

A)   subsidies to education
B)   maximum levels of pollution that factories may emit
C)   tradable pollution permits
D)   None of the above is an example of a command-and-control policy.E) All of the above
F) B) and D)

Question 16

Figure 10-10 
-Refer to Figure 10-10."The social cost of the last unit produced exceeds the value to buyers of the last unit produced by $3." This statement is correct at which quantity of output?

Accepted Answer

A)   120 units
B)   140 units
C)   160 units
D)   The statement is true at all quantities of output.E) A) and C)
F) C) and D)

Question 17

In many cases the Coase theorem does not work well because

Accepted Answer

A)   there are too few parties at the negotiation table.
B)   the government does not know about the Coase theorem.
C)   transaction costs are too high.
D)   transaction costs are too low.E) C) and D)
F) B) and D)

Question 18

In which of the following cases is the Coase theorem most likely to solve the externality?

Accepted Answer

A)   Ed is allergic to his roommate's cat.
B)   Chemicals from manufacturing plants in the Midwest are causing acid rain in Canada.
C)   Polluted water runoff from farms is making residents of a nearby town sick.
D)   Industrialization around the world is causing global warming.E) B) and C)
F) A) and B)

Question 19

Scenario 10-3
Suppose the equation for the demand curve in a market is  ,where  is the quantity demanded and  is the price.Also,suppose the equation for the supply curve in the same market is  ,where  is the quantity supplied.
-Refer to Scenario 10-3.Suppose there is an external cost of $12 associated with the production of each unit of the good.What is the equation of the social-cost curve?

Accepted Answer

The equati...

Question 20

When one firm sells its pollution permit to another firm,

Accepted Answer

A)   both firms benefit.
B)   the total amount of pollution remains the same.
C)   the total amount of pollution decreases.
D)   Both a and b are correct.E) All of the above
F) A) and B)

Exam 10: Externalities

Which of the following policies is not an example of a command-and-control policy?

Correct Answer
verified

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

Correct Answer
verified

Employing a lawyer to draft and enforce a private contract between parties wishing to solve an externality problem is an example of

Correct Answer
verified

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

Correct Answer
verified

Suppose that electricity producers create a negative externality equal to $5 per unit.What is the relationship between the equilibrium quantity and the socially optimal quantity of electricity to be produced?

Correct Answer
verified

Figure 10-13.On the graph,Q represents the quantity of plastics and P represents the price of plastics. -Refer to Figure 10-13.In order to reach the social optimum,the government could

Correct Answer
verified

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

Correct Answer
verified

In many cases the Coase theorem does not work well because

Correct Answer
verified

When one firm sells its pollution permit to another firm,

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified
The equati...
View Answer

Correct Answer
verified

Which of the following policies is an example of a command-and-control policy?

Correct Answer
verified

Private markets fail to account for externalities because

Correct Answer
verified

Figure 10-10 -Refer to Figure 10-10."The social cost of the last unit produced exceeds the value to buyers of the last unit produced by $3." This statement is correct at which quantity of output?

Correct Answer
verified

The Coase theorem suggests that taxes should be enacted to alleviate the effects of negative externalities.

Correct Answer
verified

A corrective tax

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

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
verified

In which of the following cases is the Coase theorem most likely to solve the externality?

Correct Answer
verified

Exam 10: Externalities

Which of the following policies is not an example of a command-and-control policy?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Employing a lawyer to draft and enforce a private contract between parties wishing to solve an externality problem is an example of

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Suppose that electricity producers create a negative externality equal to $5 per unit.What is the relationship between the equilibrium quantity and the socially optimal quantity of electricity to be produced?

Correct AnswerverifiedShow Answer

Figure 10-13.On the graph,Q represents the quantity of plastics and P represents the price of plastics. -Refer to Figure 10-13.In order to reach the social optimum,the government could

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In many cases the Coase theorem does not work well because

Correct AnswerverifiedShow Answer

When one firm sells its pollution permit to another firm,

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedThe equati...View AnswerShow Answer

Correct AnswerverifiedShow Answer

Which of the following policies is an example of a command-and-control policy?

Correct AnswerverifiedShow Answer

Private markets fail to account for externalities because

Correct AnswerverifiedShow Answer

Figure 10-10 -Refer to Figure 10-10."The social cost of the last unit produced exceeds the value to buyers of the last unit produced by $3." This statement is correct at which quantity of output?

Correct AnswerverifiedShow Answer

The Coase theorem suggests that taxes should be enacted to alleviate the effects of negative externalities.

Correct AnswerverifiedShow Answer

A corrective tax

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

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

In which of the following cases is the Coase theorem most likely to solve the externality?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The equati...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified