Question 1

Markets are often inefficient when negative externalities are present because

Accepted Answer

A)   private costs exceed social costs at the private market solution.
B)   externalities cannot be corrected without government regulation.
C)   social costs exceed private costs at the private market solution.
D)   production externalities lead to consumption externalities.E) B) and C)
F) None of the above

Question 2

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) A) and C)

Question 3

Because there are positive externalities from higher education,

Accepted Answer

A)   private markets will under-supply college classes.
B)   private markets will over-supply college classes.
C)   the government should impose a tax on college students.
D)   government intervention cannot improve the market for college classes.E) B) and C)
F) A) and C)

Question 4

Which of the following would not be considered a negative externality?

Accepted Answer

A)   Smelter,Inc.creates steel and pollution.
B)   Your friend buys a new puppy that barks every night.
C)   You have an adverse reaction to a medication your doctor prescribed for you.
D)   Your neighbor plays loud music that you dislike through stereo speakers set up on his deck.E) B) and D)
F) None of the above

Question 5

Despite the appealing logic of the Coase theorem,private actors often fail to resolve on their own the problems caused by externalities.

Accepted Answer

A) True 
 B)False

Question 6

Suppose a certain good provides an external benefit.If the private cost of the last unit of the good that was produced is equal to the social value of that unit,then the sum of producer and consumer surplus is maximized.

Accepted Answer

A) True 
 B)False

Question 7

Figure 10-2.The graph depicts the market for plastic. 
-Refer to Figure 10-2.Suppose that the production of plastic creates a social cost which is depicted in the graph above.Without any government regulation,what price will the firm charge per unit of plastic?

Accepted Answer

A)   $3
B)   $3.50
C)   $5
D)   $8E) B) and C)
F) A) and D)

Question 8

In the case of a technology spillover,the government can encourage firms to internalize a positive externality by

Accepted Answer

A)   taxing production,which would decrease supply.
B)   taxing production,which would increase supply.
C)   subsidizing production,which would decrease supply.
D)   subsidizing production,which would increase supply.E) A) and B)
F) A) and C)

Question 9

The difference between a corrective tax and a tradable pollution permit is that

Accepted Answer

A)   a corrective tax sets the price of pollution and a permit sets the quantity of pollution.
B)   a corrective tax creates a more efficient outcome than a permit.
C)   a corrective tax sets the quantity of pollution and a permit sets the price of pollution.
D)   a permit creates a more efficient outcome than a corrective tax.E) A) and B)
F) A) and C)

Question 10

Private markets fail to reach a socially optimal equilibrium when negative externalities are present because

Accepted Answer

A)   social costs equal private costs at the private market solution.
B)   private costs exceed social costs at the private market solution.
C)   social costs exceed private costs at the private market solution.
D)   they internalize externalities.E) None of the above
F) B) and C)

Question 11

Table 10-4
 
-Refer to Table 10-4.Take into account private and external costs and assume the quantity of output is always a whole number (that is,fractional units of output are not possible) .The maximum total surplus that can be achieved in this market is

Accepted Answer

A)   $19.
B)   $21.
C)   $24.
D)   $28.E) B) and D)
F) A) and D)

Question 12

Figure 10-7 1. B)  Q2. C)  Q3. D)  Q4." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 10-7.Which quantity represents the social optimum for this market?

Accepted Answer

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

Question 13

A positive externality

Accepted Answer

A)   is a benefit to the producer of the good.
B)   is a benefit to the consumer of the good.
C)   is a benefit to someone other than the producer and consumer of the good.
D)   results in an optimal level of output.E) B) and C)
F) A) and B)

Question 14

Table 10-3
 
-Refer to Table 10-3.What amount of subsidy per unit of output would move the market from the equilibrium level of output to the socially optimal level of output?

Accepted Answer

A)   $2
B)   $3
C)   $5
D)   $10E) B) and C)
F) None of the above

Question 15

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) All of the above
F) None of the above

Question 16

Suppose that Bill wants to dine at a fancy restaurant,but the only available table is in the smoking section.Bill dislikes the smell of cigarette smoke.He notices that only one person,Peter,is smoking in the smoking section.Bill values the absence of smoke at $15.Peter values the ability to smoke in the restaurant at $10.In order for Bill to pay Peter not to smoke,he will need to tip the waiter $10 to facilitate the transaction.Which of the following represents an efficient solution?

Accepted Answer

A)   Peter continues to smoke because the cost to Bill to pay him not to smoke is between $20 and $25,which exceeds the benefit to him of no smoking ($15) .
B)   Bill offers Peter between $10 and $15 not to smoke,and he pays the waiter $10.Peter accepts,and both parties are better off.
C)   Bill offers Peter between $10 and $15 not to smoke,and he pays the waiter $10.Peter declines because he has a right to smoke in the smoking section.
D)   Bill offers Peter $5 not to smoke,and he pays the waiter $10.Peter accepts,and both parties are better off.E) A) and C)
F) None of the above

Question 17

In summarizing the research on the externalities associated with driving cars,a 2007 Journal of Economic Literature article concluded that the optimal corrective tax on gasoline in the United States would be

Accepted Answer

A)   $0.40 per gallon.
B)   $0.90 per gallon.
C)   $2.10 per gallon.
D)   $3.30 per gallon.E) B) and D)
F) C) and D)

Question 18

Ed is a writer who works from his home.Ed lives next door to Ricky,the drummer for a local band.Ricky needs lots of practice to earn his share of the bands profits,$250.Ed gets distracted by Ricky's drumming but needs to get his writing done to earn $500 for his current article.Which of the following is an efficient solution?

Accepted Answer

A)   Ricky offers Ed $499 to allow Ricky to continue drumming.Ed accepts and both are better off.
B)   Ricky offers Ed $249 to allow Ricky to continue drumming.Ed accepts and both are better off.
C)   Ed offers Ricky $251 to stop practicing his drumming.Ricky agrees and both are better off.
D)   Ed offers Ricky $501 to stop practicing his drumming.Ricky agrees and both are better off.E) B) and C)
F) All of the above

Question 19

Figure 10-10 
-Refer to Figure 10-10.The graph 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 graph.E) A) and C)
F) B) and D)

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 10: Externalities

Markets are often inefficient when negative externalities are present because

Correct Answer
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Private markets fail to reach a socially optimal equilibrium when negative externalities are present because

Correct Answer
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Figure 10-7 -Refer to Figure 10-7.Which quantity represents the social optimum for this market?

Correct Answer
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Which of the following would not be considered a negative externality?

Correct Answer
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A positive externality

Correct Answer
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Correct Answer
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Suppose a certain good provides an external benefit.If the private cost of the last unit of the good that was produced is equal to the social value of that unit,then the sum of producer and consumer surplus is maximized.

Correct Answer
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The difference between a corrective tax and a tradable pollution permit is that

Correct Answer
verified

Figure 10-2.The graph depicts the market for plastic. -Refer to Figure 10-2.Suppose that the production of plastic creates a social cost which is depicted in the graph above.Without any government regulation,what price will the firm charge per unit of plastic?

Correct Answer
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Table 10-3 -Refer to Table 10-3.What amount of subsidy per unit of output would move the market from the equilibrium level of output to the socially optimal level of output?

Correct Answer
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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

In summarizing the research on the externalities associated with driving cars,a 2007 Journal of Economic Literature article concluded that the optimal corrective tax on gasoline in the United States would be

Correct Answer
verified

Correct Answer
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Because there are positive externalities from higher education,

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

Correct Answer
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Figure 10-10 -Refer to Figure 10-10.The graph represents a market in which

Correct Answer
verified

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

Correct Answer
verified

In the case of a technology spillover,the government can encourage firms to internalize a positive externality by

Correct Answer
verified

Despite the appealing logic of the Coase theorem,private actors often fail to resolve on their own the problems caused by externalities.

Correct Answer
verified

Exam 10: Externalities

Markets are often inefficient when negative externalities are present because

Correct AnswerverifiedShow Answer

Private markets fail to reach a socially optimal equilibrium when negative externalities are present because

Correct AnswerverifiedShow Answer

Figure 10-7 -Refer to Figure 10-7.Which quantity represents the social optimum for this market?

Correct AnswerverifiedShow Answer

Table 10-4 -Refer to Table 10-4.Take into account private and external costs and assume the quantity of output is always a whole number (that is,fractional units of output are not possible) .The maximum total surplus that can be achieved in this market is

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Which of the following would not be considered a negative externality?

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A positive externality

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Suppose a certain good provides an external benefit.If the private cost of the last unit of the good that was produced is equal to the social value of that unit,then the sum of producer and consumer surplus is maximized.

Correct AnswerverifiedShow Answer

The difference between a corrective tax and a tradable pollution permit is that

Correct AnswerverifiedShow Answer

Figure 10-2.The graph depicts the market for plastic. -Refer to Figure 10-2.Suppose that the production of plastic creates a social cost which is depicted in the graph above.Without any government regulation,what price will the firm charge per unit of plastic?

Correct AnswerverifiedShow Answer

Table 10-3 -Refer to Table 10-3.What amount of subsidy per unit of output would move the market from the equilibrium level of output to the socially optimal level of output?

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

In summarizing the research on the externalities associated with driving cars,a 2007 Journal of Economic Literature article concluded that the optimal corrective tax on gasoline in the United States would be

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Because there are positive externalities from higher education,

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Figure 10-10 -Refer to Figure 10-10.The graph represents a market in which

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In the case of a technology spillover,the government can encourage firms to internalize a positive externality by

Correct AnswerverifiedShow Answer

Despite the appealing logic of the Coase theorem,private actors often fail to resolve on their own the problems caused by externalities.

Correct AnswerverifiedShow Answer

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