Question 1

What is the difference between command-and-control policies and market-based policies toward externalities?

Accepted Answer

A)   Command-and-control policies provide incentives for private decisionmakers to solve the problems on their own,whereas market-based policies regulate behavior directly.
B)   Command-and-control policies rely on taxes,whereas market-based policies rely on quotas.
C)   Command-and-control policies regulate behavior directly,whereas market-based policies provide incentives for private decisionmakers to change their behavior.
D)   Command-and-control policies are efficient,whereas market-based policies are inefficient.E) C) and D)
F) A) and D)

Question 2

Suppose that Company A's railroad cars pass through Farmer B's corn fields.The railroad causes an externality to the farmer because the railroad cars emit sparks that cause $1,500 in damage to the farmer's crops.There is a special soy-based grease that the railroad could purchase that would eliminate the damaging sparks.The grease costs $1,200.Suppose that the railroad is not liable for any damage caused to the crops.Assume that there are no transaction costs.Which of the following characterizes the efficient outcome?

Accepted Answer

A)   The railroad will continue to operate but will pay the farmer $1,500 in damages.
B)   The railroad will purchase the grease for $1,200 and pay the farmer nothing because no crop damage will occur.
C)   The farmer will incur $1,500 in damages to his crops.
D)   The farmer will pay the railroad $1,200 to purchase the grease so that no crop damage will occur.E) A) and B)
F) B) and D)

Question 3

Table 10-3
 th unit of output that is produced is A)  $10. B)  $16. C)  $26. D)  $30." class="answers-bank-image d-inline" rel="preload" >
-Refer to Table 10-3.The social value of the 4th unit of output that is produced is

Accepted Answer

A)   $10.
B)   $16.
C)   $26.
D)   $30.E) C) and D)
F) A) and B)

Question 4

Which of the following statements is not correct?

Accepted Answer

A)   Government policies may improve the market's allocation of resources when negative externalities are present.
B)   Government policies may improve the market's allocation of resources when positive externalities are present.
C)   A positive externality is an example of a market failure.
D)   Without government intervention,the market will tend to undersupply products that produce negative externalities.E) None of the above
F) C) and D)

Question 5

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

Question 6

Suppose the Environmental Protection Agency issues pollution permits in order to limit the quantity of pollution.Under this policy,is the supply of pollution rights perfectly elastic or is it perfectly inelastic?

Accepted Answer

The supply...

Question 7

Once tradable pollution permits have been allocated to firms,

Accepted Answer

A)   the government controls the price of permits.
B)   firms that can reduce pollution only at high cost will be willing to pay the most for the pollution permits.
C)   the value of pollution-saving technology will be lower than the market value of a pollution permit.
D)   the Coase theorem is no longer applicable as a solution to reducing pollution.E) A) and B)
F) None of the above

Question 8

Which of the following statements about the Coase theorem is true?

Accepted Answer

A)   Underlying the results of the Coase theorem is the idea that private parties can bargain without cost over the allocation of resources.
B)   The Coase theorem asserts that private solutions to externalities invariably lead to inefficient allocations of resources.
C)   The Coase theorem applies to negative externalities,but not to positive externalities.
D)   All of the above are correct.E) A) and B)
F) A) and C)

Question 9

An optimal tax on pollution would result in which of the following?

Accepted Answer

A)   Producers will choose not to produce any pollution.
B)   Producers will internalize the cost of the pollution.
C)   Producers will maximize production.
D)   The value to consumers at market equilibrium will exceed the social cost of production.E) None of the above
F) A) and B)

Question 10

Corrective taxes are typically advocated to correct for the effects of

Accepted Answer

A)   positive externalities.
B)   negative externalities.
C)   patents.
D)   All of the above are correct.E) B) and D)
F) B) and C)

Question 11

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) B) and D)
F) All of the above

Question 12

Figure 10-12 
-Refer to Figure 10-12.The graph,as drawn,could apply to the market for

Accepted Answer

A)   fire extinguishers.
B)   historic buildings.
C)   robots.
D)   All of the above are correct.E) A) and D)
F) A) and C)

Question 13

A corrective tax

Accepted Answer

A)   causes each factory to reduce pollution by the same amount.
B)   assigns a legal pollution limit for firms.
C)   places a price on the right to pollute.
D)   costs society more than pollution regulations.E) A) and B)
F) A) and C)

Question 14

Figure 10-4 3." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 10-4.This market

Accepted Answer

A)   has no need for government intervention.
B)   would benefit from a tax on the product.
C)   would benefit from a subsidy for the product.
D)   would maximize total well-being at Q3.E) A) and B)
F) None of the above

Question 15

Suppose that electricity producers create a negative externality equal to $5 per unit.Further suppose that the government gives a $5 per-unit subsidy to producers.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) All of the above
F) C) and D)

Question 16

When externalities cause markets to be inefficient,

Accepted Answer

A)   government action is always needed to solve the problem.
B)   private solutions can be developed to solve the problem.
C)   given enough time,externalities can be solved through normal market adjustments.
D)   there is no way to eliminate the problem of externalities in a market.E) A) and D)
F) C) and D)

Question 17

Government can be used to solve externality problems that are too costly for private parties to solve.

Accepted Answer

A) True 
 B)False

Question 18

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

Question 19

Table 10-1
The following table shows the private value,private cost,and external cost for various quantities of output in a market.
 
-Refer to Table 10-1.What is the socially-optimal quantity of output in this market?

Accepted Answer

A)   1 unit
B)   2 units
C)   3 units
D)   4 unitsE) A) and D)
F) B) and C)

Question 20

An externality exists whenever

Accepted Answer

A)   the economy cannot benefit from government intervention.
B)   markets are not able to reach equilibrium.
C)   a firm sells its product in a foreign market.
D)   Bobbi engages in an activity that influences the well-being of Rosa and yet Bobbi neither pays nor receives payment for that influence.E) All of the above
F) None of the above

Exam 10: Externalities

Once tradable pollution permits have been allocated to firms,

Correct Answer
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Table 10-1 The following table shows the private value,private cost,and external cost for various quantities of output in a market. -Refer to Table 10-1.What is the socially-optimal quantity of output in this market?

Correct Answer
verified

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

Correct Answer
verified

Suppose the Environmental Protection Agency issues pollution permits in order to limit the quantity of pollution.Under this policy,is the supply of pollution rights perfectly elastic or is it perfectly inelastic?

Correct Answer
verified
The supply...
View Answer

Figure 10-12 -Refer to Figure 10-12.The graph,as drawn,could apply to the market for

Correct Answer
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A corrective tax

Correct Answer
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Government can be used to solve externality problems that are too costly for private parties to solve.

Correct Answer
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Which of the following statements about the Coase theorem is true?

Correct Answer
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An externality exists whenever

Correct Answer
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Figure 10-4 -Refer to Figure 10-4.This market

Correct Answer
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Suppose that electricity producers create a negative externality equal to $5 per unit.Further suppose that the government gives a $5 per-unit subsidy to producers.What is the relationship between the equilibrium quantity and the socially optimal quantity of electricity to be produced?

Correct Answer
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When externalities cause markets to be inefficient,

Correct Answer
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An optimal tax on pollution would result in which of the following?

Correct Answer
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Corrective taxes are typically advocated to correct for the effects of

Correct Answer
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Table 10-3 -Refer to Table 10-3.The social value of the 4^th unit of output that is produced is

Correct Answer
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Which of the following statements is not correct?

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

Correct Answer
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What is the difference between command-and-control policies and market-based policies toward externalities?

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

Exam 10: Externalities

Once tradable pollution permits have been allocated to firms,

Correct AnswerverifiedShow Answer

Table 10-1 The following table shows the private value,private cost,and external cost for various quantities of output in a market. -Refer to Table 10-1.What is the socially-optimal quantity of output in this market?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Suppose the Environmental Protection Agency issues pollution permits in order to limit the quantity of pollution.Under this policy,is the supply of pollution rights perfectly elastic or is it perfectly inelastic?

Correct AnswerverifiedThe supply...View AnswerShow Answer

Figure 10-12 -Refer to Figure 10-12.The graph,as drawn,could apply to the market for

Correct AnswerverifiedShow Answer

A corrective tax

Correct AnswerverifiedShow Answer

Government can be used to solve externality problems that are too costly for private parties to solve.

Correct AnswerverifiedShow Answer

Which of the following statements about the Coase theorem is true?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

An externality exists whenever

Correct AnswerverifiedShow Answer

Figure 10-4 -Refer to Figure 10-4.This market

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When externalities cause markets to be inefficient,

Correct AnswerverifiedShow Answer

An optimal tax on pollution would result in which of the following?

Correct AnswerverifiedShow Answer

Corrective taxes are typically advocated to correct for the effects of

Correct AnswerverifiedShow Answer

Table 10-3 -Refer to Table 10-3.The social value of the 4th unit of output that is produced is

Correct AnswerverifiedShow Answer

Which of the following statements is not correct?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

What is the difference between command-and-control policies and market-based policies toward externalities?

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

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The supply...
View Answer

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Table 10-3 -Refer to Table 10-3.The social value of the 4^th unit of output that is produced is

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