Question 1

When an industry is characterized by technology spillover, what should the government do to ensure that the market equilibrium equals the socially optimal equilibrium?

Accepted Answer

A)  Impose a tax greater than the value of the technology spillover.
B)  Not allow production of any product that causes a technology spillover.
C)  Provide a subsidy equal to the value of the technology spillover.
D)  Require producers to "clean up" any spillover that results from their production process.E) A) and B)
F) C) and D)

Question 2

One drawback to industrial policy is that

Accepted Answer

A)  technology spillovers are too expensive to control.
B)  measuring the size of spillovers from different markets is difficult.
C)  spillovers often occur in industries that produce undesirable products for society.
D)  positive side effects are often outweighed by negative side effects.E) A) and D)
F) None of the above

Question 3

Figure 10-2. The graph depicts the market for plastic. 
-Refer to Figure 10-2. A benevolent social planner would like to see

Accepted Answer

A)  200 units of plastic produced.
B)  500 units of plastic produced.
C)  650 units of plastic produced.
D)  more than 650 units of plastic produced.E) A) and B)
F) None of the above

Question 4

Figure 10-9   
-Refer to Figure 10-9, Panel (b)  and Panel (c) . The overuse of antibiotics leads to the development of antibiotic-resistant diseases. Therefore, the socially optimal quantity of antibiotics is represented by point

Accepted Answer

A)  Q2.
B)  Q3.
C)  Q4.
D)  Q5.E) B) and C)
F) None of the above

Question 5

Which of the following is a difference between corrective taxes and tradable pollution permits?

Accepted Answer

A)  Corrective taxes are a market-based solution while tradable pollution permits are a command-and-control policy.
B)  With a corrective tax the government sets the price of pollution; with tradable pollution permits, demand and supply set the price of pollution.
C)  With corrective taxes firms pay for pollution; with tradable pollution permits firms do not.
D)  Corrective taxes internalize the pollution externality while tradable pollution permits do not.E) A) and D)
F) A) and B)

Question 6

Beverly owns a rabbit and receives a $600 benefit from owning it. Sometimes Beverly's rabbit makes its way onto the lawn of her neighbor, Charles, and eats the vegetables in Charles' garden. This intrusion by the rabbit costs Charles $400. Can both individuals become better off if Charles pays Beverly some amount of money to get rid of the rabbit? Explain.

Accepted Answer

No, since Beverly would requir...

Question 7

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

Question 8

In terms of their economic effects, which of the following policies toward pollution are most similar to one another?

Accepted Answer

A)  regulation and corrective taxes
B)  regulation and tradable pollution permits
C)  corrective taxes and tradable pollution permits
D)  All of these policies produce the same economic effects.E) All of the above
F) A) and D)

Question 9

​Figure 10-20. ​ 
-Refer to Figure 10-20. The graph depicts the market for fertilizer. This market would benefit from a

Accepted Answer

A)  subsidy on fertilizer equal to $100.
B)  tax on fertilizer equal to $100.
C)  tax on fertilizer equal to $50.
D)  subsidy on fertilizer equal to $50.E) A) and C)
F) None of the above

Question 10

Private contracts between parties with mutual interests

Accepted Answer

A)  will reduce the well-being of society.
B)  will lead to market outcomes in which the public interest is sacrificed for personal gain.
C)  can solve some inefficiencies associated with positive externalities.
D)  will create negative externalities.E) A) and B)
F) None of the above

Question 11

All remedies for externalities share the goal of

Accepted Answer

A)  moving the allocation of resources toward the market equilibrium.
B)  moving the allocation of resources toward the socially optimal equilibrium.
C)  increasing the allocation of resources.
D)  decreasing the allocation of resources.E) B) and D)
F) A) and B)

Question 12

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

Question 13

Figure 10-19 
-Refer to Figure 10-19. Each additional unit of the good that is produced yields an external benefit of

Accepted Answer

A)  $15.
B)  $23.
C)  $36.
D)  $89.E) A) and B)
F) A) and C)

Question 14

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

Question 15

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) C) and D)

Question 16

Which of the following is not an effective method of reducing negative externalities?

Accepted Answer

A)  relying on voluntary compliance
B)  taxing the output of industries that pollute
C)  creating legal environmental standards
D)  increasing public spending on cleanup and reduction of pollutionE) B) and C)
F) A) and D)

Question 17

Which of the following statements about a well-maintained yard best conveys the general nature of the externality?

Accepted Answer

A)  A well-maintained yard conveys a positive externality because it increases the home's market value.
B)  A well-maintained yard conveys a negative externality because it increases the property tax liability of the owner.
C)  A well-maintained yard conveys a positive externality because it increases the value of adjacent properties in the neighborhood.
D)  A well-maintained yard cannot provide any type of externality.E) None of the above
F) B) and D)

Question 18

The difference between a corrective tax and a tradable pollution permit is that

Accepted Answer

A)  a corrective tax sets the price of pollution and a permit sets the quantity of pollution.
B)  a corrective tax creates a more efficient outcome than a permit.
C)  a corrective tax sets the quantity of pollution and a permit sets the price of pollution.
D)  a permit creates a more efficient outcome than a corrective tax.E) B) and C)
F) A) and D)

Question 19

Which of the following represents a way that a government can help the private market to internalize an externality?

Accepted Answer

A)  taxing goods that have negative externalities
B)  subsidizing goods that have positive externalities
C)  The government cannot improve upon the outcomes of private markets.
D)  Both a and b are correct.E) B) and C)
F) A) and C)

Question 20

Since restored historic buildings convey a positive externality, local governments may choose to

Accepted Answer

A)  regulate the demolition of them.
B)  provide tax breaks to owners who restore them.
C)  increase property taxes in historic areas.
D)  Both a and b are correct.E) A) and C)
F) A) and D)

Exam 10: Externalities

Correct Answer
verified
No, since Beverly would requir...
View Answer

Which of the following statements about a well-maintained yard best conveys the general nature of the externality?

Correct Answer
verified

Which of the following statements is correct?

Correct Answer
verified

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

Private contracts between parties with mutual interests

Correct Answer
verified

Correct Answer
verified

Which of the following is not an effective method of reducing negative externalities?

Correct Answer
verified

All remedies for externalities share the goal of

Correct Answer
verified

Which of the following represents a way that a government can help the private market to internalize an externality?

Correct Answer
verified

Since restored historic buildings convey a positive externality, local governments may choose to

Correct Answer
verified

Which of the following is a difference between corrective taxes and tradable pollution permits?

Correct Answer
verified

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

Correct Answer
verified

When an industry is characterized by technology spillover, what should the government do to ensure that the market equilibrium equals the socially optimal equilibrium?

Correct Answer
verified

Figure 10-9 -Refer to Figure 10-9, Panel (b) and Panel (c) . The overuse of antibiotics leads to the development of antibiotic-resistant diseases. Therefore, the socially optimal quantity of antibiotics is represented by point

Correct Answer
verified

Figure 10-19 -Refer to Figure 10-19. Each additional unit of the good that is produced yields an external benefit of

Correct Answer
verified

In terms of their economic effects, which of the following policies toward pollution are most similar to one another?

Correct Answer
verified

Figure 10-20. -Refer to Figure 10-20. The graph depicts the market for fertilizer. This market would benefit from a

Correct Answer
verified

Figure 10-2. The graph depicts the market for plastic. -Refer to Figure 10-2. A benevolent social planner would like to see

Correct Answer
verified

The difference between a corrective tax and a tradable pollution permit is that

Correct Answer
verified

One drawback to industrial policy is that

Correct Answer
verified

Exam 10: Externalities

Correct AnswerverifiedNo, since Beverly would requir...View AnswerShow Answer

Which of the following statements about a well-maintained yard best conveys the general nature of the externality?

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow 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

Private contracts between parties with mutual interests

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following is not an effective method of reducing negative externalities?

Correct AnswerverifiedShow Answer

All remedies for externalities share the goal of

Correct AnswerverifiedShow Answer

Which of the following represents a way that a government can help the private market to internalize an externality?

Correct AnswerverifiedShow Answer

Since restored historic buildings convey a positive externality, local governments may choose to

Correct AnswerverifiedShow Answer

Which of the following is a difference between corrective taxes and tradable pollution permits?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When an industry is characterized by technology spillover, what should the government do to ensure that the market equilibrium equals the socially optimal equilibrium?

Correct AnswerverifiedShow Answer

Figure 10-9 -Refer to Figure 10-9, Panel (b) and Panel (c) . The overuse of antibiotics leads to the development of antibiotic-resistant diseases. Therefore, the socially optimal quantity of antibiotics is represented by point

Correct AnswerverifiedShow Answer

Figure 10-19 -Refer to Figure 10-19. Each additional unit of the good that is produced yields an external benefit of

Correct AnswerverifiedShow Answer

In terms of their economic effects, which of the following policies toward pollution are most similar to one another?

Correct AnswerverifiedShow Answer

​Figure 10-20. ​ -Refer to Figure 10-20. The graph depicts the market for fertilizer. This market would benefit from a

Correct AnswerverifiedShow Answer

Figure 10-2. The graph depicts the market for plastic. -Refer to Figure 10-2. A benevolent social planner would like to see

Correct AnswerverifiedShow Answer

The difference between a corrective tax and a tradable pollution permit is that

Correct AnswerverifiedShow Answer

One drawback to industrial policy is that

Correct AnswerverifiedShow Answer

Correct Answer
verified
No, since Beverly would requir...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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verified

Figure 10-20. -Refer to Figure 10-20. The graph depicts the market for fertilizer. This market would benefit from a

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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