Question 1

Scenario 10-3
  Suppose the equation for the demand curve in a market is
where is the quantity demanded and is the price.
    Also, suppose the equation for the supply curve in the same market is ,
where is the quantity supplied.
 
-Refer to Scenario 10-3. Suppose there is an external cost of $12 associated with the production of each unit of the good. What are the socially optimal quantity and price?

Accepted Answer

The socially optimal...

Question 2

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)   $10

Question 3

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.

Question 4

Corrective taxes are unlike most other taxes because they

Accepted Answer

A)   distort incentives.
B)   move the allocation of resources away from the social optimum.
C)   raise revenue for the government.
D)   move the allocation of resources closer to the social optimum.

Question 5

A positive externality will cause a market to produce

Accepted Answer

A)   more than is socially desirable.
B)   less than is socially desirable.
C)   the socially optimal equilibrium amount.
D)   more than the same market would produce in the presence of a negative externality.

Question 6

Figure 10-9
 
-Refer to Figure 10-9. Which graph represents a market with a negative externality?

Accepted Answer

A)   Panel (a) 
B)   Panel (b) 
C)   Panel (c) 
D)   Both (b)  and (c)  are correct.

Question 7

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.

Question 8

Although regulation and corrective taxes are both capable of reducing pollution, regulation accomplishes this goal more efficiently.

Accepted Answer

A) True 
 B)False

Question 9

Suppose that alcohol consumption creates a negative externality. What can the government do to equate the equilibrium quantity of alcohol and the socially optimal quantity of alcohol?

Accepted Answer

A)   impose a tax on alcohol that is equal to the per-unit externality
B)   offer a subsidy on alcohol that is equal to the per-unit externality
C)   impose a regulation limiting the amount of alcohol that each consumer can purchase
D)   nothing

Question 10

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

Accepted Answer

A)   P2.
B)   P3b.
C)   P3c.
D)   P3a - P3b.

Question 11

A congestion toll imposed on a highway driver to force the driver to take into account the increase in travel time she imposes on all other drivers is an example of internalizing the externality.

Accepted Answer

A) True 
 B)False

Question 12

Suppose that an MBA degree creates no externality because the benefits of an MBA are internalized by the student in the form of higher wages. If there are no government subsidies for MBAs, then which of the following statements is correct?

Accepted Answer

A)   The equilibrium quantity of MBAs will equal the socially optimal quantity of MBAs.
B)   The equilibrium quantity of MBAs will be greater than the socially optimal quantity of MBAs.
C)   The equilibrium quantity of MBAs will be less than the socially optimal quantity of MBAs.
D)   There is not enough information to answer the question.

Question 13

Table 10-1
The following table shows the private value, private cost, and external cost for various quantities of output in a market.
 
-Refer to Table 10-1. What is the equilibrium quantity of output in the market?

Accepted Answer

A)   2 units
B)   3 units
C)   4 units
D)   5 units

Question 14

The Coase theorem asserts that, if externalities are present and if private parties can bargain over the allocation of resources at no cost, then

Accepted Answer

A)   the private market will reach an equilibrium in which resources are allocated inefficiently.
B)   the private market will reach an equilibrium in which resources are allocated efficiently.
C)   the private market cannot reach an equilibrium.
D)   a mixture of corrective taxes and subsidies is necessary for a socially optimal equilibrium.

Question 15

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.

Question 16

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.

Question 17

What economic argument suggests that if transactions costs are sufficiently low, the equilibrium is economically efficient regardless of how property rights are distributed?

Accepted Answer

A)   the Coase theorem
B)   the laws of supply and demand
C)   the law of comparative advantage
D)   the law of externalities

Question 18

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.

Question 19

Which of the following problems can not be alleviated by a gasoline tax?

Accepted Answer

A)   traffic congestion
B)   traffic accidents
C)   the undersupply of goods that produce positive externalities
D)   air pollution

Question 20

Two types of private solutions to the problem of externalities are

Accepted Answer

A)   charities and the Golden Rule.
B)   charities and subsidies.
C)   the Golden Rule and taxes.
D)   taxes and subsidies.

Exam 10: Externalities

Two types of private solutions to the problem of externalities are

Correct Answer
verified

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

Correct Answer
verified

Figure 10-9 -Refer to Figure 10-9. Which graph represents a market with a negative externality?

Correct Answer
verified

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

Correct Answer
verified

A positive externality will cause a market to produce

Correct Answer
verified

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
verified

Since air pollution creates a negative externality,

Correct Answer
verified

Corrective taxes are unlike most other taxes because they

Correct Answer
verified

What economic argument suggests that if transactions costs are sufficiently low, the equilibrium is economically efficient regardless of how property rights are distributed?

Correct Answer
verified

Table 10-1 The following table shows the private value, private cost, and external cost for various quantities of output in a market. -Refer to Table 10-1. What is the equilibrium quantity of output in the market?

Correct Answer
verified

The Coase theorem asserts that, if externalities are present and if private parties can bargain over the allocation of resources at no cost, then

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified
The socially optimal...
View Answer

Suppose that an MBA degree creates no externality because the benefits of an MBA are internalized by the student in the form of higher wages. If there are no government subsidies for MBAs, then which of the following statements is correct?

Correct Answer
verified

Correct Answer
verified

Which of the following problems can not be alleviated by a gasoline tax?

Correct Answer
verified

Suppose that alcohol consumption creates a negative externality. What can the government do to equate the equilibrium quantity of alcohol and the socially optimal quantity of alcohol?

Correct Answer
verified

A congestion toll imposed on a highway driver to force the driver to take into account the increase in travel time she imposes on all other drivers is an example of internalizing the externality.

Correct Answer
verified

Although regulation and corrective taxes are both capable of reducing pollution, regulation accomplishes this goal more efficiently.

Correct Answer
verified

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

Correct Answer
verified

Exam 10: Externalities

Two types of private solutions to the problem of externalities are

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Figure 10-9 -Refer to Figure 10-9. Which graph represents a market with a negative externality?

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

A positive externality will cause a market to produce

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

Since air pollution creates a negative externality,

Correct AnswerverifiedShow Answer

Corrective taxes are unlike most other taxes because they

Correct AnswerverifiedShow Answer

What economic argument suggests that if transactions costs are sufficiently low, the equilibrium is economically efficient regardless of how property rights are distributed?

Correct AnswerverifiedShow Answer

Table 10-1 The following table shows the private value, private cost, and external cost for various quantities of output in a market. -Refer to Table 10-1. What is the equilibrium quantity of output in the market?

Correct AnswerverifiedShow Answer

The Coase theorem asserts that, if externalities are present and if private parties can bargain over the allocation of resources at no cost, then

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

Correct AnswerverifiedThe socially optimal...View AnswerShow Answer

Suppose that an MBA degree creates no externality because the benefits of an MBA are internalized by the student in the form of higher wages. If there are no government subsidies for MBAs, then which of the following statements is correct?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following problems can not be alleviated by a gasoline tax?

Correct AnswerverifiedShow Answer

Suppose that alcohol consumption creates a negative externality. What can the government do to equate the equilibrium quantity of alcohol and the socially optimal quantity of alcohol?

Correct AnswerverifiedShow Answer

A congestion toll imposed on a highway driver to force the driver to take into account the increase in travel time she imposes on all other drivers is an example of internalizing the externality.

Correct AnswerverifiedShow Answer

Although regulation and corrective taxes are both capable of reducing pollution, regulation accomplishes this goal more efficiently.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The socially optimal...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified