Question 1

Scenario 10-1
The demand curve for gasoline slopes downward and the supply curve for gasoline slopes upward. The production of the 1,000th gallon of gasoline entails the following:
• a private cost of $3.10;
• a social cost of $3.55;
• a value to consumers of $3.70.
-Refer to Scenario 10-1. Let Q represent the number of gallons of gasoline and let P represent the price of a gallon of gasoline. Which of the following statements is correct?

Accepted Answer

A)   One point on the social-cost curve is Q = 1,000, P = $0.45) .
B)   One point on the supply curve is Q = 1,000, P = $3.10) .
C)   One point on the demand curve is Q = 1,000, P = $3.55) .
D)   The socially optimal quantity of gasoline is less than 1,000 gallons.E) B) and C)
F) None of the above

Question 2

At any given quantity, the willingness to pay of the marginal buyer is the height of the _______.

Accepted Answer

The answer of At any given quantity, the willingness to...

Question 3

The Coase theorem asserts that the private market will always solve the problem of externalities and allocate resources efficiently

Accepted Answer

A)   even if private parties experience substantial costs of bargaining.
B)   even if the initial distribution of legal rights is skewed in favor of some private parties over others.
C)   only when there is a large number of private parties that engage in bargaining.
D)   All of the above are correct.E) A) and B)
F) B) and C)

Question 4

Which of the following policies is the government most inclined to use when faced with a positive externality?

Accepted Answer

A)   taxation
B)   permits
C)   subsidies
D)   usage feesE) A) and B)
F) None of the above

Question 5

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

Question 6

Suppose that flower gardens create a positive externality equal to $1 per plant. What is the relationship between the equilibrium quantity and the socially optimal quantity of plants grown?

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) A) and B)

Question 7

An externality is

Accepted Answer

A)   the costs that parties incur in the process of agreeing and following through on a bargain.
B)   the uncompensated impact of one person's actions on the well-being of a bystander.
C)   the proposition that private parties can bargain without cost over the allocation of resources.
D)   a market equilibrium tax.E) All of the above
F) A) and C)

Question 8

Since restored historic buildings convey a positive externality, local governments may choose to

Accepted Answer

A)   regulate the demolition of them.
B)   provide tax breaks to owners who restore them.
C)   increase property taxes in historic areas.
D)   Both a and b are correct.E) A) and B)
F) B) and D)

Question 9

Figure 10-1 
-Refer to Figure 10-1. This graph represents the tobacco industry. The industry creates

Accepted Answer

A)   positive externalities.
B)   negative externalities.
C)   no externalities.
D)   no equilibrium in the market.E) A) and C)
F) C) and D)

Question 10

Figure 10-4 
-Refer to Figure 10-4. If all external costs were internalized, then the market's equilibrium output would be

Accepted Answer

A)   Q1.
B)   Q2.
C)   Q3.
D)   Q4.E) A) and B)
F) None of the above

Question 11

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

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

Question 13

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

Accepted Answer

A)   The private cost of producing the 120th unit of output is $12.
B)   The social cost of producing the 120th unit of output is $22.
C)   The external cost of producing the 120th unit of output is $2.
D)   All of the above are correct.E) None of the above
F) A) and D)

Question 14

Which of the following illustrates the concept of a negative externality?

Accepted Answer

A)   A college professor plays a vigorous game of racquet ball with the racquet he recently purchased.
B)   A flood wipes out a farmer's corn crop.
C)   A college student plays loud music on his new stereo system at 2:00a.m
D)   A janitor eats a hamburger during his lunch break.E) A) and B)
F) B) and C)

Question 15

Suppose that flu shots create a positive externality equal to $12 per shot. 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) A) and B)
F) A) and C)

Question 16

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

Accepted Answer

A)   Jenny pays Abe $150 to give the dog to his parents who live on an isolated farm.
B)   Abe pays Jenny $350 for her inconvenience.
C)   Jenny pays Abe $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 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) All of the above
F) A) and B)

Question 18

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

Question 19

Which of the following is not correct?

Accepted Answer

A)   Markets allocate scarce resources with the forces of supply and demand.
B)   The equilibrium of supply and demand is typically an efficient allocation of resources.
C)   Governments can sometimes improve market outcomes.
D)   Externalities cannot be positive.E) A) and B)
F) None of the above

Question 20

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

Accepted Answer

A)   automobiles.
B)   aluminum.
C)   industrial robots.
D)   All of the above are correct.E) B) and C)
F) A) and B)

Exam 10: Externalities

Which of the following is not correct?

Correct Answer
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An externality is

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

Correct Answer
verified

Since restored historic buildings convey a positive externality, local governments may choose to

Correct Answer
verified

Suppose that flower gardens create a positive externality equal to $1 per plant. What is the relationship between the equilibrium quantity and the socially optimal quantity of plants grown?

Correct Answer
verified

Which of the following illustrates the concept of a negative externality?

Correct Answer
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At any given quantity, the willingness to pay of the marginal buyer is the height of the _______.

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

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

Correct Answer
verified

Correct Answer
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Which of the following policies is the government most inclined to use when faced with a positive externality?

Correct Answer
verified

Figure 10-1 -Refer to Figure 10-1. This graph represents the tobacco industry. The industry creates

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

Correct Answer
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Figure 10-4 -Refer to Figure 10-4. If all external costs were internalized, then the market's equilibrium output would be

Correct Answer
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An externality exists whenever

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

Correct Answer
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Suppose that flu shots create a positive externality equal to $12 per shot. What is the relationship between the equilibrium quantity and the socially optimal quantity of flu shots produced?

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

Correct Answer
verified

The Coase theorem asserts that the private market will always solve the problem of externalities and allocate resources efficiently

Correct Answer
verified

Exam 10: Externalities

Which of the following is not correct?

Correct AnswerverifiedShow Answer

An externality is

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Since restored historic buildings convey a positive externality, local governments may choose to

Correct AnswerverifiedShow Answer

Suppose that flower gardens create a positive externality equal to $1 per plant. What is the relationship between the equilibrium quantity and the socially optimal quantity of plants grown?

Correct AnswerverifiedShow Answer

Which of the following illustrates the concept of a negative externality?

Correct AnswerverifiedShow Answer

At any given quantity, the willingness to pay of the marginal buyer is the height of the _______.

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

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following policies is the government most inclined to use when faced with a positive externality?

Correct AnswerverifiedShow Answer

Figure 10-1 -Refer to Figure 10-1. This graph represents the tobacco industry. The industry creates

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Figure 10-4 -Refer to Figure 10-4. If all external costs were internalized, then the market's equilibrium output would be

Correct AnswerverifiedShow Answer

An externality exists whenever

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Suppose that flu shots create a positive externality equal to $12 per shot. What is the relationship between the equilibrium quantity and the socially optimal quantity of flu shots produced?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The Coase theorem asserts that the private market will always solve the problem of externalities and allocate resources efficiently

Correct AnswerverifiedShow Answer

Correct Answer
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