Question 1

When a market experiences a positive externality,

Accepted Answer

A)   the demand curve does not reflect the value to society of the good.
B)   too much of the good is being produced.
C)   the government can internalize the externality by imposing a tax on the product.
D)   the private value is greater than the social value.E) All of the above
F) B) and D)

Question 2

Figure 10-6 
-Refer to Figure 10-6.Which price represents the equilibrium price of the product in this market?

Accepted Answer

A)   P
B)   P'
C)   Either P or P'.It is necessary to know whether the externality is positive or negative to determine which of these is the equilibrium price.
D)   Some price between P and P'.The equilibrium price depends on the negotiating skills of the interested parties.E) A) and C)
F) B) and C)

Question 3

A positive externality arises when a person engages in an activity that has

Accepted Answer

A)   an adverse effect on a bystander who is not compensated by the person who causes the effect.
B)   an adverse effect on a bystander who is compensated by the person who causes the effect.
C)   a beneficial effect on a bystander who pays the person who causes the effect.
D)   a beneficial effect on a bystander who does not pay the person who causes the effect.E) All of the above
F) None of the above

Question 4

Figure 10-11 
-Refer to Figure 10-11.Taking into account private value and external benefits,the maximum total surplus that can be achieved in this market is

Accepted Answer

A)   $3,980.
B)   $4,460.
C)   $5,240.
D)   $5,880.E) C) and D)
F) B) and C)

Question 5

Corrective taxes are typically advocated to correct for the effects of

Accepted Answer

A)   positive externalities.
B)   negative externalities.
C)   patents.
D)   All of the above are correct.E) All of the above
F) None of the above

Question 6

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?

Accepted Answer

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 outputE) A) and B)
F) B) and C)

Question 7

The Golden Rule is an example of a private solution for

Accepted Answer

A)   subsidizing higher education.
B)   internalizing externalities.
C)   increasing production.
D)   reducing scarcity.E) A) and B)
F) All of the above

Question 8

If a market is characterized by a positive externality that is not the result of a technology spillover,

Accepted Answer

A)   the socially optimal level of output is less than the equilibrium level of output,and the optimal price is greater than the equilibrium price.
B)   the socially optimal level of output is greater than the equilibrium level of output,and the socially optimal price is less than the equilibrium price.
C)   the socially optimal level of output is greater than the equilibrium level of output,and the socially optimal price is greater than the equilibrium price.
D)   the socially optimal level of output is less than the equilibrium level of output,and the socially optimal price is less than the equilibrium price.E) C) and D)
F) None of the above

Question 9

Figure 10-12 
-Refer to Figure 10-12.The graph,as drawn,could apply to the market for

Accepted Answer

A)   fire extinguishers.
B)   historic buildings.
C)   robots.
D)   All of the above are correct.E) C) and D)
F) A) and B)

Question 10

Suppose planting flowering shrubs creates a positive externality equal to $7 per shrub.Further suppose that the local government offers a $7 per-shrub subsidy to planters.The number of shrubs that are planted is then

Accepted Answer

A)   less than the socially optimal quantity.
B)   greater than the socially optimal quantity.
C)   equal to the socially optimal quantity.
D)   There is not enough information to answer the question.E) A) and B)
F) A) and C)

Question 11

Negative externalities lead markets to produce

Accepted Answer

A)   greater than efficient output levels and positive externalities lead markets to produce smaller than efficient output levels.
B)   smaller than efficient output levels and positive externalities lead markets to produce greater than efficient output levels.
C)   greater than efficient output levels and positive externalities lead markets to produce efficient output levels.
D)   efficient output levels and positive externalities lead markets to produce greater than efficient output levels.E) A) and B)
F) A) and C)

Question 12

Suppose that electricity producers create a negative externality equal to $5 per unit.Further suppose that the government impose a $5 per-unit tax on the producers.What is the relationship between the after-tax equilibrium quantity and the socially optimal quantity of electricity to be produced?

Accepted Answer

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

Question 13

Suppose that cigarette smokers create a negative externality.Further suppose that the government imposes a tax on cigarettes equal to the per-unit externality.What is the relationship between the after-tax equilibrium quantity and the socially optimal quantity of cigarettes?

Accepted Answer

A)   They are equal.
B)   The after-tax equilibrium quantity is greater than the socially optimal quantity.
C)   The after-tax equilibrium quantity is less than the socially optimal quantity.
D)   There is not enough information to answer the question.E) All of the above
F) B) and C)

Question 14

A positive externality

Accepted Answer

A)   causes the product to be overproduced.
B)   provides an additional benefit to market participants.
C)   benefits consumers because it results in a lower equilibrium price.
D)   is a benefit to a market bystander.E) All of the above
F) A) and B)

Question 15

Table 10-4
 nd unit of output that is produced is A)  $7. B)  $23. C)  $30. D)  $38." class="answers-bank-image d-inline" rel="preload" >
-Refer to Table 10-4.The social cost of the 2nd unit of output that is produced is

Accepted Answer

A)   $7.
B)   $23.
C)   $30.
D)   $38.E) All of the above
F) A) and B)

Question 16

If education produces positive externalities and the government does not intervene in the market,we would expect

Accepted Answer

A)   the equilibrium price to be higher than the optimal price.
B)   the equilibrium quantity to be lower than the optimal level.
C)   the equilibrium quantity to be higher than the optimal level.
D)   both a and b are correctE) A) and D)
F) C) and D)

Question 17

Use a graph to illustrate the quantity of pollution that would be emitted (a)after a corrective tax has been imposed and (b)after tradable pollution permits have been imposed.Could these two quantities ever be equivalent?

Accepted Answer

<img  loading="lazy" src="/assets/images/blured-textbook.svg" class="d-inline m-1" alt="blured image" width="139" height="30"> Yes,these two quantities coul...

Question 18

When a particular negative externality affects a very large number of people,it is likely that

Accepted Answer

A)   government will not find it worthwhile to impose a corrective tax.
B)   private solutions to the problem will dominate any attempt by government to alleviate the problem.
C)   the solution to externalities suggested by the Coase theorem will work very well.
D)   the solution to externalities suggested by the Coase theorem will not work.E) None of the above
F) A) and D)

Question 19

In the case of a technology spillover,internalizing a positive externality will cause the supply curve of an industry to

Accepted Answer

A)   shift to the right.
B)   shift to the left.
C)   become more elastic.
D)   remain unchanged.E) C) and D)
F) B) and C)

Question 20

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

Exam 10: Externalities

Negative externalities lead markets to produce

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Table 10-4 -Refer to Table 10-4.The social cost of the 2nd unit of output that is produced is

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Suppose that cigarette smokers create a negative externality.Further suppose that the government imposes a tax on cigarettes equal to the per-unit externality.What is the relationship between the after-tax equilibrium quantity and the socially optimal quantity of cigarettes?

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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

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Use a graph to illustrate the quantity of pollution that would be emitted (a)after a corrective tax has been imposed and (b)after tradable pollution permits have been imposed.Could these two quantities ever be equivalent?

Correct Answerverified Yes,these two quantities coul...View AnswerShow Answer

When a particular negative externality affects a very large number of people,it is likely that

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In the case of a technology spillover,internalizing a positive externality will cause the supply curve of an industry to

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Figure 10-6 -Refer to Figure 10-6.Which price represents the equilibrium price of the product in this market?

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Suppose planting flowering shrubs creates a positive externality equal to $7 per shrub.Further suppose that the local government offers a $7 per-shrub subsidy to planters.The number of shrubs that are planted is then

Correct AnswerverifiedShow Answer

The Golden Rule is an example of a private solution for

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If education produces positive externalities and the government does not intervene in the market,we would expect

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A positive externality arises when a person engages in an activity that has

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If a market is characterized by a positive externality that is not the result of a technology spillover,

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Figure 10-11 -Refer to Figure 10-11.Taking into account private value and external benefits,the maximum total surplus that can be achieved in this market is

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Suppose that electricity producers create a negative externality equal to $5 per unit.Further suppose that the government impose a $5 per-unit tax on the producers.What is the relationship between the after-tax equilibrium quantity and the socially optimal quantity of electricity to be produced?

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Corrective taxes are typically advocated to correct for the effects of

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A positive externality

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Figure 10-12 -Refer to Figure 10-12.The graph,as drawn,could apply to the market for

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When a market experiences a positive externality,

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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?

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Table 10-4 -Refer to Table 10-4.The social cost of the 2^nd unit of output that is produced is

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Yes,these two quantities coul...
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