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Figure 10-12 Figure 10-12 -Refer to Figure 10-12.The graph,as drawn,could apply to the market for A) automobiles. B) aluminum. C) robots. D) All of the above are correct. -Refer to Figure 10-12.The graph,as drawn,could apply to the market for


A) automobiles.
B) aluminum.
C) robots.
D) All of the above are correct.

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

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Table 10-4 Table 10-4 -Refer to Table 10-4.Which of the following policies would move the market from the market equilibrium to the socially optimal equilibrium? A) a tax of $2 per unit of output B) a subsidy of $2 per unit of output C) a tax of $7 per unit of output D) a subsidy of $7 per unit of output -Refer to Table 10-4.Which of the following policies would move the market from the market equilibrium to the socially optimal equilibrium?


A) a tax of $2 per unit of output
B) a subsidy of $2 per unit of output
C) a tax of $7 per unit of output
D) a subsidy of $7 per unit of output

E) B) and C)
F) A) and C)

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Table 10-3 Table 10-3 -Refer to Table 10-3.The table represents a market in which A) there is no externality. B) there is a positive externality. C) there is a negative externality. D) The answer cannot be determined from inspection of the table. -Refer to Table 10-3.The table represents a market in which


A) there is no externality.
B) there is a positive externality.
C) there is a negative externality.
D) The answer cannot be determined from inspection of the table.

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

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Markets are often inefficient when negative externalities are present because


A) private costs exceed social costs at the private market solution.
B) externalities cannot be corrected without government regulation.
C) social costs exceed private costs at the private market solution.
D) production externalities lead to consumption externalities.

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

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The Coase theorem states that


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

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When externalities are present,reaching an efficient outcome is especially difficult when the number of interested parties is large.

A) True
B) False

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Nancy loves to landscape her yard,but her neighbor Lee places a low value on his landscaping.When Lee's grass is neglected and gets long,Nancy will mow it for Lee.This is an example of


A) a situation in which the Coase theorem fails to explain the lawn mowing arrangement.
B) an improper allocation of resources.
C) a private solution to a negative externality problem.
D) an exploitation of a common resource.

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

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Suppose that elementary education creates a positive externality.If the government does not subsidize education,then


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

E) None of the above
F) All of the above

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University researchers create a positive externality because what they discover in their research labs can easily be learned by others who haven't contributed to the research costs.Suppose that the federal government gives grants to these researchers equal to the their per-unit production externality.What is the relationship between the equilibrium quantity of university research and the socially optimal quantity of university research produced?


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

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

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The Golden Rule is an example of a private solution for


A) subsidizing higher education.
B) internalizing externalities.
C) increasing production.
D) reducing scarcity.

E) None of the above
F) B) and C)

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Figure 10-9 Figure 10-9 -Refer to Figure 10-9.Which graph represents a market with a positive externality? A) Panel (a) B) Panel (b) C) Panel (c) D) Both (b) and (c) are correct. Figure 10-9 -Refer to Figure 10-9.Which graph represents a market with a positive externality? A) Panel (a) B) Panel (b) C) Panel (c) D) Both (b) and (c) are correct. Figure 10-9 -Refer to Figure 10-9.Which graph represents a market with a positive externality? A) Panel (a) B) Panel (b) C) Panel (c) D) Both (b) and (c) are correct. -Refer to Figure 10-9.Which graph represents a market with a positive externality?


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

E) None of the above
F) All of the above

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In a market characterized by externalities,the market equilibrium fails to maximize the total benefit to society as a whole.

A) True
B) False

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Figure 10-10 Figure 10-10 -Refer to Figure 10-10.The socially optimal quantity of output is A) 120 units, since the value to the buyer of the 120th unit is equal to the cost incurred by the seller of the 120th unit. B) 120 units, since the value to the buyer of the 120th unit is equal to the cost incurred by society of the 120th unit. C) 160 units, since the value to the buyer of the 160th unit is equal to the cost incurred by the seller of the 160th unit. D) 160 units, since the value to the buyer of the 160th unit is equal to the cost incurred by society of the 160th unit. -Refer to Figure 10-10.The socially optimal quantity of output is


A) 120 units, since the value to the buyer of the 120th unit is equal to the cost incurred by the seller of the 120th unit.
B) 120 units, since the value to the buyer of the 120th unit is equal to the cost incurred by society of the 120th unit.
C) 160 units, since the value to the buyer of the 160th unit is equal to the cost incurred by the seller of the 160th unit.
D) 160 units, since the value to the buyer of the 160th unit is equal to the cost incurred by society of the 160th unit.

E) None of the above
F) C) and D)

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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.

A) True
B) False

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Suppose that cookie producers create a positive externality equal to $2 per dozen.What is the relationship between the equilibrium quantity and the socially optimal quantity of cookies to be produced?


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) B) and C)
F) None of the above

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Which of the following is NOT a way of internalizing technology spillovers?


A) subsidies
B) patent protection
C) industrial policy
D) taxes

E) All of the above
F) A) and B)

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Figure 10-9 Figure 10-9 -Refer to Figure 10-9.The installation of a scrubber in a smokestack reduces the emission of harmful chemicals from the smokestack.Therefore,the market for smokestack scrubbers is shown in A) Panel (a) . B) Panel (b) . C) Panel (c) . D) Both (b) and (c) are correct. Figure 10-9 -Refer to Figure 10-9.The installation of a scrubber in a smokestack reduces the emission of harmful chemicals from the smokestack.Therefore,the market for smokestack scrubbers is shown in A) Panel (a) . B) Panel (b) . C) Panel (c) . D) Both (b) and (c) are correct. Figure 10-9 -Refer to Figure 10-9.The installation of a scrubber in a smokestack reduces the emission of harmful chemicals from the smokestack.Therefore,the market for smokestack scrubbers is shown in A) Panel (a) . B) Panel (b) . C) Panel (c) . D) Both (b) and (c) are correct. -Refer to Figure 10-9.The installation of a scrubber in a smokestack reduces the emission of harmful chemicals from the smokestack.Therefore,the market for smokestack scrubbers is shown in


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

E) A) and B)
F) None of the above

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When he was a candidate for president,Barack Obama proposed which of the following as a means of combating climate change?


A) a "cap and trade" system in which the government would give away permits to emit carbon
B) a "cap and trade" system in which the government would auction permits to emit carbon
C) a tax on carbon emissions
D) a government mandate to switch from gasoline-powered vehicles to vehicles powered by natural gas

E) All of the above
F) B) and C)

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A corrective tax is also known as:


A) a command-and-control regulation.
B) a Coase tax.
C) a Pigovian tax.
D) a Smithian tax.

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

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A positive externality occurs when


A) Jack receives a benefit from John's consumption of a certain good.
B) Jack receives personal benefits from his own consumption of a certain good.
C) Jack's benefit exceeds John's benefit when they each consume the same good.
D) Jack's receives a loss from John's consumption of a certain good.

E) None of the above
F) B) and D)

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