Question 1

Which of the following is true of markets characterized by positive externalities?

Accepted Answer

A)  Social value exceeds private value, and market quantity exceeds the socially optimal quantity.
B)  Social value is less than private value, and market quantity exceeds the socially optimal quantity.
C)  Social value exceeds private value, and market quantity is less than the socially optimal quantity.
D)  Social value seldom exceeds private value; therefore, social quantity is less than private quantity.E) All of the above
F) A) and D)

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

Question 3

University researchers create a positive externality because what they discover in their research labs can easily be learned by others who haven't contributed to the research costs.Suppose that the federal government gives grants to these researchers equal to the their per-unit production externality.What is the relationship between the equilibrium quantity of university research and the socially optimal quantity of university research produced?

Accepted Answer

A)  The equilibrium quantity is greater than the socially optimal quantity.
B)  They are equal.
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) C) and D)

Question 4

With a corrective tax,the supply curve for pollution is

Accepted Answer

A)  perfectly inelastic.
B)  perfectly elastic.
C)  upward sloping.
D)  downward sloping.E) A) and D)
F) None of the above

Question 5

Emission controls on automobiles are an example of a

Accepted Answer

A)  corrective tax.
B)  command-and-control policy to increase social efficiency.
C)  policy that reduces pollution by allocating resources through market mechanisms.
D)  policy to reduce congestion on urban freeways.E) B) and C)
F) A) and D)

Question 6

According to the Coase theorem,whatever the initial distribution of rights,the interested parties can bargain to an efficient outcome.

Accepted Answer

A) True 
 B)False

Question 7

The government can "help" firms to internalize externalities by taxing goods that have negative externalities and subsidizing goods that have positive externalities.

Accepted Answer

A) True 
 B)False

Question 8

Two firms,A and B,each currently dump 50 tons of chemicals into the local river.The government has decided to reduce the pollution and from now on will require a pollution permit for each ton of pollution dumped into the river.The government gives each firm 20 pollution permits,which it can either use or sell to the other firm.It costs Firm A $100 for each ton of pollution that it eliminates before it reaches the river,and it costs Firm B $50 for each ton of pollution that it eliminates before it reaches the river.After the two firms buy or sell pollution permits from each other,we would expect that Firm A will dump

Accepted Answer

A)  10 fewer tons of pollution into the river, and Firm B will dump 50 fewer tons of pollution into the river.
B)  50 fewer tons of pollution into the river, and Firm B will dump 10 fewer tons of pollution into the river.
C)  30 fewer tons of pollution into the river, and Firm B will dump 30 fewer tons of pollution into the river.
D)  10 more tons of pollution into the river, and Firm B will dump 50 fewer tons of pollution into the river.E) A) and B)
F) B) and D)

Exam 10: Externalities

Since air pollution creates a negative externality,

Correct Answer
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Emission controls on automobiles are an example of a

Correct Answer
verified

Correct Answer
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With a corrective tax,the supply curve for pollution is

Correct Answer
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Correct Answer
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Which of the following is true of markets characterized by positive externalities?

Correct Answer
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According to the Coase theorem,whatever the initial distribution of rights,the interested parties can bargain to an efficient outcome.

Correct Answer
verified

The government can "help" firms to internalize externalities by taxing goods that have negative externalities and subsidizing goods that have positive externalities.

Correct Answer
verified

Exam 10: Externalities

Since air pollution creates a negative externality,

Correct AnswerverifiedShow Answer

Emission controls on automobiles are an example of a

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

With a corrective tax,the supply curve for pollution is

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following is true of markets characterized by positive externalities?

Correct AnswerverifiedShow Answer

According to the Coase theorem,whatever the initial distribution of rights,the interested parties can bargain to an efficient outcome.

Correct AnswerverifiedShow Answer

The government can "help" firms to internalize externalities by taxing goods that have negative externalities and subsidizing goods that have positive externalities.

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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