Question 1

Why are Pigovian taxes preferred to regulatory policies as methods to remedy negative externalities?

Accepted Answer

Pigovian taxes allow markets to coordina...

Question 2

The impact of one person's actions on the well-being of a bystander is called

Accepted Answer

A)   an economic dilemma.
B)   deadweight loss.
C)   a multi-party problem.
D)   an externality.E) A) and C)
F) A) and B)

Question 3

Figure 10-13. On the graph, Q represents the quantity of plastics and P represents the price of plastics.  Multiple Choice - Section 02: Public Policies toward Externalities
-Refer to Figure 10-13. If the government imposed a corrective tax that successfully moved the market from the market equilibrium to the social optimum, then tax revenue for the government would amount to

Accepted Answer

A)   $1,250.
B)   $1,600.
C)   $2,000.
D)   $2,500.E) A) and B)
F) A) and C)

Question 4

Scenario 10-1
The demand curve for gasoline slopes downward and the supply curve for gasoline slopes upward. The production of the 1,000th gallon of gasoline entails the following:
-a private cost of $3.10;
-a social cost of $3.55;
-a value to consumers of $3.70.
-Refer to Scenario 10-1. The production of the 1,000th gallon of gasoline entails an

Accepted Answer

A)   external cost of $0.15.
B)   external cost of $0.45.
C)   external benefit of $0.15.
D)   external benefit of $0.45.E) A) and D)
F) All of the above

Question 5

Even if possible, it would be inefficient to prohibit all polluting activity.

Accepted Answer

A) True 
 B)False

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

Which of the following statements is not correct?

Accepted Answer

A)   Patents help internalize the externalities associated with technological advances.
B)   Economists typically prefer regulations to corrective taxes because regulations provide more incentives for firms to seek continued reductions in pollution.
C)   Allowing firms to trade pollution permits will lower the total cost of reducing pollution.
D)   A big impediment to implementing the Coase theorem in many cases is high transactions costs.E) All of the above
F) A) and D)

Question 8

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

Accepted Answer

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

Question 9

Tradable pollution permits

Accepted Answer

A)   are widely viewed as a cost-effective way to reduce pollution.
B)   have helped reduce carbon emissions.
C)   have helped reduce sulfur dioxide emissions.
D)   All of the above are correct.E) A) and B)
F) A) and C)

Question 10

As a means of dealing with pollution, do economists generally prefer corrective taxes or do they prefer regulations?

Accepted Answer

Economists generally...

Question 11

Abe owns a dog; the dog's barking annoys Abe's neighbor, Jenny. Suppose that the benefit of owning the dog is worth $200 to Abe and that Jenny bears a cost of $400 from the barking. Assuming Abe has the legal right to keep the dog, a possible private solution to this problem is that

Accepted Answer

A)   Jenny pays Abe $150 to give the dog to his parents who live on an isolated farm.
B)   Abe pays Jenny $350 for her inconvenience.
C)   Jenny pays Abe $300 to give the dog to his parents who live on an isolated farm.
D)   There is no private transaction that would improve this situation.E) A) and B)
F) A) and C)

Question 12

Private parties may choose not to solve an externality problem if the transaction costs are large enough.

Accepted Answer

A) True 
 B)False

Question 13

Table 10-3 
-Refer to Table 10-3. Taking into account private and external costs, the maximum total surplus that can be achieved in this market is

Accepted Answer

A)   $18.
B)   $38.
C)   $46.
D)   $55.E) A) and D)
F) A) and C)

Question 14

Suppose a certain good provides an external benefit. If the private cost of the last unit of the good that was produced is equal to the social value of that unit, then the sum of producer and consumer surplus is maximized.

Accepted Answer

A) True 
 B)False

Question 15

Suppose that Company A's railroad cars pass through Farmer B's corn fields. The railroad causes an externality to the farmer because the railroad cars emit sparks that cause $1,500 in damage to the farmer's crops. There is a special soy-based grease that the railroad could purchase that would eliminate the damaging sparks. The grease costs $1,200. Suppose that the farmer has the right to compensation for any damage that his crops suffer. Assume that there are no transaction costs. Which of the following characterizes the efficient outcome?

Accepted Answer

A)   The railroad will continue to operate but will pay the farmer $1,500 in damages.
B)   The railroad will purchase the grease for $1,200 and pay the farmer nothing because no crop damage will occur.
C)   The farmer will incur $1,500 in damages to his crops.
D)   The farmer will pay the railroad $1,200 to purchase the grease so that no crop damage will occur.E) None of the above
F) B) and D)

Question 16

Figure 10-12 
-Refer to Figure 10-12. Suppose, on the figure,  represents the quantity of education and  represents the price of education. Then the quantity  represents

Accepted Answer

A)   an inefficiency.
B)   the extent of the negative externality that pertains to the market for education.
C)   the amount of the tax that would be required to correct the negative externality that pertains to the market for education.
D)   the amount of the subsidy that would be required to correct the positive externality that pertains to the market for education.E) A) and C)
F) A) and B)

Question 17

Education yields positive externalities. For example,

Accepted Answer

A)   colleges and universities have benefited, in recent years, from increases in tuition paid by students.
B)   as a result of earning a college degree, a person becomes a more productive worker and benefits by earning higher wages.
C)   a more educated population tends to result in lower crime rates.
D)   All of the above are correct.E) A) and B)
F) B) and C)

Question 18

Figure 10-3 
-Refer to Figure 10-3. The social cost curve is above the supply curve because

Accepted Answer

A)   it takes into account the external costs imposed on society by the concert.
B)   it takes into account the effect of local noise restrictions on concerts in parks surrounded by residential neighborhoods.
C)   concert tickets are likely to cost more than the concert actually costs the organizers.
D)   residents in the surrounding neighborhoods get to listen to the concert for free.E) None of the above
F) B) and C)

Question 19

Figure 10-4 
-Refer to Figure 10-4. If this market is currently producing at Q4, then total economic well-being would be maximized if output

Accepted Answer

A)   decreased to Q1.
B)   decreased to Q2.
C)   decreased to Q3.
D)   stayed at Q4.E) All of the above
F) A) and D)

Question 20

Suppose that smoking creates a negative externality. If the government does not interfere in the cigarette market, then

Accepted Answer

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

Exam 10: Externalities

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

Correct Answer
verified

Tradable pollution permits

Correct Answer
verified

Figure 10-3 -Refer to Figure 10-3. The social cost curve is above the supply curve because

Correct Answer
verified

Table 10-3 -Refer to Table 10-3. Taking into account private and external costs, the maximum total surplus that can be achieved in this market is

Correct Answer
verified

Education yields positive externalities. For example,

Correct Answer
verified

The impact of one person's actions on the well-being of a bystander is called

Correct Answer
verified

Abe owns a dog; the dog's barking annoys Abe's neighbor, Jenny. Suppose that the benefit of owning the dog is worth $200 to Abe and that Jenny bears a cost of $400 from the barking. Assuming Abe has the legal right to keep the dog, a possible private solution to this problem is that

Correct Answer
verified

Private parties may choose not to solve an externality problem if the transaction costs are large enough.

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

Why are Pigovian taxes preferred to regulatory policies as methods to remedy negative externalities?

Correct Answer
verified
Pigovian taxes allow markets to coordina...
View Answer

Suppose a certain good provides an external benefit. If the private cost of the last unit of the good that was produced is equal to the social value of that unit, then the sum of producer and consumer surplus is maximized.

Correct Answer
verified

As a means of dealing with pollution, do economists generally prefer corrective taxes or do they prefer regulations?

Correct Answer
verified
Economists generally...
View Answer

Suppose that smoking creates a negative externality. If the government does not interfere in the cigarette market, then

Correct Answer
verified

Even if possible, it would be inefficient to prohibit all polluting activity.

Correct Answer
verified

Figure 10-4 -Refer to Figure 10-4. If this market is currently producing at Q4, then total economic well-being would be maximized if output

Correct Answer
verified

Which of the following statements is not correct?

Correct Answer
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Figure 10-12 -Refer to Figure 10-12. Suppose, on the figure, represents the quantity of education and represents the price of education. Then the quantity represents

Correct Answer
verified

Exam 10: Externalities

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Tradable pollution permits

Correct AnswerverifiedShow Answer

Figure 10-3 -Refer to Figure 10-3. The social cost curve is above the supply curve because

Correct AnswerverifiedShow Answer

Table 10-3 -Refer to Table 10-3. Taking into account private and external costs, the maximum total surplus that can be achieved in this market is

Correct AnswerverifiedShow Answer

Education yields positive externalities. For example,

Correct AnswerverifiedShow Answer

The impact of one person's actions on the well-being of a bystander is called

Correct AnswerverifiedShow Answer

Abe owns a dog; the dog's barking annoys Abe's neighbor, Jenny. Suppose that the benefit of owning the dog is worth $200 to Abe and that Jenny bears a cost of $400 from the barking. Assuming Abe has the legal right to keep the dog, a possible private solution to this problem is that

Correct AnswerverifiedShow Answer

Private parties may choose not to solve an externality problem if the transaction costs are large enough.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Why are Pigovian taxes preferred to regulatory policies as methods to remedy negative externalities?

Correct AnswerverifiedPigovian taxes allow markets to coordina...View AnswerShow Answer

Suppose a certain good provides an external benefit. If the private cost of the last unit of the good that was produced is equal to the social value of that unit, then the sum of producer and consumer surplus is maximized.

Correct AnswerverifiedShow Answer

As a means of dealing with pollution, do economists generally prefer corrective taxes or do they prefer regulations?

Correct AnswerverifiedEconomists generally...View AnswerShow Answer

Suppose that smoking creates a negative externality. If the government does not interfere in the cigarette market, then

Correct AnswerverifiedShow Answer

Even if possible, it would be inefficient to prohibit all polluting activity.

Correct AnswerverifiedShow Answer

Figure 10-4 -Refer to Figure 10-4. If this market is currently producing at Q4, then total economic well-being would be maximized if output

Correct AnswerverifiedShow Answer

Which of the following statements is not correct?

Correct AnswerverifiedShow Answer

Figure 10-12 -Refer to Figure 10-12. Suppose, on the figure, represents the quantity of education and represents the price of education. Then the quantity represents

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified
Pigovian taxes allow markets to coordina...
View Answer

Correct Answer
verified

Correct Answer
verified
Economists generally...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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