Question 1

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

Question 2

Melissa engages in an activity that influences the well-being of a bystander. In order for Melissa's activity to give rise to an externality, it must be the case that

Accepted Answer

A)   Melissa fails to recognize the impact of her activity on the bystander's well­being.
B)   the bystander fails to recognize the impact of Melissa's activity on his or her well­being.
C)   the well­being of the bystander is adversely impacted by Melissa's activity.
D)   Melissa neither pays nor receives any compensation for her activity.E) None of the above
F) C) and D)

Question 3

Figure 10-2. The graph depicts the market for plastic. 
-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, how much plastic will be produced?

Accepted Answer

A)   200
B)   500
C)   650
D)   900E) All of the above
F) None of the above

Question 4

Figure 10-7 
-Refer to Figure 10-7. To internalize the externality in this market, the government should

Accepted Answer

A)   impose a tax on this product.
B)   provide a subsidy for this product.
C)   forbid production.
D)   produce the product itself.E) All of the above
F) None of the above

Question 5

Which of the following statements is true of both pollution permits and corrective taxes?

Accepted Answer

A)   Both policies internalize the externality of pollution.
B)   Both policies require firms to pay for their pollution.
C)   Both policies lead to the establishment of an equilibrium price of pollution.
D)   All of the above are correct.E) B) and C)
F) All of the above

Question 6

When externalities are present in a market, the well-being of market participants

Accepted Answer

A)   and market bystanders are both directly affected.
B)   and market bystanders are both indirectly affected.
C)   is directly affected, and market bystanders are indirectly affected.
D)   is indirectly affected, and market bystanders are directly affected.E) None of the above
F) All of the above

Question 7

An example of a private solution to externalities is charities. The government encourages this private solution by allowing .

Accepted Answer

tax deduct...

Question 8

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

Question 9

An externality is an example of

Accepted Answer

A)   a corrective tax.
B)   a tradable pollution permit.
C)   a market failure.
D)   Both a and b are correct.E) All of the above
F) A) and C)

Question 10

Scenario 10-2
The demand curve for restored historic buildings slopes downward and the supply curve for restored historic buildings slopes upward. The production of the 50S1U1P1tS1S1P0S1U1P1hS1S1P0S1U1P1 S1S1P0restored historic building entails the following:
-a private cost of $800,000;
-a private value of $650,000;
-a social value of $800,000.
-Refer to Scenario 10-2. Is the market equilibrium quantity of restored historic buildings less than, equal to, or greater than 50?

Accepted Answer

The market equilibri...

Question 11

Suppose that Charles wants to dine at a fancy restaurant, but the only available table is in the smoking section. Charles dislikes the smell of cigarette smoke. He notices that only one person, Sam, is smoking in the smoking section. Charles values the absence of smoke at $40. Sam values the ability to smoke in the restaurant at $15. Which of the following represents an efficient solution in the absence of transaction costs?

Accepted Answer

A)   Sam continues to smoke because he has a right to smoke in the smoking section.
B)   Charles offers Sam between $15 and $40 not to smoke. Sam accepts, and both parties are better off.
C)   Charles offers Sam between $15 and $40 not to smoke. Sam declines because he has a right to smoke in the smoking section.
D)   Only a government policy banning smoking in restaurants will solve this problem.E) C) and D)
F) A) and D)

Question 12

Sheryl sits on her patio and plays her guitar while her neighbors are outside. Sheryl neither pays nor receives any compensation for playing her guitar. Under what condition does her guitar-playing give rise to a positive externality?

Accepted Answer

Sheryl's guitar­playing gives ...

Question 13

Taxes that are enacted to mitigate the effects of negative externalities are sometimes called

Accepted Answer

A)   control taxes.
B)   command levies.
C)   Pigovian taxes.
D)   Marshallian taxes.E) B) and C)
F) A) and C)

Question 14

Which of the following statements about the Coase theorem is true?

Accepted Answer

A)   Underlying the results of the Coase theorem is the idea that private parties can bargain without cost over the allocation of resources.
B)   The Coase theorem asserts that private solutions to externalities invariably lead to inefficient allocations of resources.
C)   The Coase theorem applies to negative externalities, but not to positive externalities.
D)   All of the above are correct.E) A) and B)
F) C) and D)

Question 15

Table 10-4 
-Refer to Table 10-4. The table represents a market in which

Accepted Answer

A)   there is no externality.
B)   there is a positive externality.
C)   there is a negative externality.
D)   The answer cannot be determined from inspection of the table.E) A) and D)
F) None of the above

Question 16

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 B)
F) A) and C)

Question 17

Suppose that electricity producers create a negative externality equal to $5 per unit. Further suppose that the government gives a $5 per-unit subsidy to producers. What is the relationship between the equilibrium quantity and the socially optimal quantity of electricity to be 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) None of the above
F) C) and D)

Question 18

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. Each unit of plastics that is produced results in an external

Accepted Answer

A)   cost of $6.
B)   cost of $8.
C)   benefit of $6.
D)   benefit of $8.E) A) and D)
F) C) and D)

Question 19

Figure 10-10 
-Refer to Figure 10-10. The graph represents a market in which

Accepted Answer

A)   there is no externality.
B)   there is a positive externality.
C)   there is a negative externality.
D)   The answer cannot be determined from inspection of the graph.E) None of the above
F) A) and D)

Question 20

Figure 10-15 
-Refer to Figure 10-15. Which of the following is not necessary in order for the corrective tax and pollution permit to have equivalent effects?

Accepted Answer

A)   PB must be equivalent to the corrective tax.
B)   QA must be equivalent to the amount of pollution allowed to the pollution permit holders.
C)   The equilibrium price and quantity of pollution must be the same in both graphs.
D)   The amount of pollution emitted by each firm must be the same.E) All of the above
F) C) and D)

Exam 10: Externalities

Correct Answer
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The market equilibri...
View Answer

Melissa engages in an activity that influences the well-being of a bystander. In order for Melissa's activity to give rise to an externality, it must be the case that

Correct Answer
verified

When externalities are present in a market, the well-being of market participants

Correct Answer
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Figure 10-15 -Refer to Figure 10-15. Which of the following is not necessary in order for the corrective tax and pollution permit to have equivalent effects?

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

Correct Answer
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An example of a private solution to externalities is charities. The government encourages this private solution by allowing .

Correct Answer
verified
tax deduct...
View Answer

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

Correct Answer
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An externality is an example of

Correct Answer
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Taxes that are enacted to mitigate the effects of negative externalities are sometimes called

Correct Answer
verified

Correct Answer
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Table 10-4 -Refer to Table 10-4. The table represents a market in which

Correct Answer
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Which of the following statements is true of both pollution permits and corrective taxes?

Correct Answer
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Figure 10-2. The graph depicts the market for plastic. -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, how much plastic will be produced?

Correct Answer
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Figure 10-10 -Refer to Figure 10-10. The graph represents a market in which

Correct Answer
verified

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

Correct Answer
verified

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. Each unit of plastics that is produced results in an external

Correct Answer
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Figure 10-7 -Refer to Figure 10-7. To internalize the externality in this market, the government should

Correct Answer
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Sheryl sits on her patio and plays her guitar while her neighbors are outside. Sheryl neither pays nor receives any compensation for playing her guitar. Under what condition does her guitar-playing give rise to a positive externality?

Correct Answer
verified
Sheryl's guitarplaying gives ...
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Which of the following statements about the Coase theorem is true?

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

Correct Answer
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Exam 10: Externalities

Correct AnswerverifiedThe market equilibri...View AnswerShow Answer

Melissa engages in an activity that influences the well-being of a bystander. In order for Melissa's activity to give rise to an externality, it must be the case that

Correct AnswerverifiedShow Answer

When externalities are present in a market, the well-being of market participants

Correct AnswerverifiedShow Answer

Figure 10-15 -Refer to Figure 10-15. Which of the following is not necessary in order for the corrective tax and pollution permit to have equivalent effects?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

An example of a private solution to externalities is charities. The government encourages this private solution by allowing .

Correct Answerverifiedtax deduct...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

An externality is an example of

Correct AnswerverifiedShow Answer

Taxes that are enacted to mitigate the effects of negative externalities are sometimes called

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Table 10-4 -Refer to Table 10-4. The table represents a market in which

Correct AnswerverifiedShow Answer

Which of the following statements is true of both pollution permits and corrective taxes?

Correct AnswerverifiedShow Answer

Figure 10-2. The graph depicts the market for plastic. -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, how much plastic will be produced?

Correct AnswerverifiedShow Answer

Figure 10-10 -Refer to Figure 10-10. The graph represents a market in which

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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. Each unit of plastics that is produced results in an external

Correct AnswerverifiedShow Answer

Figure 10-7 -Refer to Figure 10-7. To internalize the externality in this market, the government should

Correct AnswerverifiedShow Answer

Sheryl sits on her patio and plays her guitar while her neighbors are outside. Sheryl neither pays nor receives any compensation for playing her guitar. Under what condition does her guitar-playing give rise to a positive externality?

Correct AnswerverifiedSheryl's guitar­playing gives ...View AnswerShow Answer

Which of the following statements about the Coase theorem is true?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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The market equilibri...
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tax deduct...
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Sheryl's guitarplaying gives ...
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Correct Answer
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