Question 1

The patent system gives firms greater incentive to engage in research and other activities that advance technology.

Accepted Answer

A) True 
 B)False

Question 2

In which of the following cases is the Coase theorem most likely to solve the externality?

Accepted Answer

A)   Ed is allergic to his roommate's cat.
B)   Chemicals from manufacturing plants in the Midwest are causing acid rain in Canada.
C)   Polluted water runoff from farms is making residents of a nearby town sick.
D)   Industrialization around the world is causing global warming.

Question 3

Table 10-2
The following table shows the private value, private cost, and social value for a market with a positive externality. 
-Refer to Table 10-2. What is the socially-optimal level of output in this market?

Accepted Answer

A)   3 units
B)   4 units
C)   5 units
D)   6 units

Question 4

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.

Question 5

Tradable pollution permits

Accepted Answer

A)   have prices that are set by the government.
B)   will be more valuable to firms that can reduce pollution only at high costs.
C)   are likely to create a higher level of total pollution.
D)   are less desirable than corrective taxes in reducing pollution.

Question 6

Assume the production of a good causes a negative externality. In the market equilibrium, the marginal consumer values the good at

Accepted Answer

A)   less than the social cost of producing it.
B)   less than the private cost of producing it.
C)   more than the social cost of producing it.
D)   more than the private cost of producing it. A

Question 7

Two firms, A and B, each currently emit 100 tons of chemicals into the air. The government has decided to reduce the pollution and from now on will require a pollution permit for each ton of pollution emitted into the air. The government gives each firm 40 pollution permits, which it can either use or sell to the other firm. It costs Firm A $200 for each ton of pollution that it eliminates before it is emitted into the air, and it costs Firm B $100 for each ton of pollution that it eliminates before it is emitted into the air. After the two firms buy or sell pollution permits from each other, we would expect that Firm A will emit

Accepted Answer

A)   20 fewer tons of pollution into the air, and Firm B will emit 100 fewer tons of pollution into the air.
B)   100 fewer tons of pollution into the air, and Firm B will emit 20 fewer tons of pollution into the air.
C)   50 fewer tons of pollution into the air, and Firm B will emit 50 fewer tons of pollution into the air.
D)   20 more tons of pollution into the air, and Firm B will emit 100 fewer tons of pollution into the air.

Question 8

The Coase theorem asserts that private economic actors can solve the problem of externalities among themselves, without government intervention, regardless of whether those actors incur significant costs in reaching and enforcing an agreement.

Accepted Answer

A) True 
 B)False  False

Question 9

Using a supply and demand diagram, demonstrate how a negative externality leads to market inefficiency. How might the government help to eliminate this inefficiency?

Accepted Answer

<img  loading="lazy" src="/assets/images/blured-textbook.svg" class="d-inline m-1" alt="blured image" width="139" height="30"> When a negative externality exists, the...

Question 10

Which of the following statements is correct?

Accepted Answer

A)   Corrective taxes are often preferred over direct regulation because they typically reduce externalities at a lower cost.
B)   Corrective taxes distort economic incentives.
C)   Corrective taxes are often preferred over direct regulation because they typically reduce externalities at a faster rate.
D)   Both a and b are correct.

Question 11

Private markets fail to account for externalities because

Accepted Answer

A)   externalities don't occur in private markets.
B)   sellers include costs associated with externalities in the price of their product.
C)   decisionmakers in the market fail to include the costs of their behavior to third parties.
D)   the government cannot easily estimate the optimal quantity of pollution.

Question 12

The gasoline tax

Accepted Answer

A)   is similar to most other taxes in that it causes deadweight losses.
B)   produces the unfortunate side-effect of making the roads more dangerous.
C)   can be viewed as a corrective tax aimed at multiple negative externalities associated with driving.
D)   can be viewed as a command-and-control policy aimed at discouraging people from driving.

Question 13

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.

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

Which of the following is not a negative externality associated with driving cars?

Accepted Answer

A)   congestion
B)   pollution
C)   repairs
D)   accidents

Question 16

Figure 10-11 
-Refer to Figure 10-11. Which of the following statements is correct?

Accepted Answer

A)   The private value of the 420th unit of output is $15.
B)   The social value of the 420th unit of output is $42.
C)   The external benefit of the 420th unit of output is $27.
D)   All of the above are correct.

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 A

Question 18

A former senator remarked that "We cannot give anyone the option of polluting for a fee." Do most economists agree with this statement, or do they disagree with it?

Accepted Answer

Most econo...

Question 19

Suppose that flu shots create a positive externality equal to $12 per shot. What is the relationship between the equilibrium quantity and the socially optimal quantity of flu shots 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.

Question 20

Corrective taxes enhance efficiency, but the cost to administer them exceeds the revenue they raise for the government.

Accepted Answer

A) True 
 B)False

Exam 10: Externalities

The patent system gives firms greater incentive to engage in research and other activities that advance technology.

Correct Answer
verified

In which of the following cases is the Coase theorem most likely to solve the externality?

Correct Answer
verified

Table 10-2 The following table shows the private value, private cost, and social value for a market with a positive externality. -Refer to Table 10-2. What is the socially-optimal level of output in this market?

Correct Answer
verified

Which of the following is an example of an externality?

Correct Answer
verified

Tradable pollution permits

Correct Answer
verified

Assume the production of a good causes a negative externality. In the market equilibrium, the marginal consumer values the good at

Correct Answer
verified
A

Correct Answer
verified

The Coase theorem asserts that private economic actors can solve the problem of externalities among themselves, without government intervention, regardless of whether those actors incur significant costs in reaching and enforcing an agreement.

Correct Answer
verified
False

Using a supply and demand diagram, demonstrate how a negative externality leads to market inefficiency. How might the government help to eliminate this inefficiency?

Correct Answer
verified
When a negative externality exists, the...
View Answer

Which of the following statements is correct?

Correct Answer
verified

Private markets fail to account for externalities because

Correct Answer
verified

The gasoline tax

Correct Answer
verified

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

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 negative externality associated with driving cars?

Correct Answer
verified

Figure 10-11 -Refer to Figure 10-11. Which of the following statements is correct?

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
A

A former senator remarked that "We cannot give anyone the option of polluting for a fee." Do most economists agree with this statement, or do they disagree with it?

Correct Answer
verified
Most econo...
View Answer

Suppose that flu shots create a positive externality equal to $12 per shot. What is the relationship between the equilibrium quantity and the socially optimal quantity of flu shots produced?

Correct Answer
verified

Corrective taxes enhance efficiency, but the cost to administer them exceeds the revenue they raise for the government.

Correct Answer
verified

Exam 10: Externalities

The patent system gives firms greater incentive to engage in research and other activities that advance technology.

Correct AnswerverifiedShow Answer

In which of the following cases is the Coase theorem most likely to solve the externality?

Correct AnswerverifiedShow Answer

Table 10-2 The following table shows the private value, private cost, and social value for a market with a positive externality. -Refer to Table 10-2. What is the socially-optimal level of output in this market?

Correct AnswerverifiedShow Answer

Which of the following is an example of an externality?

Correct AnswerverifiedShow Answer

Tradable pollution permits

Correct AnswerverifiedShow Answer

Assume the production of a good causes a negative externality. In the market equilibrium, the marginal consumer values the good at

Correct AnswerverifiedA

Correct AnswerverifiedShow Answer

The Coase theorem asserts that private economic actors can solve the problem of externalities among themselves, without government intervention, regardless of whether those actors incur significant costs in reaching and enforcing an agreement.

Correct AnswerverifiedFalse

Using a supply and demand diagram, demonstrate how a negative externality leads to market inefficiency. How might the government help to eliminate this inefficiency?

Correct Answerverified When a negative externality exists, the...View AnswerShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

Private markets fail to account for externalities because

Correct AnswerverifiedShow Answer

The gasoline tax

Correct AnswerverifiedShow Answer

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

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 negative externality associated with driving cars?

Correct AnswerverifiedShow Answer

Figure 10-11 -Refer to Figure 10-11. Which of the following statements is correct?

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 AnswerverifiedA

A former senator remarked that "We cannot give anyone the option of polluting for a fee." Do most economists agree with this statement, or do they disagree with it?

Correct AnswerverifiedMost econo...View AnswerShow Answer

Suppose that flu shots create a positive externality equal to $12 per shot. What is the relationship between the equilibrium quantity and the socially optimal quantity of flu shots produced?

Correct AnswerverifiedShow Answer

Corrective taxes enhance efficiency, but the cost to administer them exceeds the revenue they raise for the government.

Correct AnswerverifiedShow Answer

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
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Correct Answer
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A

Correct Answer
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Correct Answer
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False

Correct Answer
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When a negative externality exists, the...
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
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Correct Answer
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Correct Answer
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Correct Answer
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A

Correct Answer
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Most econo...
View Answer

Correct Answer
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Correct Answer
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