Question 1

The tax on gasoline causes deadweight losses, as is the case with all taxes.

Accepted Answer

A) True 
 B)False  False

Question 2

With a corrective tax, the supply curve for pollution is

Accepted Answer

A)   vertical.
B)   horizontal.
C)   upward-sloping.
D)   downward-sloping.E) A) and D)
F) B) and C)

Question 3

Which of the following suggests that private markets can be effective in dealing with externalities?

Accepted Answer

A)   the "invisible hand"
B)   the law of diminishing social returns
C)   the Coase theorem
D)   technology policyE) A) and B)
F) A) and D)

Question 4

If an objective of public policy is to allocate pollution to those factories that face the highest cost of reducing it, then that objective could be achieved by

Accepted Answer

A)   a corrective tax, but not by regulation.
B)   regulation, but not by a corrective tax.
C)   either regulation or a corrective tax.
D)   neither regulation nor a corrective tax.E) A) and B)
F) A) and C)

Question 5

Scenario 10-4
The demand curve for fire extinguishers slopes downward and the supply curve for fire extinguishers slopes upward. The production of the 500th fire extinguisher entails the following:
• a private cost of $10;
• an external cost of $0;
• a private value of $9;
• an external benefit of $3.
•
-Refer to Scenario 10-4. Is the socially-optimal quantity of fire extinguishers less than, equal to, or greater than 500? Explain.

Accepted Answer

For the 500th fire extinguishe...

Question 6

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)   $4.00
B)   $6.00
C)   $7.00
D)   $10.00E) A) and B)
F) A) and C)

Question 7

Suppose that electricity producers create a negative externality equal to $6 per unit. Further suppose that the government imposes a $8 per-unit tax on the producers. What is the relationship between the after-tax equilibrium quantity and the socially optimal quantity of electricity to be produced?

Accepted Answer

A)   They are equal.
B)   The after-tax equilibrium quantity is greater than the socially optimal quantity.
C)   The after-tax equilibrium quantity is less than the socially optimal quantity.
D)   There is not enough information to answer the question.E) C) and D)
F) B) and C)

Question 8

Figure 10-9
 
-Refer to Figure 10-9. Which graph represents a market with no externality?

Accepted Answer

A)   Panel a) 
B)   Panel b) 
C)   Panel c) 
D)   None of the above is correct.E) C) and D)
F) A) and D)

Question 9

When firms internalize a negative externality, the market supply curve shifts to the left.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following is an example of an externality?

Accepted Answer

A)   cigarette smoke that permeates an entire restaurant
B)   a flu shot that prevents a student from transmitting the virus to her roommate
C)   a beautiful flower garden outside of the local post office
D)   All of the above are correct.E) None of the above
F) B) and C)

Question 11

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) A) and C)
F) C) and D)

Question 12

At any given quantity, the cost of the marginal seller is the height of the _______.

Accepted Answer

The answer of At any given quantity, the cost of...

Question 13

The Coase theorem states that

Accepted Answer

A)   under certain circumstances government intervention is not needed to reach efficient outcomes when an externality is present.
B)   government intervention is always required to reach an efficient outcome when an externality is present.
C)   government intervention cannot lead to an efficient outcome when an externality is present.
D)   only negative externalities can be resolved using government intervention.E) A) and B)
F) None of the above

Question 14

Which of the following statements about the Coase theorem is true?

Accepted Answer

A)   Underlying the results of the Coase theorem is the idea that private parties can bargain without cost over the allocation of resources.
B)   The Coase theorem asserts that private solutions to externalities invariably lead to inefficient allocations of resources.
C)   The Coase theorem applies to negative externalities, but not to positive externalities.
D)   All of the above are correct.E) All of the above
F) B) and C)

Question 15

Suppose that a negative externality is created by the production of good X. Which of the following statements is correct?

Accepted Answer

A)   The social cost of producing good X includes the private cost plus the cost to bystanders of the externality.
B)   The increased social cost can be graphed as a decrease in demand.
C)   The market equilibrium quantity will be the socially optimal quantity as long as the government does not interfere.
D)   Both a and b are correct.E) B) and D)
F) All of the above A

Question 16

Suppose that electricity producers create a negative externality equal to $5 per unit. Further suppose that the government gives a $5 per-unit subsidy to producers. What is the relationship between the equilibrium quantity and the socially optimal quantity of electricity to be produced?

Accepted Answer

A)   They are equal.
B)   The equilibrium quantity is greater than the socially optimal quantity.
C)   The equilibrium quantity is less than the socially optimal quantity.
D)   There is not enough information to answer the question.E) A) and B)
F) A) and C)

Question 17

Economists Edward Glaeser and Matthew Kahn studied carbon emissions in different parts of the United States. On the basis of what they found, they concluded that environmentalists should be in favor of

Accepted Answer

A)   lower taxes on carbon-based fuels such as gasoline.
B)   more and taller skyscrapers.
C)   policies that encourage people to move from large cities to suburban areas.
D)   policies that encourage people to move from suburban areas to rural areas.E) B) and D)
F) B) and C)

Question 18

Figure 10-12 
-Refer to Figure 10-12. Which of the following is an appropriate label for Line 2?

Accepted Answer

A)   social cost minus social value
B)   social value minus private cost
C)   demand
D)   private value plus external benefitE) B) and D)
F) A) and D)

Question 19

When externalities cause markets to be inefficient,

Accepted Answer

A)   government action is always needed to solve the problem.
B)   private solutions can be developed to solve the problem.
C)   given enough time, externalities can be solved through normal market adjustments.
D)   there is no way to eliminate the problem of externalities in a market.E) A) and B)
F) A) and C)

Question 20

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

Accepted Answer

A)   Panel a) 
B)   Panel b) 
C)   Panel c) 
D)   Both b)  and c)  are correct.E) B) and D)
F) None of the above C

Exam 10: Externalities

The tax on gasoline causes deadweight losses, as is the case with all taxes.

Correct Answer
verified
False

With a corrective tax, the supply curve for pollution is

Correct Answer
verified

Which of the following suggests that private markets can be effective in dealing with externalities?

Correct Answer
verified

If an objective of public policy is to allocate pollution to those factories that face the highest cost of reducing it, then that objective could be achieved by

Correct Answer
verified

Correct Answer
verified
For the 500th fire extinguishe...
View 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 Answer
verified

Suppose that electricity producers create a negative externality equal to $6 per unit. Further suppose that the government imposes a $8 per-unit tax on the producers. What is the relationship between the after-tax equilibrium quantity and the socially optimal quantity of electricity to be produced?

Correct Answer
verified

Figure 10-9 -Refer to Figure 10-9. Which graph represents a market with no externality?

Correct Answer
verified

When firms internalize a negative externality, the market supply curve shifts to the left.

Correct Answer
verified

Which of the following is an example of an externality?

Correct Answer
verified

Correct Answer
verified

At any given quantity, the cost of the marginal seller is the height of the _______.

Correct Answer
verified

The Coase theorem states that

Correct Answer
verified

Which of the following statements about the Coase theorem is true?

Correct Answer
verified

Suppose that a negative externality is created by the production of good X. Which of the following statements is correct?

Correct Answer
verified
A

Suppose that electricity producers create a negative externality equal to $5 per unit. Further suppose that the government gives a $5 per-unit subsidy to producers. What is the relationship between the equilibrium quantity and the socially optimal quantity of electricity to be produced?

Correct Answer
verified

Economists Edward Glaeser and Matthew Kahn studied carbon emissions in different parts of the United States. On the basis of what they found, they concluded that environmentalists should be in favor of

Correct Answer
verified

Figure 10-12 -Refer to Figure 10-12. Which of the following is an appropriate label for Line 2?

Correct Answer
verified

When externalities cause markets to be inefficient,

Correct Answer
verified

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

Correct Answer
verified
C

Exam 10: Externalities

The tax on gasoline causes deadweight losses, as is the case with all taxes.

Correct AnswerverifiedFalse

With a corrective tax, the supply curve for pollution is

Correct AnswerverifiedShow Answer

Which of the following suggests that private markets can be effective in dealing with externalities?

Correct AnswerverifiedShow Answer

If an objective of public policy is to allocate pollution to those factories that face the highest cost of reducing it, then that objective could be achieved by

Correct AnswerverifiedShow Answer

Correct AnswerverifiedFor the 500th fire extinguishe...View AnswerShow 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

Suppose that electricity producers create a negative externality equal to $6 per unit. Further suppose that the government imposes a $8 per-unit tax on the producers. What is the relationship between the after-tax equilibrium quantity and the socially optimal quantity of electricity to be produced?

Correct AnswerverifiedShow Answer

Figure 10-9 -Refer to Figure 10-9. Which graph represents a market with no externality?

Correct AnswerverifiedShow Answer

When firms internalize a negative externality, the market supply curve shifts to the left.

Correct AnswerverifiedShow Answer

Which of the following is an example of an externality?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

At any given quantity, the cost of the marginal seller is the height of the _______.

Correct AnswerverifiedShow Answer

The Coase theorem states that

Correct AnswerverifiedShow Answer

Which of the following statements about the Coase theorem is true?

Correct AnswerverifiedShow Answer

Suppose that a negative externality is created by the production of good X. Which of the following statements is correct?

Correct AnswerverifiedA

Suppose that electricity producers create a negative externality equal to $5 per unit. Further suppose that the government gives a $5 per-unit subsidy to producers. What is the relationship between the equilibrium quantity and the socially optimal quantity of electricity to be produced?

Correct AnswerverifiedShow Answer

Economists Edward Glaeser and Matthew Kahn studied carbon emissions in different parts of the United States. On the basis of what they found, they concluded that environmentalists should be in favor of

Correct AnswerverifiedShow Answer

Figure 10-12 -Refer to Figure 10-12. Which of the following is an appropriate label for Line 2?

Correct AnswerverifiedShow Answer

When externalities cause markets to be inefficient,

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedC

Correct Answer
verified
False

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified
For the 500th fire extinguishe...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
verified

Correct Answer
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Correct Answer
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A

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified
C