Question 1

Most economists prefer corrective taxes to regulation as a way to correct the problem of pollution because

Accepted Answer

A)  the market-based solution is less costly to society.
B)  the market-based solution can result in a greater reduction in pollution.
C)  the market-based solution raises revenue for the government.
D)  All of the above are correct.E) C) and D)
F) B) and D)

Question 2

Many charities like the Sierra Club are established to deal with externalities.

Accepted Answer

A) True 
 B)False

Question 3

​The requirement that a minimum volume of ethanol is blended into the U.S. fuel supply is an example of

Accepted Answer

A)  ​a corrective tax.
B)  ​a corrective subsidy.
C)  ​a command-and-control policy.
D)  ​the Coase Theorem.E) A) and B)
F) All of the above

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

Question 5

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.E) B) and D)
F) B) and C)

Question 6

A corrective tax is also known as:

Accepted Answer

A)  a command-and-control regulation.
B)  a Coase tax.
C)  a Pigovian tax.
D)  a Smithian tax.E) None of the above
F) A) and D)

Question 7

Figure 10-16 
-Refer to Figure 10-16. This graph shows the market for pollution when permits are issued to firms and traded in the marketplace. The equilibrium price of pollution is

Accepted Answer

A)  $50
B)  $500
C)  $1,000
D)  $2,000E) A) and C)
F) A) and B)

Question 8

​A rain barrel is a container that captures and stores rainwater for landscape and garden use during dry periods. As a result, rain barrels benefit the community through water conservation. If homeowners do not consider this external benefit of rain barrels, then

Accepted Answer

A)  ​the socially optimal quantity of rain barrels will be larger than the equilibrium quantity of rain barrels.
B)  ​the socially optimal quantity of rain barrels will be smaller than the equilibrium quantity of rain barrels.
C)  ​the socially optimal price of rain barrels will be lower than the equilibrium price of rain barrels.
D)  the market for rain barrels would benefit from a tax on rain barrels.E) B) and C)
F) A) and D)

Question 9

In summarizing the research on the externalities associated with driving cars, a 2007 Journal of Economic Literature article concluded that the optimal corrective tax on gasoline in the United States, in 2015 dollars, would be about

Accepted Answer

A)  $0.50 per gallon.
B)  $0.90 per gallon.
C)  $2.58 per gallon.
D)  $2.78 per gallon.E) B) and C)
F) C) and D)

Question 10

Barking dogs cannot be considered an externality because externalities must be associated with some form of market exchange.

Accepted Answer

A) True 
 B)False

Question 11

According to the Coase theorem, in the presence of externalities

Accepted Answer

A)  private parties can bargain to reach an efficient outcome.
B)  government assistance is necessary to reach an efficient outcome.
C)  the assignment of legal rights can prevent externalities.
D)  the initial distribution of property rights will determine the efficient outcome.E) None of the above
F) A) and D)

Question 12

According to the Coase theorem, private parties can solve the problem of externalities if

Accepted Answer

A)  the cost of bargaining is small.
B)  the initial distribution of legal rights favors the person being adversely affected by the externality.
C)  the number of parties involved is sufficiently large.
D)  All of the above are correct.E) All of the above
F) A) and B)

Question 13

The business activities of Firm A confer positive externalities on Firm B, and the business activities of Firm B confer positive externalities on Firm A. If the two firms merged, then

Accepted Answer

A)  their respective markets would move closer to the social optimum.
B)  their respective markets would move further away from the social optimum.
C)  total surplus in their respective markets would decrease.
D)  the merger would serve as an example of a misguided public policy toward externalities.E) A) and B)
F) None of the above

Question 14

Figure 10-11 th unit of output, private value exceeds private cost. B) 390th unit of output, private value exceeds external value. C) 450th unit of output, private value exceeds social value. D) 450th unit of output, private cost exceeds social value." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 10-11. On the

Accepted Answer

A)  390th unit of output, private value exceeds private cost.
B)  390th unit of output, private value exceeds external value.
C)  450th unit of output, private value exceeds social value.
D)  450th unit of output, private cost exceeds social value.E) None of the above
F) B) and D)

Question 15

Table 10-4 
-Refer to Table 10-4. The market equilibrium quantity of output is

Accepted Answer

A)  3 units.
B)  4 units.
C)  5 units.
D)  6 units.E) None of the above
F) B) and C)

Question 16

With a corrective tax, the supply curve for pollution is

Accepted Answer

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

Question 17

A corrective tax places a price on the right to pollute.

Accepted Answer

A) True 
 B)False

Question 18

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 unitsE) A) and B)
F) A) and C)

Question 19

Figure 10-11 
-Refer to Figure 10-11. "The social value of the last unit produced exceeds the private cost of the last unit produced by $13.50." This statement is correct at which quantity of output?

Accepted Answer

A)  210 units
B)  270 units
C)  330 units
D)  390 unitsE) B) and C)
F) A) and D)

Question 20

Which of the following is a way to address an externality problem?

Accepted Answer

A)  command and control solution
B)  corrective tax
C)  corrective subsidy
D)  all of the above.E) A) and C)
F) A) and B)

Exam 10: Externalities

According to the Coase theorem, in the presence of externalities

Correct AnswerverifiedShow Answer

Most economists prefer corrective taxes to regulation as a way to correct the problem of pollution because

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With a corrective tax, the supply curve for pollution is

Correct AnswerverifiedShow Answer

​The requirement that a minimum volume of ethanol is blended into the U.S. fuel supply is an example of

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

A corrective tax places a price on the right to pollute.

Correct AnswerverifiedShow Answer

Figure 10-11 -Refer to Figure 10-11. On the

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Barking dogs cannot be considered an externality because externalities must be associated with some form of market exchange.

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Many charities like the Sierra Club are established to deal with externalities.

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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?

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A corrective tax is also known as:

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According to the Coase theorem, private parties can solve the problem of externalities if

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The business activities of Firm A confer positive externalities on Firm B, and the business activities of Firm B confer positive externalities on Firm A. If the two firms merged, then

Correct AnswerverifiedShow Answer

Figure 10-11 -Refer to Figure 10-11. "The social value of the last unit produced exceeds the private cost of the last unit produced by $13.50." This statement is correct at which quantity of output?

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Which of the following is a way to address an externality problem?

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

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​A rain barrel is a container that captures and stores rainwater for landscape and garden use during dry periods. As a result, rain barrels benefit the community through water conservation. If homeowners do not consider this external benefit of rain barrels, then

Correct AnswerverifiedShow Answer

In summarizing the research on the externalities associated with driving cars, a 2007 Journal of Economic Literature article concluded that the optimal corrective tax on gasoline in the United States, in 2015 dollars, would be about

Correct AnswerverifiedShow Answer

Table 10-4 -Refer to Table 10-4. The market equilibrium quantity of output is

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Figure 10-16 -Refer to Figure 10-16. This graph shows the market for pollution when permits are issued to firms and traded in the marketplace. The equilibrium price of pollution is

Correct AnswerverifiedShow Answer

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The requirement that a minimum volume of ethanol is blended into the U.S. fuel supply is an example of

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A rain barrel is a container that captures and stores rainwater for landscape and garden use during dry periods. As a result, rain barrels benefit the community through water conservation. If homeowners do not consider this external benefit of rain barrels, then

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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