Question 1

Table 10-1
The following table shows the private value,private cost,and external cost for various quantities of output in a market.
 
-Refer to Table 10-1.How large would a corrective tax need to be to move this market from the equilibrium outcome to the socially-optimal outcome?

Accepted Answer

A)   $2
B)   $3
C)   $9
D)   $10E) A) and B)
F) All of the above

Question 2

Alexander lives in an apartment building and gets a $250 benefit from playing his stereo.Mary,who lives next door to Alexander and often loses sleep due to the loud music coming from Alexander's stereo,bears a $350 cost from the noise.Mary would like to offer Alexander some money to turn down the volume on his stereo.If Mary had to hire a lawyer to draw up the contract,what is the maximum amount she could pay to the lawyer to ensure that both Alexander and Mary would benefit from the agreement?

Accepted Answer

A)   an amount less than $100
B)   an amount between $100 and $250
C)   an amount between $250 and $350
D)   Any amount could result in both parties benefiting from the agreement.E) All of the above
F) A) and C)

Question 3

The Coase theorem suggests that private solutions to an externality problem

Accepted Answer

A)   are effective under all conditions.
B)   will usually allocate resources efficiently if private parties can bargain without cost.
C)   are only efficient when there are negative externalities.
D)   may not be possible because of the distribution of property rights.E) A) and C)
F) B) and C)

Question 4

Figure 10-4 1. B)  Q2. C)  Q3. D)  Q4." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 10-4.Without government intervention,the equilibrium quantity would be

Accepted Answer

A)   Q1.
B)   Q2.
C)   Q3.
D)   Q4.E) A) and B)
F) A) and D)

Question 5

Corrective taxes are unlike most other taxes because they

Accepted Answer

A)   distort incentives.
B)   move the allocation of resources away from the social optimum.
C)   raise revenue for the government.
D)   move the allocation of resources closer to the social optimum.E) B) and D)
F) C) and D)

Question 6

Figure 10-11 
-Refer to Figure 10-11.Taking only private value and private cost into account,total surplus at the market equilibrium amounts to

Accepted Answer

A)   $1,920.
B)   $2,240.
C)   $2,860.
D)   $3,980.E) A) and B)
F) None of the above

Question 7

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

Question 8

Since externalities tend to keep markets from reaching a socially optimal equilibrium,government action

Accepted Answer

A)   is always needed because private solutions can never be attained.
B)   is needed when private solutions fail to arise.
C)   will be needed only to correct for positive externalities.
D)   will be needed only to correct for negative externalities.E) A) and D)
F) C) and D)

Question 9

Figure 10-11 th unit of output,private value exceeds private cost. B)  260th unit of output,private value exceeds external value. C)  300th unit of output,private value exceeds social value. D)  300th unit of output,private cost exceeds social value." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 10-11.On the

Accepted Answer

A)   260th unit of output,private value exceeds private cost.
B)   260th unit of output,private value exceeds external value.
C)   300th unit of output,private value exceeds social value.
D)   300th unit of output,private cost exceeds social value.E) A) and B)
F) A) and C)

Question 10

Figure 10-9   
-Refer to Figure 10-9.Which graph represents a market with no externality?

Accepted Answer

A)   Panel (a) 
B)   Panel (b) 
C)   Panel (c) 
D)   None of the above is correct.E) B) and C)
F) None of the above

Question 11

The Coase theorem suggests that private markets may not be able to solve the problem of externalities

Accepted Answer

A)   if the government does not become involved in the process.
B)   when the number of interested parties is large and bargaining costs are high.
C)   if the firm in the market is a monopoly.
D)   if some people benefit from the externality.E) All of the above
F) A) and B)

Question 12

Two firms,A and B,each currently emit 100 tons of chemicals into the air.The government has decided to reduce the pollution and from now on will require a pollution permit for each ton of pollution emitted into the air.The government gives each firm 40 pollution permits,which it can either use or sell to the other firm.It costs Firm A $200 for each ton of pollution that it eliminates before it is emitted into the air,and it costs Firm B $100 for each ton of pollution that it eliminates before it is emitted into the air.It is likely that

Accepted Answer

A)   Firm A will buy all of Firm B's pollution permits.Each one will cost between $100 and $200.
B)   Firm B will buy all of Firm A's pollution permits.Each one will cost between $100 and $200.
C)   Both firms will use their own pollution permits.
D)   Firm A will buy some of Firm B's pollution permits.Each one will cost less than $100.E) A) and C)
F) A) and B)

Question 13

Figure 10-17 
-Refer to Figure 10-17.How large would a corrective tax need to be to move this market from the equilibrium outcome to the socially-optimal outcome?

Accepted Answer

A)   An amount equal to P' minus P.
B)   An amount equal to P'.
C)   An amount equal to P.
D)   An amount equal to the external cost.E) B) and C)
F) B) and D)

Question 14

A market for pollution permits can efficiently allocate the right to pollute by using the forces of supply and demand.

Accepted Answer

A) True 
 B)False

Question 15

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 16

Table 10-2
The following table shows the private value,private cost,and social value for a market with a positive externality.
 
-Refer to Table 10-2.What is the socially-optimal level of output in this market?

Accepted Answer

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

Question 17

Once tradable pollution permits have been allocated to firms,

Accepted Answer

A)   the government controls the price of permits.
B)   firms that can reduce pollution only at high cost will be willing to pay the most for the pollution permits.
C)   the value of pollution-saving technology will be lower than the market value of a pollution permit.
D)   the Coase theorem is no longer applicable as a solution to reducing pollution.E) B) and D)
F) A) and B)

Question 18

Table 10-6
The following table shows the total costs for each of four firms (A,B,C,and D) to eliminate units of pollution from their production processes.For example,for Firm A to eliminate one unit of pollution,it would cost $46,and for Firm A to eliminate two units of pollution,it would cost a total of $103.
 
-Refer to Table 10-6.If the government charged a fee of $99 per unit of pollution,how many units of pollution would the firms eliminate altogether?

Accepted Answer

A)   9
B)   12
C)   15
D)   16E) A) and B)
F) A) and C)

Question 19

Social welfare can be enhanced by allowing firms to trade their rights to pollute.

Accepted Answer

A) True 
 B)False

Exam 10: Externalities

Once tradable pollution permits have been allocated to firms,

Correct Answer
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The Coase theorem suggests that private solutions to an externality problem

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Table 10-1 The following table shows the private value,private cost,and external cost for various quantities of output in a market. -Refer to Table 10-1.How large would a corrective tax need to be to move this market from the equilibrium outcome to the socially-optimal outcome?

Correct Answer
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A market for pollution permits can efficiently allocate the right to pollute by using the forces of supply and demand.

Correct Answer
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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 Answer
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When a positive externality exists,the ...
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Figure 10-11 -Refer to Figure 10-11.On the

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Since externalities tend to keep markets from reaching a socially optimal equilibrium,government action

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

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Figure 10-9 -Refer to Figure 10-9.Which graph represents a market with no externality?

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Social welfare can be enhanced by allowing firms to trade their rights to pollute.

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Table 10-2 The following table shows the private value,private cost,and social value for a market with a positive externality. -Refer to Table 10-2.What is the socially-optimal level of output in this market?

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The Coase theorem suggests that private markets may not be able to solve the problem of externalities

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Corrective taxes are unlike most other taxes because they

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Figure 10-17 -Refer to Figure 10-17.How large would a corrective tax need to be to move this market from the equilibrium outcome to the socially-optimal outcome?

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Figure 10-4 -Refer to Figure 10-4.Without government intervention,the equilibrium quantity would be

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Figure 10-11 -Refer to Figure 10-11.Taking only private value and private cost into account,total surplus at the market equilibrium amounts to

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Exam 10: Externalities

Once tradable pollution permits have been allocated to firms,

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The Coase theorem suggests that private solutions to an externality problem

Correct AnswerverifiedShow Answer

Table 10-1 The following table shows the private value,private cost,and external cost for various quantities of output in a market. -Refer to Table 10-1.How large would a corrective tax need to be to move this market from the equilibrium outcome to the socially-optimal outcome?

Correct AnswerverifiedShow Answer

A market for pollution permits can efficiently allocate the right to pollute by using the forces of supply and demand.

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

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Figure 10-11 -Refer to Figure 10-11.On the

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Since externalities tend to keep markets from reaching a socially optimal equilibrium,government action

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

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Figure 10-9 -Refer to Figure 10-9.Which graph represents a market with no externality?

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Social welfare can be enhanced by allowing firms to trade their rights to pollute.

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Table 10-2 The following table shows the private value,private cost,and social value for a market with a positive externality. -Refer to Table 10-2.What is the socially-optimal level of output in this market?

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The Coase theorem suggests that private markets may not be able to solve the problem of externalities

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Corrective taxes are unlike most other taxes because they

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Figure 10-17 -Refer to Figure 10-17.How large would a corrective tax need to be to move this market from the equilibrium outcome to the socially-optimal outcome?

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Figure 10-4 -Refer to Figure 10-4.Without government intervention,the equilibrium quantity would be

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Figure 10-11 -Refer to Figure 10-11.Taking only private value and private cost into account,total surplus at the market equilibrium amounts to

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When a positive externality exists,the ...
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