Question 1

The Coase theorem asserts that,if externalities are present and if private parties can bargain over the allocation of resources at no cost,then

Accepted Answer

A)   the private market will reach an equilibrium in which resources are allocated inefficiently.
B)   the private market will reach an equilibrium in which resources are allocated efficiently.
C)   the private market cannot reach an equilibrium.
D)   a mixture of corrective taxes and subsidies is necessary for a socially optimal equilibrium.E) B) and C)
F) A) and B)

Question 2

Monte owns a dog;the dog's barking annoys Monte's neighbor,Teresa.Suppose that the benefit of owning the dog is worth $200 to Monte and that Teresa bears a cost of $400 from the barking.Assuming Monte has the legal right to keep the dog,a possible private solution to this problem is that

Accepted Answer

A)   Teresa pays Monte $150 to give the dog to his parents who live on an isolated farm.
B)   Monte pays Teresa $350 for her inconvenience.
C)   Teresa pays Monte $300 to give the dog to his parents who live on an isolated farm.
D)   There is no private transaction that would improve this situation.E) A) and B)
F) A) and C)

Question 3

Private contracts between parties with mutual interests

Accepted Answer

A)   will reduce the well-being of society.
B)   will lead to market outcomes in which the public interest is sacrificed for personal gain.
C)   can solve some inefficiencies associated with positive externalities.
D)   will create negative externalities.E) All of the above
F) A) and B)

Question 4

Figure 10-4 2,then total economic well-being would increase if output A)  increased beyond Q4. B)  decreased to Q1. C)  increased to Q3. D)  stayed at Q2." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 10-4.If this market is currently producing at Q2,then total economic well-being would increase if output

Accepted Answer

A)   increased beyond Q4.
B)   decreased to Q1.
C)   increased to Q3.
D)   stayed at Q2.E) None of the above
F) All of the above

Question 5

The least expensive way to clean up the environment is for all firms to reduce pollution by an equal percentage.

Accepted Answer

A) True 
 B)False

Question 6

A corrective tax

Accepted Answer

A)   can be used to internalize a negative externality.
B)   imposed on sellers shifts the supply curve to the left.
C)   imposed on buyers shifts the demand curve to the left.
D)   All of the above.E) B) and C)
F) A) and D)

Question 7

One reason that private solutions to externalities do not always work is that

Accepted Answer

A)   government intervention negates the benefits of positive externalities.
B)   some people benefit from externalities.
C)   interested parties incur costs in the bargaining process.
D)   charities are not well organized.E) A) and B)
F) None of the above

Question 8

A command-and-control policy is another term for a

Accepted Answer

A)   pollution permit.
B)   government regulation.
C)   corrective tax.
D)   Both a and b are correct.E) All of the above
F) A) and B)

Question 9

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 B)
F) B) and C)

Question 10

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 wanted to reduce pollution from 16 units to 6 units,which of the following fees per unit of pollution would achieve that goal?

Accepted Answer

A)   $67
B)   $68
C)   $81
D)   $83E) B) and D)
F) B) and C)

Question 11

Suppose that cookie producers create a positive externality equal to $2 per dozen.Further suppose that the government offers a $2 per-dozen subsidy to the producers.What is the relationship between the equilibrium quantity and the socially optimal quantity of cookies to be produced?

Accepted Answer

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

Question 12

Figure 10-4 1. B)  Q2. C)  Q3. D)  Q4." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 10-4.The socially optimal quantity would be

Accepted Answer

A)   Q1.
B)   Q2.
C)   Q3.
D)   Q4.E) B) and C)
F) All of the above

Question 13

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,a government policy that internalized the externality would move the quantity of smokestack scrubbers installed 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) None of the above
F) B) and C)

Question 14

The concept of external benefit is associated with a negative externality,but not with a positive externality.

Accepted Answer

A) True 
 B)False

Question 15

In markets,the invisible hand allocates resources efficiently

Accepted Answer

A)   in all cases.
B)   when the buyers and sellers are the only interested parties.
C)   when there are positive externalities,but not when there are negative externalities.
D)   when there are negative externalities,but not when there are positive externalities.E) B) and C)
F) A) and D)

Question 16

Which of the following suggests that private markets can be effective in dealing with externalities?

Accepted Answer

A)   the "invisible hand"
B)   the law of diminishing social returns
C)   the Coase theorem
D)   technology policyE) A) and B)
F) None of the above

Question 17

Suppose that cookie producers create a positive externality equal to $2 per dozen.What is the relationship between the equilibrium quantity and the socially optimal quantity of cookies 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 C)
F) None of the above

Question 18

If the government were to limit the release of air-pollution produced by a steel mill to 75 parts per million,the policy would be considered a

Accepted Answer

A)   regulation.
B)   corrective tax.
C)   subsidy.
D)   market-based policy.E) A) and B)
F) None of the above

Question 19

Table 10-6
The following table shows the total 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 $46,and for Firm A to eliminate two units of pollution,it would cost a total of $103.
 
-Refer to Table 10-6.If the government charged a fee of $99 per unit of pollution,how many units of pollution would the firms eliminate altogether?

Accepted Answer

A)   9
B)   12
C)   15
D)   16E) A) and B)
F) None of the above

Question 20

The tax on gasoline

Accepted Answer

A)   reduces efficiency by causing large deadweight losses.
B)   reduces efficiency by decreasing consumer surplus and producer surplus.
C)   enhances efficiency by serving as a corrective device in a market with positive externalities.
D)   enhances efficiency by serving as a corrective device in a market with negative externalities.E) A) and C)
F) B) and C)

Exam 10: Externalities

The Coase theorem asserts that,if externalities are present and if private parties can bargain over the allocation of resources at no cost,then

Correct Answer
verified

The concept of external benefit is associated with a negative externality,but not with a positive externality.

Correct Answer
verified

One reason that private solutions to externalities do not always work is that

Correct Answer
verified

A command-and-control policy is another term for a

Correct Answer
verified

Figure 10-4 -Refer to Figure 10-4.The socially optimal quantity would be

Correct Answer
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Correct Answer
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Figure 10-4 -Refer to Figure 10-4.If this market is currently producing at Q₂,then total economic well-being would increase if output

Correct Answer
verified

Suppose that cookie producers create a positive externality equal to $2 per dozen.Further suppose that the government offers a $2 per-dozen subsidy to the producers.What is the relationship between the equilibrium quantity and the socially optimal quantity of cookies to be produced?

Correct Answer
verified

If the government were to limit the release of air-pollution produced by a steel mill to 75 parts per million,the policy would be considered a

Correct Answer
verified

A corrective tax

Correct Answer
verified

Which of the following suggests that private markets can be effective in dealing with externalities?

Correct Answer
verified

Correct Answer
verified

Suppose that cookie producers create a positive externality equal to $2 per dozen.What is the relationship between the equilibrium quantity and the socially optimal quantity of cookies to be produced?

Correct Answer
verified

In markets,the invisible hand allocates resources efficiently

Correct Answer
verified

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,a government policy that internalized the externality would move the quantity of smokestack scrubbers installed from point

Correct Answer
verified

Monte owns a dog;the dog's barking annoys Monte's neighbor,Teresa.Suppose that the benefit of owning the dog is worth $200 to Monte and that Teresa bears a cost of $400 from the barking.Assuming Monte has the legal right to keep the dog,a possible private solution to this problem is that

Correct Answer
verified

Private contracts between parties with mutual interests

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

The tax on gasoline

Correct Answer
verified

The least expensive way to clean up the environment is for all firms to reduce pollution by an equal percentage.

Correct Answer
verified

Exam 10: Externalities

The Coase theorem asserts that,if externalities are present and if private parties can bargain over the allocation of resources at no cost,then

Correct AnswerverifiedShow Answer

The concept of external benefit is associated with a negative externality,but not with a positive externality.

Correct AnswerverifiedShow Answer

One reason that private solutions to externalities do not always work is that

Correct AnswerverifiedShow Answer

A command-and-control policy is another term for a

Correct AnswerverifiedShow Answer

Figure 10-4 -Refer to Figure 10-4.The socially optimal quantity would be

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Figure 10-4 -Refer to Figure 10-4.If this market is currently producing at Q2,then total economic well-being would increase if output

Correct AnswerverifiedShow Answer

Suppose that cookie producers create a positive externality equal to $2 per dozen.Further suppose that the government offers a $2 per-dozen subsidy to the producers.What is the relationship between the equilibrium quantity and the socially optimal quantity of cookies to be produced?

Correct AnswerverifiedShow Answer

If the government were to limit the release of air-pollution produced by a steel mill to 75 parts per million,the policy would be considered a

Correct AnswerverifiedShow Answer

A corrective tax

Correct AnswerverifiedShow Answer

Which of the following suggests that private markets can be effective in dealing with externalities?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Suppose that cookie producers create a positive externality equal to $2 per dozen.What is the relationship between the equilibrium quantity and the socially optimal quantity of cookies to be produced?

Correct AnswerverifiedShow Answer

In markets,the invisible hand allocates resources efficiently

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Monte owns a dog;the dog's barking annoys Monte's neighbor,Teresa.Suppose that the benefit of owning the dog is worth $200 to Monte and that Teresa bears a cost of $400 from the barking.Assuming Monte has the legal right to keep the dog,a possible private solution to this problem is that

Correct AnswerverifiedShow Answer

Private contracts between parties with mutual interests

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

The tax on gasoline

Correct AnswerverifiedShow Answer

The least expensive way to clean up the environment is for all firms to reduce pollution by an equal percentage.

Correct AnswerverifiedShow Answer

Correct Answer
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Figure 10-4 -Refer to Figure 10-4.If this market is currently producing at Q₂,then total economic well-being would increase if output

Correct Answer
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