Question 1

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. Suppose the government wanted to reduce pollution from 16 units to exactly 6 units. Which one of the following fees per unit of pollution would achieve that goal?

Accepted Answer

A)  $65
B)  $70
C)  $75
D)  $95E) A) and C)
F) None of the above

Question 2

Industrial policy aims to

Accepted Answer

A)  reduce pollution by requiring factories to reduce their pollution by a certain number of tons per year.
B)  reduce pollution by levying a tax on factories of a certain number of dollars for every ton of pollution that the factory emits.
C)  encourage business firms to subsidize continuing education for their employees.
D)  promote technology-enhancing industries.E) A) and B)
F) None of the above

Question 3

​Sophia sits behind Gabriel on an airplane. Gabriel owns the right to recline his seat and values this right at $10. Sophia values a non-reclined seat in front of her at $20. Assuming no transaction costs, an efficient solution would be for Sophia to pay Gabriel $15 to not recline his seat.
​

Accepted Answer

A) True 
 B)False

Question 4

The Coase theorem suggests that taxes should be enacted to alleviate the effects of negative externalities.

Accepted Answer

A) True 
 B)False

Question 5

Suppose the socially-optimal quantity of good x is 2,500 units and the market-equilibrium quantity of good x is 3,000 units. When 2,500 units of good x are produced, the

Accepted Answer

A)  external cost of good x exceeds the private value of good x.
B)  external cost of good x equals the private value of good x.
C)  social cost of good x exceeds the private value of good x.
D)  social cost of good x equals the private value of good x.E) A) and D)
F) All of the above

Question 6

Corrective taxes differ from most taxes in that corrective taxes

Accepted Answer

A)  reduce economic efficiency.
B)  do not raise revenue for the government.
C)  do not cause deadweight losses.
D)  always result in a high burden on sellers of goods to which the corrective tax applies.E) A) and C)
F) B) and C)

Question 7

A negative externality

Accepted Answer

A)  is an adverse impact on a bystander.
B)  causes the product in a market to be under-produced.
C)  is an adverse impact on market participants.
D)  is present in markets where the good or service does not have any impact on bystanders.E) A) and C)
F) A) and D)

Question 8

By allowing an income-tax deduction for charitable contributions, the government

Accepted Answer

A)  encourages a private solution to a particular positive-externality problem.
B)  discourages a private solution to a particular positive-externality problem.
C)  encourages a private solution to a particular negative-externality problem.
D)  discourages a private solution to a particular negative-externality problem.E) A) and D)
F) A) and C)

Question 9

​Figure 10-20. ​ 
-Refer to Figure 10-20. The graph depicts the market for fertilizer. Without any government regulation, how much fertilizer will be produced?

Accepted Answer

A)  ​100 units
B)  200 units
C)  250 units
D)  ​300 unitsE) All of the above
F) A) and B)

Question 10

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) All of the above
F) A) and C)

Question 11

Since air pollution creates a negative externality,

Accepted Answer

A)  social welfare will be enhanced when some, but not all air pollution is eliminated.
B)  social welfare is optimal when all air pollution is eliminated.
C)  governments should encourage private firms to consider only private costs.
D)  the free market result maximizes social welfare.E) A) and C)
F) B) and D)

Question 12

Organizers of an outdoor concert in a park surrounded by residential neighborhoods are likely to consider the noise and traffic cost to residential neighborhoods when they assess the financial viability of the concert venture.

Accepted Answer

A) True 
 B)False

Question 13

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 14

The goal of industrial policy should be that

Accepted Answer

A)  industries yielding the largest positive externalities should receive the biggest subsidies.
B)  any industry that produces negative externalities should be heavily taxed.
C)  any production process that produces negative externalities should be shut down.
D)  all industries that produce positive externalities should be equally subsidized.E) B) and C)
F) A) and C)

Question 15

Figure 10-10 
-Refer to Figure 10-10. An increase in output from 120 units to 160 units would

Accepted Answer

A)  move the market from a socially efficient outcome to a socially inefficient outcome.
B)  increase the external cost per unit of output.
C)  increase total economic well-being.
D)  be an action of which a benevolent social planner would approve.E) None of the above
F) A) and B)

Question 16

​Figure 10-20. ​ 
-Refer to Figure 10-20. The graph depicts the market for fertilizer. What is the socially optimal price of fertilizer?

Accepted Answer

A)  $​100
B)  $200
C)  $250
D)  ​$300E) A) and B)
F) A) and C)

Question 17

In what sense do externalities cause the "invisible hand" of the marketplace to fail?

Accepted Answer

A)  Externalities lead to government intervention in markets, which exacerbates the problems associated with externalities.
B)  Externalities result in prices that are too high for many consumers to pay.
C)  Markets fail to produce the maximum total benefit to society when positive or negative externalities are present.
D)  Markets produce too little of a good when positive or negative externalities are present.E) B) and D)
F) None of the above

Question 18

A positive externality occurs when

Accepted Answer

A)  Jack receives a benefit from John's consumption of a certain good.
B)  Jack receives personal benefits from his own consumption of a certain good.
C)  Jack's benefit exceeds John's benefit when they each consume the same good.
D)  Jack's receives a loss from John's consumption of a certain good.E) B) and D)
F) B) and C)

Question 19

Which of the following policies is an example of a command-and-control policy?

Accepted Answer

A)  subsidies to education
B)  maximum levels of pollution that factories may emit
C)  tradable pollution permits
D)  None of the above is an example of a command-and-control policy.E) A) and D)
F) A) and B)

Question 20

Negative externalities lead markets to produce

Accepted Answer

A)  greater than efficient output levels and positive externalities lead markets to produce smaller than efficient output levels.
B)  smaller than efficient output levels and positive externalities lead markets to produce greater than efficient output levels.
C)  greater than efficient output levels and positive externalities lead markets to produce efficient output levels.
D)  efficient output levels and positive externalities lead markets to produce greater than efficient output levels.E) A) and B)
F) C) and D)

Exam 10: Externalities

Correct Answer
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Corrective taxes differ from most taxes in that corrective taxes

Correct Answer
verified

Figure 10-10 -Refer to Figure 10-10. An increase in output from 120 units to 160 units would

Correct Answer
verified

The goal of industrial policy should be that

Correct Answer
verified

Sophia sits behind Gabriel on an airplane. Gabriel owns the right to recline his seat and values this right at $10. Sophia values a non-reclined seat in front of her at $20. Assuming no transaction costs, an efficient solution would be for Sophia to pay Gabriel $15 to not recline his seat.

Correct Answer
verified

Which of the following policies is an example of a command-and-control policy?

Correct Answer
verified

Industrial policy aims to

Correct Answer
verified

Organizers of an outdoor concert in a park surrounded by residential neighborhoods are likely to consider the noise and traffic cost to residential neighborhoods when they assess the financial viability of the concert venture.

Correct Answer
verified

By allowing an income-tax deduction for charitable contributions, the government

Correct Answer
verified

A positive externality occurs when

Correct Answer
verified

Suppose the socially-optimal quantity of good x is 2,500 units and the market-equilibrium quantity of good x is 3,000 units. When 2,500 units of good x are produced, the

Correct Answer
verified

A negative externality

Correct Answer
verified

In what sense do externalities cause the "invisible hand" of the marketplace to fail?

Correct Answer
verified

Since air pollution creates a negative externality,

Correct Answer
verified

Figure 10-20. -Refer to Figure 10-20. The graph depicts the market for fertilizer. Without any government regulation, how much fertilizer will be produced?

Correct Answer
verified

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

Correct Answer
verified

The Coase theorem suggests that taxes should be enacted to alleviate the effects of negative externalities.

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

Negative externalities lead markets to produce

Correct Answer
verified

Figure 10-20. -Refer to Figure 10-20. The graph depicts the market for fertilizer. What is the socially optimal price of fertilizer?

Correct Answer
verified

Exam 10: Externalities

Correct AnswerverifiedShow Answer

Corrective taxes differ from most taxes in that corrective taxes

Correct AnswerverifiedShow Answer

Figure 10-10 -Refer to Figure 10-10. An increase in output from 120 units to 160 units would

Correct AnswerverifiedShow Answer

The goal of industrial policy should be that

Correct AnswerverifiedShow Answer

​Sophia sits behind Gabriel on an airplane. Gabriel owns the right to recline his seat and values this right at $10. Sophia values a non-reclined seat in front of her at $20. Assuming no transaction costs, an efficient solution would be for Sophia to pay Gabriel $15 to not recline his seat. ​

Correct AnswerverifiedShow Answer

Which of the following policies is an example of a command-and-control policy?

Correct AnswerverifiedShow Answer

Industrial policy aims to

Correct AnswerverifiedShow Answer

Organizers of an outdoor concert in a park surrounded by residential neighborhoods are likely to consider the noise and traffic cost to residential neighborhoods when they assess the financial viability of the concert venture.

Correct AnswerverifiedShow Answer

By allowing an income-tax deduction for charitable contributions, the government

Correct AnswerverifiedShow Answer

A positive externality occurs when

Correct AnswerverifiedShow Answer

Suppose the socially-optimal quantity of good x is 2,500 units and the market-equilibrium quantity of good x is 3,000 units. When 2,500 units of good x are produced, the

Correct AnswerverifiedShow Answer

A negative externality

Correct AnswerverifiedShow Answer

In what sense do externalities cause the "invisible hand" of the marketplace to fail?

Correct AnswerverifiedShow Answer

Since air pollution creates a negative externality,

Correct AnswerverifiedShow Answer

​Figure 10-20. ​ -Refer to Figure 10-20. The graph depicts the market for fertilizer. Without any government regulation, how much fertilizer will be produced?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The Coase theorem suggests that taxes should be enacted to alleviate the effects of negative externalities.

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

Negative externalities lead markets to produce

Correct AnswerverifiedShow Answer

​Figure 10-20. ​ -Refer to Figure 10-20. The graph depicts the market for fertilizer. What is the socially optimal price of fertilizer?

Correct AnswerverifiedShow Answer

Correct Answer
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Sophia sits behind Gabriel on an airplane. Gabriel owns the right to recline his seat and values this right at $10. Sophia values a non-reclined seat in front of her at $20. Assuming no transaction costs, an efficient solution would be for Sophia to pay Gabriel $15 to not recline his seat.

Correct Answer
verified

Correct Answer
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Correct Answer
verified

Figure 10-20. -Refer to Figure 10-20. The graph depicts the market for fertilizer. Without any government regulation, how much fertilizer will be produced?

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
verified

Figure 10-20. -Refer to Figure 10-20. The graph depicts the market for fertilizer. What is the socially optimal price of fertilizer?

Correct Answer
verified