Question 1

Figure 10-19 
-Refer to Figure 10-19. Which of the following quantities decreases as the quantity of the good is increased?

Accepted Answer

A)   the private cost of the good
B)   the social cost of the good
C)   the private value of the good
D)   the external benefit of the goodE) A) and B)
F) A) and C)

Question 2

Since air pollution creates a negative externality,

Accepted Answer

A)   social welfare will be enhanced when some, but not all air pollution is eliminated.
B)   social welfare is optimal when all air pollution is eliminated.
C)   governments should encourage private firms to consider only private costs.
D)   the free market result maximizes social welfare.E) B) and C)
F) A) and D)

Question 3

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 D)

Question 4

Using a supply and demand diagram, demonstrate how a positive 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 positive externality exists, the...

Question 5

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

Question 6

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) B) and D)

Question 7

Table 10-3 
-Refer to Table 10-3. The socially optimal quantity of output is

Accepted Answer

A)   3 units.
B)   4 units.
C)   5 units.
D)   6 units.E) C) and D)
F) B) and D)

Question 8

Describe the circumstances under which it would be better for the government to sell pollution permits than to levy a corrective tax.

Accepted Answer

When the governmental authority (e.g., E...

Question 9

If the social value of producing a good is always higher than the private value of producing it, then there is a

Accepted Answer

A)   negative externality associated with the production of the good, and the market equilibrium quantity of the good is less than the socially optimal quantity.
B)   negative externality associated with the production of the good, and the socially optimal quantity of the good is less than the market equilibrium quantity.
C)   positive externality associated with the production of the good, and the market equilibrium quantity of the good is less than the socially optimal quantity.
D)   positive externality associated with the production of the good, and the socially optimal quantity of the good is less than the market equilibrium quantity.E) None of the above
F) All of the above

Question 10

Most economists prefer corrective taxes to regulation as a way to correct the problem of pollution because

Accepted Answer

A)   the market-based solution is less costly to society.
B)   the market-based solution can result in a greater reduction in pollution.
C)   the market-based solution raises revenue for the government.
D)   All of the above are correct.E) C) and D)
F) B) and D)

Question 11

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

Question 12

Suppose that flower gardens create a positive externality equal to $1 per plant. What is the relationship between the equilibrium quantity and the socially optimal quantity of plants grown?

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 13

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

Question 14

If education produces positive externalities, we would expect

Accepted Answer

A)   the government to tax education.
B)   the government to subsidize education.
C)   people to realize the benefits, which would increase the demand for education.
D)   colleges to relax admission requirements.E) B) and C)
F) A) and C)

Question 15

For the purpose of protecting the environment, upon which of the following approaches do we rely more and more as time goes by?

Accepted Answer

A)   adherence to the notion of the invisible hand
B)   command-and-control policies
C)   the development and enforcement of regulations
D)   the requirement that decision makers bear the full costs of their actionsE) None of the above
F) C) and D)

Question 16

Figure 10-4 
-Refer to Figure 10-4. This market is characterized by

Accepted Answer

A)   government intervention.
B)   a positive externality.
C)   a negative externality.
D)   None of the above is correct.E) A) and C)
F) B) and D)

Question 17

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

Accepted Answer

A)   automobiles.
B)   aluminum.
C)   industrial robots.
D)   All of the above are correct.E) C) and D)
F) A) and B)

Question 18

An externality arises when a person engages in an activity that influences the well-being of

Accepted Answer

A)   buyers in the market for that activity and yet neither pays nor receives any compensation for that effect.
B)   sellers in the market for that activity and yet neither pays nor receives any compensation for that effect.
C)   bystanders in the market for that activity and yet neither pays nor receives any compensation for that effect.
D)   Both (a)  and (b)  are correct.E) A) and B)
F) C) and D)

Question 19

Government intervention that aims to promote technology-enhancing industries is called

Accepted Answer

A)   assisted technology.
B)   intervention policy.
C)   industrial technology assistance.
D)   industrial policy.E) B) and D)
F) C) and D)

Question 20

If an objective of public policy is to allocate pollution to those factories that face the highest cost of reducing it, then that objective could be achieved by

Accepted Answer

A)   a corrective tax, but not by regulation.
B)   regulation, but not by a corrective tax.
C)   either regulation or a corrective tax.
D)   neither regulation nor a corrective tax.E) None of the above
F) A) and C)

Exam 10: Externalities

If an objective of public policy is to allocate pollution to those factories that face the highest cost of reducing it, then that objective could be achieved by

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

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

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A positive externality will cause a market to produce

Correct AnswerverifiedShow Answer

Using a supply and demand diagram, demonstrate how a positive externality leads to market inefficiency. How might the government help to eliminate this inefficiency?

Correct Answerverified When a positive externality exists, the...View AnswerShow Answer

Describe the circumstances under which it would be better for the government to sell pollution permits than to levy a corrective tax.

Correct AnswerverifiedWhen the governmental authority (e.g., E...View AnswerShow Answer

Government intervention that aims to promote technology-enhancing industries is called

Correct AnswerverifiedShow Answer

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

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Table 10-3 -Refer to Table 10-3. The socially optimal quantity of output is

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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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Most economists prefer corrective taxes to regulation as a way to correct the problem of pollution because

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If the social value of producing a good is always higher than the private value of producing it, then there is a

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Figure 10-19 -Refer to Figure 10-19. Which of the following quantities decreases as the quantity of the good is increased?

Correct AnswerverifiedShow Answer

Since air pollution creates a negative externality,

Correct AnswerverifiedShow Answer

An externality arises when a person engages in an activity that influences the well-being of

Correct AnswerverifiedShow Answer

If education produces positive externalities, we would expect

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

For the purpose of protecting the environment, upon which of the following approaches do we rely more and more as time goes by?

Correct AnswerverifiedShow Answer

Figure 10-4 -Refer to Figure 10-4. This market is characterized by

Correct AnswerverifiedShow Answer

Suppose that flower gardens create a positive externality equal to $1 per plant. What is the relationship between the equilibrium quantity and the socially optimal quantity of plants grown?

Correct AnswerverifiedShow Answer

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When a positive externality exists, the...
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When the governmental authority (e.g., E...
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