Question 1

Table 10-4
 
-Refer to Table 10-4.The social cost of the 2ⁿᵈ unit of output that is produced is

Accepted Answer

A)   $7.
B)   $23.
C)   $30.
D)   $38.E) B) and D)
F) B) and C)

Question 2

Social welfare can be enhanced by allowing firms to trade their rights to pollute.

Accepted Answer

A) True 
 B)False

Question 3

Suppose that Charles wants to dine at a fancy restaurant,but the only available table is in the smoking section.Charles dislikes the smell of cigarette smoke.He notices that only one person,Sam,is smoking in the smoking section.Charles values the absence of smoke at $40.Sam values the ability to smoke in the restaurant at $15.Which of the following represents an efficient solution in the absence of transaction costs?

Accepted Answer

A)   Sam continues to smoke because he has a right to smoke in the smoking section.
B)   Charles offers Sam between $15 and $40 not to smoke. Sam accepts, and both parties are better off.
C)   Charles offers Sam between $15 and $40 not to smoke. Sam declines because he has a right to smoke in the smoking section.
D)   Only a government policy banning smoking in restaurants will solve this problem.E) B) and C)
F) C) and D)

Question 4

Markets sometimes fail to allocate resources efficiently.

Accepted Answer

A) True 
 B)False

Question 5

Sally's cat causes Mike to sneeze.Sally values her cat's companionship at $300 per year.The cost to Mike of tissues and her allergy medication is $350 per year.Based on the Coase theorem,

Accepted Answer

A)   Sally should pay Mike $400 so that she may keep her cat.
B)   Sally should pay Mike $350 for tissues and allergy medication.
C)   Mike should pay Sally $325 to give away her cat.
D)   Mike should move.E) B) and C)
F) B) and D)

Question 6

Figure 10-19
 
-Refer to Figure 10-19.How many units of the good are produced in a market equilibrium?

Accepted Answer

A)   fewer than 58
B)   58
C)   73
D)   94E) A) and B)
F) All of the above

Question 7

Since almost all forms of transportation produce some type of pollution,

Accepted Answer

A)   the government should ban all transportation.
B)   the government should ban all pollution.
C)   society has to weigh the cost and benefits when deciding how much pollution to allow.
D)   refrain from intervening because the market can best solve this problem.E) B) and D)
F) A) and C)

Question 8

One reason that private solutions to externalities do not always work is that

Accepted Answer

A)   government intervention negates the benefits of positive externalities.
B)   some people benefit from externalities.
C)   interested parties incur costs in the bargaining process.
D)   charities are not well organized.E) None of the above
F) A) and B)

Question 9

The Coase theorem suggests that private solutions to an externality problem

Accepted Answer

A)   are effective under all conditions.
B)   will usually allocate resources efficiently if private parties can bargain without cost.
C)   are only efficient when there are negative externalities.
D)   may not be possible because of the distribution of property rights.E) All of the above
F) None of the above

Question 10

If the social value of producing robots is greater than the private value of producing robots,the private market produces too few robots.

Accepted Answer

A) True 
 B)False

Question 11

When a particular negative externality affects a very large number of people,it is likely that

Accepted Answer

A)   government will not find it worthwhile to impose a corrective tax.
B)   private solutions to the problem will dominate any attempt by government to alleviate the problem.
C)   the solution to externalities suggested by the Coase theorem will work very well.
D)   the solution to externalities suggested by the Coase theorem will not work.E) None of the above
F) All of the above

Question 12

Figure 10-9

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

Accepted Answer

A)   Q2, which is the socially optimal quantity.
B)   Q3, which is the socially optimal quantity.
C)   Q2, and the socially optimal quantity is Q3.
D)   Q3, and the socially optimal quantity is Q2.E) A) and B)
F) B) and D)

Question 13

Firms that are involved in more than one type of business could be evidence of an attempt to

Accepted Answer

A)   increase private profit at the expense of consumers.
B)   internalize some forms of positive externalities.
C)   reduce the impact of government regulations on their business.
D)   increase the private marginal cost of production.E) A) and D)
F) B) and D)

Question 14

In many cases selling pollution permits is a better method for reducing pollution than imposing a corrective tax because

Accepted Answer

A)   it is hard to estimate the market demand curve and thus charge the "right" corrective tax.
B)   selling pollution permits create a net increase in pollution.
C)   Corrective taxes distort incentives.
D)   Corrective taxes provide greater flexibility to firms that can reduce pollution at a low cost.E) All of the above
F) A) and B)

Question 15

When negative externalities are present in a market,

Accepted Answer

A)   producers will be affected but consumers will not.
B)   producers will supply too much of the product.
C)   demand will be too high.
D)   the market will still maximize total benefits.E) All of the above
F) A) and B)

Question 16

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 C)
F) C) and D)

Question 17

Dick owns a dog whose barking annoys Dick's neighbor Jane.Suppose that the benefit of owning the dog is worth $700 to Dick and that Jane bears a cost of $500 from the barking.Assuming Dick has the legal right to keep the dog,a possible private solution to this problem is that

Accepted Answer

A)   Dick pays Jane $600 for her inconvenience.
B)   Jane pays Dick $400 to give the dog to his parents who live on an isolated farm.
C)   Jane pays Dick $550 to give the dog to his parents who live on an isolated farm.
D)   The current situation is efficient.E) None of the above
F) B) and D)

Question 18

Which of the following is NOT an example of a negative externality?

Accepted Answer

A)   air pollution from a manufacturing plant.
B)   disrupted sleep from a neighbor's loud music.
C)   an illness caused by secondhand cigarette smoke.
D)   a decrease in your property value from neglecting your lawn and garden.E) B) and C)
F) A) and D)

Question 19

Figure 10-8
 
-Refer to Figure 10-8.If the government wanted to subsidize this market to achieve the socially-optimal level of output,how large would the subsidy need to be?

Accepted Answer

A)   less than $2
B)   $2
C)   more than $2
D)   The size of the subsidy cannot be determined from the figure.E) None of the above
F) C) and D)

Question 20

Research into new technologies provides a

Accepted Answer

A)   negative externality, and too few resources are devoted to research as a result.
B)   negative externality, and too many resources are devoted to research as a result.
C)   positive externality, and too few resources are devoted to research as a result.
D)   positive externality, and too many resources are devoted to research as a result.E) All of the above
F) A) and D)

Exam 10: Externalities.

Which of the following is NOT an example of a negative externality?

Correct Answer
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In many cases selling pollution permits is a better method for reducing pollution than imposing a corrective tax because

Correct Answer
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One reason that private solutions to externalities do not always work is that

Correct Answer
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Figure 10-8 -Refer to Figure 10-8.If the government wanted to subsidize this market to achieve the socially-optimal level of output,how large would the subsidy need to be?

Correct Answer
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The Coase theorem suggests that private solutions to an externality problem

Correct Answer
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Dick owns a dog whose barking annoys Dick's neighbor Jane.Suppose that the benefit of owning the dog is worth $700 to Dick and that Jane bears a cost of $500 from the barking.Assuming Dick has the legal right to keep the dog,a possible private solution to this problem is that

Correct Answer
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Correct Answer
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If the social value of producing robots is greater than the private value of producing robots,the private market produces too few robots.

Correct Answer
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Table 10-4 -Refer to Table 10-4.The social cost of the 2ⁿᵈ unit of output that is produced is

Correct Answer
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Markets sometimes fail to allocate resources efficiently.

Correct Answer
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When negative externalities are present in a market,

Correct Answer
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Social welfare can be enhanced by allowing firms to trade their rights to pollute.

Correct Answer
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Research into new technologies provides a

Correct Answer
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Figure 10-19 -Refer to Figure 10-19.How many units of the good are produced in a market equilibrium?

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

Correct Answer
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When a particular negative externality affects a very large number of people,it is likely that

Correct Answer
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Sally's cat causes Mike to sneeze.Sally values her cat's companionship at $300 per year.The cost to Mike of tissues and her allergy medication is $350 per year.Based on the Coase theorem,

Correct Answer
verified

Correct Answer
verified

Since almost all forms of transportation produce some type of pollution,

Correct Answer
verified

Firms that are involved in more than one type of business could be evidence of an attempt to

Correct Answer
verified

Exam 10: Externalities.

Which of the following is NOT an example of a negative externality?

Correct AnswerverifiedShow Answer

In many cases selling pollution permits is a better method for reducing pollution than imposing a corrective tax because

Correct AnswerverifiedShow Answer

One reason that private solutions to externalities do not always work is that

Correct AnswerverifiedShow Answer

Figure 10-8 -Refer to Figure 10-8.If the government wanted to subsidize this market to achieve the socially-optimal level of output,how large would the subsidy need to be?

Correct AnswerverifiedShow Answer

The Coase theorem suggests that private solutions to an externality problem

Correct AnswerverifiedShow Answer

Dick owns a dog whose barking annoys Dick's neighbor Jane.Suppose that the benefit of owning the dog is worth $700 to Dick and that Jane bears a cost of $500 from the barking.Assuming Dick has the legal right to keep the dog,a possible private solution to this problem is that

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If the social value of producing robots is greater than the private value of producing robots,the private market produces too few robots.

Correct AnswerverifiedShow Answer

Table 10-4 -Refer to Table 10-4.The social cost of the 2ⁿᵈ unit of output that is produced is

Correct AnswerverifiedShow Answer

Markets sometimes fail to allocate resources efficiently.

Correct AnswerverifiedShow Answer

When negative externalities are present in a market,

Correct AnswerverifiedShow Answer

Social welfare can be enhanced by allowing firms to trade their rights to pollute.

Correct AnswerverifiedShow Answer

Research into new technologies provides a

Correct AnswerverifiedShow Answer

Figure 10-19 -Refer to Figure 10-19.How many units of the good are produced in a market equilibrium?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When a particular negative externality affects a very large number of people,it is likely that

Correct AnswerverifiedShow Answer

Sally's cat causes Mike to sneeze.Sally values her cat's companionship at $300 per year.The cost to Mike of tissues and her allergy medication is $350 per year.Based on the Coase theorem,

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

Correct AnswerverifiedShow Answer

Since almost all forms of transportation produce some type of pollution,

Correct AnswerverifiedShow Answer

Firms that are involved in more than one type of business could be evidence of an attempt to

Correct AnswerverifiedShow Answer

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