Question 1

The Credit River has two polluting firms on its banks. Plants A and B each dump 100 tonnes of effluent into the river each year. The cost per tonne of reducing emissions is $20 for plant A and $100 for Plant B. The government wants to reduce overall pollution from 200 tonnes to 50 tonnes.
a.If the government knew the cost of reduction for each firm, what reductions would it impose in order to achieve its overall goal at the least possible total cost? What would be the cost to each firm, and the total cost?
b.If, in the absence of information about each firm’s costs, the government decided to reach its overall goal by imposing uniform reductions on the firms, what would be the cost to each firm, and the total cost?
c.Compare the total costs in parts a and b. If the government does not know the cost of pollution reduction for each firm, is there still some way to reduce pollution to 50 tonnes at the total cost calculated in part a?

Accepted Answer

a.  If the government knew the cost of r...

Question 2

Since externalities tend to keep markets from reaching a socially optimal equilibrium,when is government action needed

Accepted Answer

A)  It is always needed, because private solutions can never be attained.
B)  It is needed when private solutions fail to arise.
C)  It will be needed only to correct for positive externalities.
D)  It will be needed only to compensate consumers.E) B) and C)
F) B) and D)

Question 3

Which example illustrates the concept of a negative externality?

Accepted Answer

A)   a college professor loses a vigorous game of racquetball using the racquet he recently purchased
B)   a flood wipes out a farmer’s entire corn crop
C)   a college student plays his new sound system in the residence at 2:00 a.m
D)   a janitor eats fast-food during his lunch breakE) C) and D)
F) A) and B)

Question 4

Figure 10-1
This figure reflects the market for outdoor concerts in a public park surrounded by residential neighbourhoods.
 
-Refer to Figure 10-1.Why is the social cost curve above the supply curve

Accepted Answer

A)  It takes into account the external costs imposed on society by the concert organizers.
B)  Municipalities always impose noise restrictions on concerts in parks surrounded by residential neighbourhoods.
C)  Concert tickets are likely to be resold at a higher price, making it more costly to attend the concert.
D)  Residents in the surrounding neighbourhoods get to listen to the concert for free.E) C) and D)
F) B) and C)

Question 5

What results 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 is always lower than the market value of a pollution permit.
D)  The total amount of pollution governed by the permit will always decrease.E) All of the above
F) C) and D)

Question 6

If an externality is present in a market,what may enhance economic efficiency

Accepted Answer

A)  increased competition
B)  if private individuals do not attempt bargaining on their own to resolve the problems caused by externalities
C)  better informed market participants
D)  government interventionE) A) and B)
F) A) and C)

Question 7

What will arise when negative externalities are present in a market

Accepted Answer

A)  Private costs will be greater than social costs.
B)  Social costs will be greater than private costs.
C)  Government will regulate the externalities in the market..
D)  The market will not be able to reach any equilibrium situation.E) B) and D)
F) B) and C)

Question 8

When externalities are present in a market,how is the well-being of market participants and market bystanders affected by government policies

Accepted Answer

A)  Market participants are directly affected, and market bystanders are indirectly affected.
B)  Market participants and market bystanders are both directly affected.
C)  Market participants and market bystanders are both indirectly affected.
D)  Market participants are indirectly affected, and market bystanders are directly affected.E) A) and D)
F) None of the above

Question 9

Two firms,A and B,each currently dump 50 tonnes of chemicals into the local river.From now on both firms will require a pollution permit for each tonne of pollution dumped.It costs Firm A $100 for each tonne of pollution that it eliminates before it reaches the river,and it costs Firm B $50 for each tonne of pollution that it eliminates before it reaches the river.The government gives each firm 20 pollution permits.What is the total cost of reducing pollution if the firms are NOT allowed to buy and sell pollution permits from each other,and,NOT including the cost of buying

Accepted Answer

A)  $3000
B)  $3500
C)  $4000
D)  $4500E) All of the above
F) C) and D)

Question 10

When does an externality exist

Accepted Answer

A)  when the government imposes a tariff and forces the market to adjust to a new equilibrium
B)  when markets are not able to reach equilibrium
C)  when a firm sells its product in a foreign market at the world price
D)  when a person engages in an activity that influences the well-being of a bystander and yet neither one pays nor receives payment for that effectE) A) and B)
F) None of the above

Question 11

In a market characterized by externalities,the market equilibrium fails to maximize the total benefit to society as a whole.

Accepted Answer

A) True 
 B)False

Question 12

What is one advantage of allowing a market for pollution permits to control the total amount of pollution released in an area

Accepted Answer

A)  The government knows exactly how much each firm is allowed to pollute.
B)  Government revenue from the sale of permits is greater than revenue from a corrective tax.
C)  The initial allocation of permits to firms does not affect the efficiency of the market.
D)  Firms will work together to eventually eliminate pollution.E) None of the above
F) B) and D)

Question 13

In essence,the corrective tax places a price on the right to pollute.

Accepted Answer

A) True 
 B)False

Question 14

The Coase theorem suggests that efficient solutions to externalities can be arrived at through bargaining. Under what circumstances does this fail to produce a solution?

Accepted Answer

1.Significant transaction costs deter th...

Question 15

What is government intervention that aims to promote technology-enhancing industries called

Accepted Answer

A)  patented technology
B)  intervention policy
C)  industrial technology assistance
D)  industrial policyE) A) and C)
F) A) and B)

Question 16

When a beekeeper places his hives of bees in an orchard so that the bees can gather nectar to produce honey,the bees pollinate the orchard,which increases the yield of fruit.What is the economic explanation of this activity

Accepted Answer

A)  It creates a positive externality because orchard owners can charge the beekeeper a fee for the use of his orchard.
B)  It creates a negative externality because the bees are a hazard to the orchard owner.
C)  It creates a positive externality because both parties can benefit from this activity.
D)  It creates a negative externality because one party may benefit from it but the other party may suffer a loss.E) All of the above
F) A) and C)

Question 17

Because decisions in a market economy are guided by individual self-interest,what exists in an economy

Accepted Answer

A)  a strong need for government intervention in the market
B)  less efficiency in market economies than in command economies
C)  the ability to achieve desirable economic well-being for society as a whole
D)  more need for a strong legal system to control individual greedE) None of the above
F) All of the above

Question 18

When a negative externality exists in a market,how does the cost to producers compare with the cost to society

Accepted Answer

A)  The cost to producers will be greater than the cost to society.
B)  The cost to producers will be the same as the cost to society.
C)  The cost to producers will be less than the cost to society.
D)  The cost to producers and society will be different, regardless of whether an externality is present.E) A) and B)
F) A) and D)

Question 19

Negative externalities lead markets to produce a smaller quantity of a good than is socially desirable,while positive externalities lead markets to produce a larger quantity of a good than is socially desirable.

Accepted Answer

A) True 
 B)False

Question 20

Figure 10-2
 
-Refer to Figure 10-2.At Q₃,how does a consumer value the cost of the product

Accepted Answer

A)  The marginal consumer values this product less than the social cost of producing it.
B)  Every consumer values this product less than the social cost of producing it.
C)  The cost to society is equal to the value to society.
D)  The marginal consumer values this product more than the private cost.E) B) and D)
F) C) and D)

Exam 10: Externalities

What will arise when negative externalities are present in a market

Correct Answer
verified

When does an externality exist

Correct Answer
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Figure 10-2 -Refer to Figure 10-2.At Q₃,how does a consumer value the cost of the product

Correct Answer
verified

What is government intervention that aims to promote technology-enhancing industries called

Correct Answer
verified

Negative externalities lead markets to produce a smaller quantity of a good than is socially desirable,while positive externalities lead markets to produce a larger quantity of a good than is socially desirable.

Correct Answer
verified

In a market characterized by externalities,the market equilibrium fails to maximize the total benefit to society as a whole.

Correct Answer
verified

Correct Answer
verified

When a negative externality exists in a market,how does the cost to producers compare with the cost to society

Correct Answer
verified

The Coase theorem suggests that efficient solutions to externalities can be arrived at through bargaining. Under what circumstances does this fail to produce a solution?

Correct Answer
verified
1.Significant transaction costs deter th...
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Since externalities tend to keep markets from reaching a socially optimal equilibrium,when is government action needed

Correct Answer
verified

When externalities are present in a market,how is the well-being of market participants and market bystanders affected by government policies

Correct Answer
verified

Because decisions in a market economy are guided by individual self-interest,what exists in an economy

Correct Answer
verified

In essence,the corrective tax places a price on the right to pollute.

Correct Answer
verified

When a beekeeper places his hives of bees in an orchard so that the bees can gather nectar to produce honey,the bees pollinate the orchard,which increases the yield of fruit.What is the economic explanation of this activity

Correct Answer
verified

Figure 10-1 This figure reflects the market for outdoor concerts in a public park surrounded by residential neighbourhoods. -Refer to Figure 10-1.Why is the social cost curve above the supply curve

Correct Answer
verified

What is one advantage of allowing a market for pollution permits to control the total amount of pollution released in an area

Correct Answer
verified

Which example illustrates the concept of a negative externality?

Correct Answer
verified

What results once tradable pollution permits have been allocated to firms

Correct Answer
verified

If an externality is present in a market,what may enhance economic efficiency

Correct Answer
verified

Correct Answer
verified
a. If the government knew the cost of r...
View Answer

Exam 10: Externalities

What will arise when negative externalities are present in a market

Correct AnswerverifiedShow Answer

When does an externality exist

Correct AnswerverifiedShow Answer

Figure 10-2 -Refer to Figure 10-2.At Q₃,how does a consumer value the cost of the product

Correct AnswerverifiedShow Answer

What is government intervention that aims to promote technology-enhancing industries called

Correct AnswerverifiedShow Answer

Negative externalities lead markets to produce a smaller quantity of a good than is socially desirable,while positive externalities lead markets to produce a larger quantity of a good than is socially desirable.

Correct AnswerverifiedShow Answer

In a market characterized by externalities,the market equilibrium fails to maximize the total benefit to society as a whole.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

When a negative externality exists in a market,how does the cost to producers compare with the cost to society

Correct AnswerverifiedShow Answer

The Coase theorem suggests that efficient solutions to externalities can be arrived at through bargaining. Under what circumstances does this fail to produce a solution?

Correct Answerverified1.Significant transaction costs deter th...View AnswerShow Answer

Since externalities tend to keep markets from reaching a socially optimal equilibrium,when is government action needed

Correct AnswerverifiedShow Answer

When externalities are present in a market,how is the well-being of market participants and market bystanders affected by government policies

Correct AnswerverifiedShow Answer

Because decisions in a market economy are guided by individual self-interest,what exists in an economy

Correct AnswerverifiedShow Answer

In essence,the corrective tax places a price on the right to pollute.

Correct AnswerverifiedShow Answer

When a beekeeper places his hives of bees in an orchard so that the bees can gather nectar to produce honey,the bees pollinate the orchard,which increases the yield of fruit.What is the economic explanation of this activity

Correct AnswerverifiedShow Answer

Figure 10-1 This figure reflects the market for outdoor concerts in a public park surrounded by residential neighbourhoods. -Refer to Figure 10-1.Why is the social cost curve above the supply curve

Correct AnswerverifiedShow Answer

What is one advantage of allowing a market for pollution permits to control the total amount of pollution released in an area

Correct AnswerverifiedShow Answer

Which example illustrates the concept of a negative externality?

Correct AnswerverifiedShow Answer

What results once tradable pollution permits have been allocated to firms

Correct AnswerverifiedShow Answer

If an externality is present in a market,what may enhance economic efficiency

Correct AnswerverifiedShow Answer

Correct Answerverifieda. If the government knew the cost of r...View AnswerShow Answer

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1.Significant transaction costs deter th...
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a. If the government knew the cost of r...
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