Question 1

Which of the following statements is correct?

Accepted Answer

A)  Internalizing a negative externality will cause an industry to decrease the quantity it supplies to the market and decrease the price of the good produced.
B)  Internalizing a negative externality will cause an industry to decrease the quantity it supplies to the market and increase the price of the good produced.
C)  Internalizing a negative externality will cause an industry to increase the quantity it supplies to the market and decrease the price of the good produced.
D)  Internalizing a negative externality will cause an industry to increase the quantity it supplies to the market and increase the price of the good produced.E) B) and C)
F) B) and D)

Question 2

A gasoline tax is designed to correct each of the following problems except

Accepted Answer

A)  traffic congestion.
B)  traffic accidents.
C)  air pollution.
D)  EPA regulations.E) None of the above
F) B) and C)

Question 3

Reaching an efficient bargain is difficult when the

Accepted Answer

A)  externality is large.
B)  number of interested parties is large.
C)  externality is negative.
D)  government becomes involved.E) A) and D)
F) A) and C)

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

Figure 10-7
 
-Refer to Figure 10-7.Which of the following is not necessary in order for the corrective tax and pollution permit to have equivalent effects?

Accepted Answer

A)  Pᴮ must be equivalent to the corrective tax.
B)  Qᴬ must be equivalent to the amount of pollution allowed to the pollution permit holders.
C)  The equilibrium price and quantity of pollution must be the same in both graphs.
D)  The amount of pollution emitted by each firm must be the same.E) A) and B)
F) A) and C)

Question 6

When technology spillover occurs,

Accepted Answer

A)  it is the government's responsibility to subsidize firms that are engaged in high-tech research.
B)  a firm's research yields technological knowledge that can then be used by society as a whole.
C)  those firms engaged in technology research should be taxed by the government.
D)  when firms invest in the latest production technology, the cost of that technology "spills over" to the prices consumers must pay for the product.E) A) and D)
F) B) and D)

Question 7

An externality exists whenever

Accepted Answer

A)  the economy can benefit from government intervention.
B)  markets are not able to reach equilibrium.
C)  a firm sells its product in a foreign market.
D)  a person engages in an activity that influences the well-being of a bystander and yet neither pays nor receives payment for that effect.E) All of the above
F) A) and C)

Question 8

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 the government offers 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.E) A) and D)
F) C) and D)

Question 9

A local cafe that allowed patrons to smoke was forced to stop serving customers because it did not comply with local clean air standards.This decision provides an example of

Accepted Answer

A)  a direct regulation of an externality.
B)  corrective taxes.
C)  a Coase theorem solution to an externality.
D)  the misuse of a subsidy.E) A) and C)
F) A) and D)

Question 10

When producers operate in a market characterized by negative externalities,a tax that forces them to internalize the externality will

Accepted Answer

A)  give sellers the incentive to account for the external effects of their actions.
B)  increase demand.
C)  increase the amount of the commodity exchanged in market equilibrium.
D)  restrict the producers' ability to take the costs of the externality into account when deciding how much to supply.E) All of the above
F) A) and C)

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

Dog owners do not bear the full cost of the noise their barking dogs create and often take too few precautions to prevent their dogs from barking.Local governments address this problem by

Accepted Answer

A)  making it illegal to "disturb the peace."
B)  having a well-funded animal control department.
C)  subsidizing local animal shelters.
D)  encouraging people to adopt cats.E) A) and B)
F) A) and C)

Question 13

Some environmentalists argue that we should protect the environment as much as possible,regardless of cost.Which of the following is not a likely outcome of pursuing such a course of action?

Accepted Answer

A)  lower levels of nutrition, health care, and housing
B)  a lower standard of living
C)  slowing or reversing technological advancement
D)  the elimination of all pollutionE) None of the above
F) B) and C)

Question 14

Figure 10-4
 
-Refer to Figure 10-4.If this market is currently producing at Q₁,then total economic well-being would increase if output

Accepted Answer

A)  increased to Q₂.
B)  increased to Q₃.
C)  increased to Q₄.
D)  stayed at Q₁.E) A) and D)
F) C) and D)

Question 15

If the social cost of producing robots is less than the private cost of producing robots,the private market produces too few robots.

Accepted Answer

A) True 
 B)False

Question 16

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) All of the above
F) B) and D)

Question 17

Which of the following statements is correct?

Accepted Answer

A)  Gasoline taxes are an example of an EPA regulation.
B)  Gasoline taxes are higher in many European countries than in the United States.
C)  Gasoline taxes contribute to global warming.
D)  Gasoline taxes are an example of a command-and-control policy.E) All of the above
F) A) and D)

Question 18

This figure reflects the market for outdoor concerts in a public park surrounded by residential neighborhoods.
Figure 10-3
 
-Refer to Figure 10-3.What price and quantity combination best represents the optimum price and number of concerts that should be organized?

Accepted Answer

A)  P₁, Q₁
B)  P₂, Q₀
C)  P₂, Q₁
D)  The optimum quantity is zero concerts as long as residents in surrounding neighborhoods are adversely affected by noise and congestion.E) All of the above
F) A) and D)

Question 19

Without government intervention,the market equilibrium for oranges will

Accepted Answer

A)  maximize the sum of producer and consumer surplus in the market.
B)  be both efficient and equitable.
C)  be equitable but not efficient.
D)  be neither efficient nor equitable.E) A) and B)
F) A) and C)

Question 20

Technology spillover occurs when

Accepted Answer

A)  a firm passes the high costs of technical research on to society through higher prices.
B)  a firm's research yields technical knowledge that is used by society as a whole.
C)  the government subsidizes firms engaged in high-tech research.
D)  copyright laws prohibit firms from profiting from the research of others.E) All of the above
F) A) and D)

Exam 10: Externalities

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

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Which of the following statements is correct?

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Some environmentalists argue that we should protect the environment as much as possible,regardless of cost.Which of the following is not a likely outcome of pursuing such a course of action?

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Which of the following statements is correct?

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Technology spillover occurs when

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When producers operate in a market characterized by negative externalities,a tax that forces them to internalize the externality will

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A gasoline tax is designed to correct each of the following problems except

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This figure reflects the market for outdoor concerts in a public park surrounded by residential neighborhoods. Figure 10-3 -Refer to Figure 10-3.What price and quantity combination best represents the optimum price and number of concerts that should be organized?

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When technology spillover occurs,

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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 the government offers subsidies for MBAs,then which of the following statements is correct?

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

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Reaching an efficient bargain is difficult when the

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Dog owners do not bear the full cost of the noise their barking dogs create and often take too few precautions to prevent their dogs from barking.Local governments address this problem by

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

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Figure 10-7 -Refer to Figure 10-7.Which of the following is not necessary in order for the corrective tax and pollution permit to have equivalent effects?

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An externality exists whenever

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A local cafe that allowed patrons to smoke was forced to stop serving customers because it did not comply with local clean air standards.This decision provides an example of

Correct AnswerverifiedShow Answer

Figure 10-4 -Refer to Figure 10-4.If this market is currently producing at Q₁,then total economic well-being would increase if output

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Without government intervention,the market equilibrium for oranges will

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If the social cost of producing robots is less than the private cost of producing robots,the private market produces too few robots.

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