Question 1

Figure 10-2 
-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)   $3
B)   $3.50
C)   $5
D)   $8E) All of the above
F) A) and D)

Question 2

Suppose that a firm produces electricity by burning coal.The production process creates a negative externality of air pollution.If the firm does not internalize the cost of the externality,it will produce where

Accepted Answer

A)   the value of electricity to consumers equals the private cost of producing electricity.
B)   the value of electricity to consumers equals the social cost of producing electricity.
C)   the cost of the externality is maximized.
D)   the transaction costs of private bargaining are minimized.E) C) and D)
F) All of the above A

Question 3

In many cases selling pollution permits is a better method for reducing pollution than imposing a corrective tax because

Accepted Answer

A)   it is hard to estimate the market demand curve and thus charge the "right" corrective tax.
B)   selling pollution permits create a net increase in pollution.
C)   Corrective taxes distort incentives.
D)   Corrective taxes provide greater flexibility to firms that can reduce pollution at a low cost.E) C) and D)
F) All of the above

Question 4

A positive externality will cause a market to produce

Accepted Answer

A)   more than is socially desirable.
B)   less than is socially desirable.
C)   the socially optimal equilibrium amount.
D)   more than the same market would produce in the presence of a negative externality.E) A) and B)
F) B) and C)

Question 5

Table 10-4
The following table shows the total costs for each of four firms (A,B,C,and D) to eliminate units of pollution from their production processes.For example,for Firm A to eliminate one unit of pollution,it would cost $46,and for Firm A to eliminate two units of pollution,it would cost a total of $103.
 
-Refer to Table 10-4.Suppose the government wanted to reduce pollution from 16 units to exactly 7 units.Which of the following fees per unit of pollution would achieve that goal?

Accepted Answer

A)   $58
B)   $82
C)   $96
D)   $102E) A) and B)
F) All of the above A

Question 6

A corrective tax is also known as:

Accepted Answer

A)   a command-and-control regulation.
B)   a Coase tax.
C)   a Pigouvian tax.
D)   a Smithian tax.E) A) and B)
F) A) and C)

Question 7

Market failure can be caused by

Accepted Answer

A)   too much competition.
B)   externalities.
C)   low consumer demand.
D)   scarcity.E) None of the above
F) A) and D)

Question 8

The best remedy for market failure is often

Accepted Answer

A)   a market-based solution.
B)   shutdown of the market.
C)   no government intervention.
D)   externalizing the externalities.E) A) and B)
F) None of the above

Question 9

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.If there are no subsidies,what is the relationship between the equilibrium quantity of university research and the optimal quantity of university research 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) B) and C)
F) A) and D)

Question 10

Two firms,A and B,each currently dump 20 tons of chemicals into the local river.The government has decided to reduce the pollution and from now on will require a pollution permit for each ton of pollution dumped into the river.The government gives each firm 10 pollution permits,which it can either use or sell to the other firm.It costs Firm A $100 for each ton of pollution that it eliminates before it reaches the river,and it costs Firm B $50 for each ton of pollution that it eliminates before it reaches the river.After the two firms buy or sell pollution permits from each other,we would expect that

Accepted Answer

A)   Firm A will no longer pollute,and Firm B will not reduce its pollution at all.
B)   Firm B will no longer pollute,and Firm A will not reduce its pollution at all.
C)   Firm A will dump 10 tons of pollution into the river,and Firm B will dump 10 tons of pollution into the river.
D)   Firm A will increase its pollution and Firm B will reduce its pollution.E) A) and B)
F) C) and D)

Question 11

Since almost all forms of transportation produce some type of pollution,

Accepted Answer

A)   the government should ban all transportation.
B)   the government should ban all pollution.
C)   society has to weigh the cost and benefits when deciding how much pollution to allow.
D)   refrain from intervening because the market can best solve this problem.E) None of the above
F) A) and B)

Question 12

Figure 10-5 2 - P0. B)  To induce firms to internalize the externality in this market,the government should offer a subsidy measured by P2 - P0. C)  To induce firms to internalize the externality in this market,the government should impose a tax measured by P2 - P1. D)  There is no externality in this market." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 10-5.Which of the following statements is correct?

Accepted Answer

A)   To induce firms to internalize the externality in this market,the government should impose a tax measured by P2 - P0.
B)   To induce firms to internalize the externality in this market,the government should offer a subsidy measured by P2 - P0.
C)   To induce firms to internalize the externality in this market,the government should impose a tax measured by P2 - P1.
D)   There is no externality in this market.E) A) and D)
F) A) and B)

Question 13

Figure 10-4 3." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 10-4.This market

Accepted Answer

A)   has no need for government intervention.
B)   would benefit from a tax on the product.
C)   would benefit from a subsidy for the product.
D)   would maximize total well-being at Q3.E) B) and C)
F) C) and D)

Question 14

A cost imposed on someone who is neither the consumer nor the producer is called a

Accepted Answer

A)   corrective tax.
B)   command and control policy.
C)   positive externality.
D)   negative externality.E) A) and B)
F) All of the above

Question 15

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 16

Figure 10-9   
-Refer to Figure 10-9,Panel (b) .The market equilibrium price is

Accepted Answer

A)   P2.
B)   P3a.
C)   P3b.
D)   P3a - P3b.E) A) and B)
F) A) and C) C

Question 17

Figure 10-6 
-Refer to Figure 10-6.Which quantity represents the socially-optimal quantity of output in this market?

Accepted Answer

A)   Q
B)   Q'
C)   Either Q or Q'.It is necessary to know whether the externality is positive or negative to determine the socially-optimal quantity.
D)   Some quantity between Q and Q'.The socially-optimal quantity depends on the negotiating skills of the interested parties.E) None of the above
F) A) and C)

Question 18

Government intervention is necessary to correct all externalities.

Accepted Answer

A) True 
 B)False

Question 19

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

Accepted Answer

A)   subsidies
B)   patent protection
C)   industrial policy
D)   taxesE) B) and D)
F) B) and C)

Question 20

Table 10-3
The following table shows the marginal costs for each of four firms (A,B,C,and D) to eliminate units of pollution from their production processes.For example,for Firm A to eliminate one unit of pollution,it would cost $54,and for Firm A to eliminate a second unit of pollution it would cost an additional $67.
 
-Refer to Table 10-3.If the government wanted to eliminate exactly 11 units of pollution,which of the following fees per unit of pollution would achieve that goal?

Accepted Answer

A)   $75
B)   $87
C)   $90
D)   $106E) B) and C)
F) A) and C)

Exam 10: Externalities

Figure 10-2 -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
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Suppose that a firm produces electricity by burning coal.The production process creates a negative externality of air pollution.If the firm does not internalize the cost of the externality,it will produce where

Correct Answer
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A

In many cases selling pollution permits is a better method for reducing pollution than imposing a corrective tax because

Correct Answer
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A positive externality will cause a market to produce

Correct Answer
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A

A corrective tax is also known as:

Correct Answer
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Market failure can be caused by

Correct Answer
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The best remedy for market failure is often

Correct Answer
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Since almost all forms of transportation produce some type of pollution,

Correct Answer
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Figure 10-5 -Refer to Figure 10-5.Which of the following statements is correct?

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Figure 10-4 -Refer to Figure 10-4.This market

Correct Answer
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A cost imposed on someone who is neither the consumer nor the producer is called a

Correct Answer
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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
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When a negative externality exists,the ...
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Figure 10-9 -Refer to Figure 10-9,Panel (b) .The market equilibrium price is

Correct Answer
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C

Figure 10-6 -Refer to Figure 10-6.Which quantity represents the socially-optimal quantity of output in this market?

Correct Answer
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Government intervention is necessary to correct all externalities.

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

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Exam 10: Externalities

Figure 10-2 -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 a firm produces electricity by burning coal.The production process creates a negative externality of air pollution.If the firm does not internalize the cost of the externality,it will produce where

Correct AnswerverifiedA

In many cases selling pollution permits is a better method for reducing pollution than imposing a corrective tax because

Correct AnswerverifiedShow Answer

A positive externality will cause a market to produce

Correct AnswerverifiedShow Answer

Correct AnswerverifiedA

A corrective tax is also known as:

Correct AnswerverifiedShow Answer

Market failure can be caused by

Correct AnswerverifiedShow Answer

The best remedy for market failure is often

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Since almost all forms of transportation produce some type of pollution,

Correct AnswerverifiedShow Answer

Figure 10-5 -Refer to Figure 10-5.Which of the following statements is correct?

Correct AnswerverifiedShow Answer

Figure 10-4 -Refer to Figure 10-4.This market

Correct AnswerverifiedShow Answer

A cost imposed on someone who is neither the consumer nor the producer is called a

Correct AnswerverifiedShow Answer

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

Figure 10-9 -Refer to Figure 10-9,Panel (b) .The market equilibrium price is

Correct AnswerverifiedC

Figure 10-6 -Refer to Figure 10-6.Which quantity represents the socially-optimal quantity of output in this market?

Correct AnswerverifiedShow Answer

Government intervention is necessary to correct all externalities.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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A

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A

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

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C

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