Chapter 10 Externalities. All Answers. Graded A

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Chapter 10 Externalities TRUE/FALSE 1. Markets sometimes fail to alate resources efficiently. : T : 2 : 10-0 : Analytic : Markets, market failure, and externalities : Market failure : Interpre... tive 2. When a traction between a buyer and seller directly affects a third party, the effect is called an exter-nality. : 1 : 10-0 : Analytic : Markets, market failure, and externalities : Externalities : Definitional 3. Buyers and sellers neglect the external effects of their actions when deciding how much to demand or supply. : T : 2 : 10-0 : Analytic : Markets, market failure, and externalities : Externalities : Interpretive 4. In a market characterized by externalities, the market equilibrium fails to maximize the total benefit to society as a whole. : T : 1 : 10-0 : Analytic : Markets, market failure, and externalities : Externalities : Definitional 5. In a market with positive externalities, the market equilibrium quantity maximizes the welfare of society as a whole. : F : 1 : 10-0 : Analytic : Markets, market failure, and externalities : Externalities : Interpretive 6. Barking dogs cannot be considered an externality because externalities must be associated with some form of market exchange. : F : 1 : 10-0 : Analytic : Markets, market failure, and externalities : Externalities : Applicative 7. The social cost of pollution includes the private costs of the producers plus the costs to those by-standers adversely affected by the pollution. : T : 1 : 10-1 : Analytic : Markets, market failure, and externalities : Externalities : Definitional 8. Organizers of an outdoor concert in a park surrounded by residential neighborhoods are likely to con-sider the noise and traffic cost to residential neighborhoods when they assess the financial viability of the concert venture. : F : 1 : 10-1 : Analytic : Markets, market failure, and externalities : Negative externalities : Applicative 9. When a driver enters a crowded highway he increases the travel times of all other drivers on the highway. This is an example of a negative externality. : T : 1 : 10-0 : Analytic : Markets, market failure, and externalities : Externalities : Interpretive 10. When firms internalize a negative externality, the market supply curve shifts to the left. : T : 2 : 10-1 : Analytic : Markets, market failure, and externalities : Negative externalities : Analytical 11. Government subsidized scholarships are an example of a government policy aimed at correcting negative externalities associated with education. : F : 1 : 10-1 : Analytic : Markets, market failure, and externalities : Positive externalities : Applicative 12. A congestion toll imposed on a highway driver to force the driver to take into account the increase in travel time she imposes on all other drivers is an example of internalizing the externality. : T : 2 : 10-1 : Analytic : Markets, market failure, and externalities : Corrective taxes : Interpretive 13. Negative externalities lead markets to produce a smaller quantity of a good than is socially desirable, while positive externalities lead markets to produce a larger quantity of a good than is socially desir-able. : F : 2 : 10-1 : Analytic : Markets, market failure, and externalities : Negative externalities | Positive externalities : Interpretive 14. The government can internalize externalities by taxing goods that have negative externalities and subsidizing goods that have positive externalities. : T : 2 : 10-1 : Analytic : Markets, market failure, and externalities : Negative externalities | Positive externalities : Applicative 15. If the social value of producing robots is greater than the private value of producing robots, the pri-vate market produces too few robots. : T : 2 : 10-1 : Analytic : Markets, market failure, and externalities : Positive externalities | Technology spillovers : Analytical 16. The patent system gives firms greater incentive to engage in research and other activities that advance technology. : T : 2 : 10-1 : Analytic : Markets, market failure, and externalities : Technology spillovers : Applicative 17. Government intervention in the economy with the goal of promoting technology-producing industries is known as patent policy. : F : 1 : 10-1 : Analytic : Markets, market failure, and externalities : Industrial policy : Definitional 18. A technology spillover is a type of negative externality. : F : 2 : 10-1 : Analytic : Markets, market failure, and externalities : Technology spillovers : Interpretive 19. Even if possible, it would be inefficient to prohibit all polluting activity. : T : 2 : 10-2 : Analytic : Markets, market failure, and externalities : Externalities : Applicative 20. When correcting for an externality, command-and-control policies are always perable to market-based policies. : F : 2 : 10-2 : Analytic : Markets, market failure, and externalities : Command-and-control policies | Corrective taxes : Interpretive 21. Corrective taxes enhance efficiency, but the cost to administer them exceeds the revenue they raise for the government.矫正税提高效率同时增加财政收入 : F : 1 : 10-2 : Analytic : Markets, market failure, and externalities : Corrective taxes : Interpretive 22. Corrective taxes cause deadweight losses, reducing economic efficiency. : F : 2 : 10-2 : Analytic : Markets, market failure, and externalities : Corrective taxes : Interpretive 23. Most economists per regulation to taxation because regulation corrects market inefficiencies at a lower cost than taxation does. : F : 2 : 10-2 : Analytic : Markets, market failure, and externalities : Corrective taxes : Applicative 24. A corrective tax places a price on the right to pollute. : T : 2 : 10-2 : Analytic : Markets, market failure, and externalities : Corrective taxes : Interpretive 25. According to recent research, the gas tax in the United States is lower than the optimal level. : T : 2 : 10-2 : Analytic : Markets, market failure, and externalities KEY: Corrective taxes : Applicative 26. The least expensive way to clean up the environment is for all firms to reduce pollution by an equal percentage. : F : 2 : 10-2 : Analytic : Markets, market failure, and externalities : Corrective taxes : Interpretive 27. Corrective taxes are more efficient than regulations for keeping the environment clean. : T : 1 : 10-2 : Analytic : Markets, market failure, and externalities : Corrective taxes | Tradable pollution permits : Applicative 28. A market for pollution permits can efficiently alate the right to pollute by using the forces of supply and demand. : T : 1 : 10-2 : Analytic : Markets, market failure, and externalities : Tradable pollution permits : Applicative 29. Economists believe that the optimal level of pollution is zero. : F : 2 : 10-2 : Analytic : Markets, market failure, and externalities : Tradable pollution permits : Interpretive 30. The Environmental Protection Agency (EPA) cannot reach a target level of pollution through the use of pollution permits. : F : 1 : 10-2 : Analytic : Markets, market failure, and externalities : Tradable pollution permits : Applicative 31. Social welfare can be enhanced by allowing firms to trade their rights to pollute. : T : 2 : 10-2 : Analytic : Markets, market failure, and externalities : Tradable pollution permits : Applicative 32. Firms that can reduce pollution easily would be willing to sell their pollution permits. : T : 2 : 10-2 : Analytic : Markets, market failure, and externalities : Tradable pollution permits : Applicative 33. One example of a real-world market for tradable pollution permits is the market for carbon permits in Europe. : T : 1 : 10-2 : Analytic : Markets, market failure, and externalities : Tradable pollution permits : Applicative 34. Government can be used to solve externality problems that are too costly for private parties to solve. : T : 1 : 10-3 : Analytic : Markets, market failure, and externalities : Externalities : Interpretive 35. Government intervention is necessary to correct all externalities. : F : 2 : 10-3 : Analytic : Markets, market failure, and externalities : Externalities : Applicative 36. According to the Coase theorem, if private parties can bargain without cost无交易成本, then the private market will solve the problem of externalities. : T : 1 : 10-3 : Analytic : Markets, market failure, and externalities : Coase theorem : Definitional 37. According to the Coase theorem, the private market will need government intervention in order to reach an efficient outcome. : F : 1 : 10-3 : Analytic : Markets, market failure, and externalities : Coase theorem : Definitional 38. Despite the appealing logic of the Coase theorem, private actors often fail to resolve on their own the problems caused by externalities. : T : 1 : 10-3 : Analytic : Markets, market failure, and externalities : Coase theorem : Applicative 39. According to the Coase Theorem, individuals can always work out a mutually beneficial agreement to solve the problems of externalities even when high traction costs are involved. : F : 2 : 10-3 : Analytic : Markets, market failure, and externalities : Coase Theorem : Interpretive 40. According to the Coase theorem, whatever the initial distribution of rights, the interested parties can bargain to an efficient outcome. : T : 1 : 10-3 : Analytic : Markets, market failure, and externalities : Coase theorem : Definitional 41. Private parties may choose not to solve an externality problem if the traction costs are large enough. : T : 2 : 10-3 : Analytic : Markets, market failure, and externalities : Coase theorem : Interpretive 42. Many charities like the Sierra Club are established to deal with externalities. : T : 2 : 10-3 : Analytic : Markets, market failure, and externalities : Coase Theorem : Interpretive SHORT WER 1. Using a supply and demand diagram, demonstrate how a negative externality leads to market ineffi-ciency. How might the government help to elimie this inefficiency? : When a negative externality exists, the private cost (or supply curve) is less than the social cost. The market equilibrium quantity of Q0 will be greater than the socially optimal quantity of Q1. The government could help elimie this inefficiency by taxing the product. In this example, the size of the per-unit tax would be P3 - P1 (or P2 - P0). : 2 : 10-1 : Analytic : Markets, market failure, and externalities : Negative externalities : Analytical 2. Using a supply and demand diagram, demonstrate how a positive externality leads to market ineffi-ciency. How might the government help to elimie this inefficiency? : When a positive externality exists, the private value (or demand curve) is less than the social value. The market equilibrium quantity will be less than the socially optimal quantity. The government could help elimie this inefficiency by subsidizing the product. In this example, the size of the per-unit subsidy would be P3 - P1. : 2 : 10-1 : Analytic : Markets, market failure, and externalities : Positive externalities : Analytical 3. Why are efficiency taxes perred to regulatory policies as methods remedy externalities? : Efficiency taxes allow markets to coordie optimal resource alation. In order for regulations to be efficient, the government needs detailed information about specific industries, including information about the al-terive technologies that those industries could adopt. Thus, taxes are likely to reduce pollution at a lower cost to society. : 2 : 10-2 : Analytic : Markets, market failure, and externalities : Command-and-control policies | Corrective taxes : Applicative 4. Use a graph to illustrate the quantity of pollution that would be emitted (a) after a corrective tax has been imposed and (b) after tradable pollution permits have been imposed. Could these two quantities ever be equivalent? : Yes, these two quantities could be equal. For example, PB could be equal to the amount of the corrective tax. : 2 : 10-2 : Analytic : Markets, market failure, and externalities : Corrective taxes | Tradable pollution permits : Analytical 5. To produce honey, beekeepers place hives of bees in the fields of farmers. As bees gather nectar, they pollie the crops in the fields, which increases the yields of these fields at no additional cost to the farmer. What might be a reasonable private solution to this externality, and how might the solution be reached? : One solution would be to have one person own both the farm fields and the beehives, in which case the externality is internalized. Another solution would be to have the farmer and beekeeper enter into a contract so that they can coordie the number of bee hives and acres of crops to maintain an efficient outcome. : 1 : 10-3 : Analytic : Markets, market failure, and externalities : Externalities : Applicative 6. The Coase theorem suggests that efficient solutions to externalities can be determined through bar-gaining. Under what circumstances will private bargaining fail to produce a solution? : Private parties may fail to bargain to an efficient solution under a variety of circumstances. First, the trac-tion costs of bargaining may be so high that one or both of the parties decides not to bargain. Second, the bargaining may not take place if one or both of the parties believes that the agreement cannot be enforced. Third, one or both of the parties may try to hold out for a better deal, in which case the bargaining process breaks down. Fourth, if there are a large number of parties taking part in the negotiations, the costs of coor-diion may be so great that the bargaining is not successful. : 1 : 10-3 : Analytic : Markets, market failure, and externalities : Coase theorem : Interpretive Sec00 MULTIPLE CHOICE 1. In a market economy, government intervention 介入 a. will always improve market outcomes. b. reduces efficiency in the presence of externalities. c. may improve market outcomes in the presence of externalities. d. is necessary to control individual greed. : C : 1 : 10-0 : Analytic : Markets, market failure, and externalities : Externalities : Applicative 2. In the absence of externalities, the "invisible hand" leads a market to maximize a. producer profit from that market. b. total benefit to society from that market. c. both equality and efficiency in that market. d. output of goods or services in that market. : B : 1 : 10-0 : Analytic : Markets, market failure, and externalities : Externalities : Applicative 3. The term market failure ers to a. a market that fails to alate resources efficiently. b. an unsuccessful advertising campaign which reduces demand. c. ruthless competition among firms. d. a firm that is forced out of business because of losses. : A : 1 : 10-0 : Analytic : Markets, market failure, and externalities : Externalities : Definitional 4. Market failure can be caused by a. too much competition. b. externalities. c. low consumer demand. d. scarcity. : B : 1 : 10-0 : Analytic : Markets, market failure, and externalities : Externalities : Interpretive 5. An externality is an example of a. a corrective tax. b. a tradable pollution permit. c. a market failure. d. Both a and b are correct. : C : 1 : 10-0 : Analytic : Markets, market failure, and externalities : Externalities : Applicative 6. An externality is the impact of a. society's decisions on the well-being of society. b. a person's actions on that person's well-being. c. one person's actions on the well-being of a bystander. d. society's decisions on the poorest person in the society. : C : 1 : 10-0 : Analytic : Markets, market failure, and externalities : Externalities : Definitional 7. The impact of one person's actions on the well-being of a bystander is called a. an economic dilemma. b. deadweight loss. c. a multi-party problem. d. an externality. : D : 1 : 10-0 : Analytic : Markets, market failure, and externalities : Externalities : Applicative 8. An externality a results in an equilibrium that does not maximize the total benefits to society. b. causes demand to exceed supply. c. strengthens the role of the “invisible hand” in the marketplace. d. affects buyers but not sellers. : A : 1 : 10-0 : Analytic : Markets, market failure, and externalities : Externalities : Interpretive 9. An externality is a. the costs that parties incur in the process of agreeing and following through on a bargain. b. the uncompensated impact of one person's actions on the well-being of a bystander. c. the proposition that private parties can bargain without cost over the alation of resources. d. a market equilibrium tax. : B : 1 : 10-0 : Analytic : Markets, market failure, and externalities : Externalities : Definitional 10. A cost imposed施加影响于 on someone who is neither the consumer nor the producer is called a a. corrective tax. b. command and control policy. c. positive externality. d. negative externality. : D : 1 : 10-0 : Analytic : Markets, market failure, and externalities : Externalities KEY: Definitional 11. An externality arises when a person engages in an activity that influences the well-being of 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. : C : 1 : 10-0 : Analytic : Markets, market failure, and externalities : Externalities : Definitional 12. An externality exists whenever a. the economy cannot benefit from government inter-vention. b. markets are not able to reach equilibrium. c. a firm sells its product in a foreign market. d. a person engages in an activity that influences the well-being of a bystander and yet neither pays nor receives payment for that effect. : D : 2 : 10-0 : Analytic : Markets, market failure, and externalities : Externalities : Definitional 13. When externalities are present in a market, the well-being of market participants a. and market bystanders are both directly affected. b. and market bystanders are both indirectly affected. c. is directly affected, and market bystanders are indi-rectly affected. d. is indirectly affected, and market bystanders are di-rectly affected. : C : 2 : 10-0 : Analytic : Markets, market failure, and externalities : Externalities : Analytical 14. Dog owners do not bear the full cost of the noise their barking dogs create and often take too few precautions防范 to prevent their dogs from barking. al governments address this problem by a. making it illegal to "disturb the peace." b. having a well-funded animal control department. c. subsidizing al animal shelters. d. encouraging people to adopt cats. : A : 1 : 10-0 : Analytic : Markets, market failure, and externalities : Externalities : Applicative 15. Which of the following statements about a well-maintained yard best conveys the general ure of the externality? a. A well-maintained yard conveys a positive externali-ty because it increases the home's market value. b. A well-maintained yard conveys a negative externali-ty because it increases the property tax liability of the owner. c. A well-maintained yard conveys a positive externali-ty because it increases the value of adjacent proper-ties in the neighborhood. d. A well-maintained yard cannot provide any type of externality. : C : 2 : 10-0 : Analytic : Markets, market failure, and externalities : Externalities : Applicative 16. Since restored historic buildings convey a positive externality, al governments may choose to a. regulate the demolition of them. b. provide tax breaks优惠 to owners who restore them. c. increase property taxes in historic areas. d. Both a and b are correct. : D : 2 : 10-0 : Analytic : Markets, market failure, and externalities : Externalities : Applicative 17. All externalities a. cause markets to fail to alate resources efficiently. b. cause equilibrium prices to be too high. c. benefit producers at the expense of consumers. d. cause equilibrium prices to be too low. : A : 2 : 10-0 : Analytic : Markets, market failure, and externalities : Externalities : Applicative 18. When externalities exist, buyers and sellers a. neglect the external effects of their actions, but the market equilibrium is still efficient. b. do not neglect the external effects of their actions, and the market equilibrium is efficient. c. neglect the external effects of their actions, and the market equilibrium is not efficient. d. do not neglect the external effects of their actions, and the market equilibrium is not efficient. : C : 2 : 10-0 : Analytic : Markets, market failure, and externalities : Externalities : Applicative 19. Dioxin emission that results from the production of paper is a good example of a negative externality because a. self-interested paper firms are generally unaware of environmental regulations. b. there are fines for producing too much dioxin. c. self-interested paper producers will not consider the full cost of the dioxin pollution they create. d. toxic emissions are the best example of an externality. : C : 2 : 10-0 : Analytic : Markets, market failure, and externalities : Externalities : Applicative 20. If a paper manufacturer does not bear the entire cost of the dioxin it emits, it will a. Emit散发 a lower level of dioxin than is socially efficient. b. emit a higher level of dioxin than is socially efficient. c. emit an acceptable level of dioxin. d. not emit any dioxin in an attempt to avoid paying the entire cost. : B : 2 : 10-0 : Analytic : Markets, market failure, and externalities : Externalities : Applicative 21. Which of the following is an example of an externality? a. cigarette smoke that permeates 弥漫an entire restaurant b. a flu shot that prevents a student from trmitting the virus to her roommate c. a beautiful flower garden outside of the al post office d. All of the above are correct. : D : 2 : 10-0 : Analytic : Markets, market failure, and externalities : Externalities : Applicative 22. Which of the following statements is not correct? a. Government policies may improve the market's alation of resources when negative externalities are present. b. Government policies may improve the market's alation of resources when positive externalities are pre-sent. c. A positive externality is an example of a market failure. d. Without government intervention, the market will tend to undersupply products that produce negative externalities. : D : 2 : 10-0 : Analytic : Markets, market failure, and externalities : Externalities : Interpretive 23. Which of the following represents a way that a government can help the private market to internalize an externality? a. taxing goods that have negative externalities b. subsidizing goods that have positive externalities c. The government cannot improve upon the outcomes of private markets. d. Both a and b are correct. : D : 2 : 10-0 : Analytic : Markets, market failure, and externalities : Externalities : Applicative 24. Which of the following is not correct? a. Markets alate scarce resources with the forces of supply and demand. b. The equilibrium of supply and demand is typically an efficient alation of resources. c. Governments can sometimes improve market outcomes. d. Externalities cannot be positive. : D : 2 : 10-0 : Analytic : Markets, market failure, and externalities : Markets | Externalities : Interpretive 25. A negative externality arises when a person engages in an activity that has a. an adverse effect on a bystander who is not compen-sated by the person who causes the effect. b. an adverse effect on a bystander who is compensated by the person who causes the effect. c. a beneficial effect on a bystander who pays the per-son who causes the effect. d. a beneficial effect on a bystander who does not pay the person who causes the effect. : A : 1 : 10-0 : Analytic : Markets, market failure, and externalities : Negative externalities : Definitional 26. A positive externality arises when a person engages in an activity that has a. an adverse effect on a bystander who is not compensated by the person who causes the effect. b. an adverse effect on a bystander who is compensated by the person who causes the effect. c. a beneficial effect on a bystander who pays the person who causes the effect. d. a beneficial effect on a bystander who does not pay the person who causes the effect. : D : 1 : 10-0 : Analytic : Markets, market failure, and externalities : Positive externalities : Definitional 27. When an externality is present, the market equilibrium is a. efficient, and the equilibrium maximizes the total benefit to society as a whole. b. efficient, but the equilibrium does not maximize the total benefit to society as a whole. c. inefficient, but the equilibrium maximizes the total benefit to society as a whole. d. inefficient, and the equilibrium does not maximize the total benefit to society as a whole. : D : 2 : 10-0 : Analytic : Markets, market failure, and externalities : Externalities : Interpretive Sec01-Externalities and Market Inefficiency MULTIPLE CHOICE 1. If an externality is present in a market, economic efficiency may be enhanced by a. increased competition. b. weakening property rights. c. better informed market participants. d. government intervention. : D : 1 : 10-1 : Analytical : Markets, market failure, and externalities : Externalities : Applicative 2. Externalities tend to cause markets to be a. inefficient. b. unequal. c. unnecessary. d. overwhelmed. : A : 1 : 10-1 : Analytical : Markets, market failure, and externalities : Externalities : Applicative 3. If a sawmill creates too much noise for al residents, a. noise restrictions will force residents to move out of the area. b. a sense of social responsibility will cause owners of the mill to reduce noise levels. c. the government can raise economic well-being through noise-control regulations. d. the government should avoid intervening because the market will alate resources efficiently. : C : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Externalities : Applicative 4. Private markets fail to account for externalities because a. externalities don't occur in private markets. b. sellers include costs associated with externalities in the price of their product. c. decision makers in the market fail to include the costs of their behavior to third parties. d. the government cannot easily estimate the optimal quantity of pollution. : C : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Externalities : Applicative 5. Altering incentives so that people take account of the external effects of their actions a. is called internalizing the externality. b. can be done by imposing a corrective tax. c. is the role of government in markets with externalities. d. all of the above. : D : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Externalities : Interpretive 6. When the government intervenes in markets with externalities, it does so in order to a. increase production when negative externalities are present. b. protect the interests of bystanders. c. make certain all benefits are received by market participants. d. reduce production when positive externalities are present. : B : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Externalities : Applicative 7. All remedies for externalities share the goal of a. moving the alation of resources toward the market equilibrium. b. moving the alation of resources toward the socially optimal equilibrium. c. increasing the alation of resources. d. decreasing the alation of resources. : B : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Externalities : Interpretive 8. At any given quantity, the willingness to pay in the market for gasoline is lected in the a. height of the demand curve at that quantity. b. height of the supply curve at that quantity. c. value to the producer of the last unit of gasoline sold. d. total quantity of gasoline exchanged in the market. : A : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Externalities : Applicative 9. The supply curve for a product lects the a. willingness to pay of the marginal buyer. b. quantity buyers will ultimately purchase of the prod-uct. c. cost to sellers of producing the product. d. seller's profit from producing the product. : C : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Externalities : Applicative 10. Since air pollution creates a negative externality, a. social welfare will be enhanced when some, but not all air pollution is elimied. b. social welfare is optimal when all air pollution is elimied. c. governments should encourage private firms to consider only private costs. d. the free market result maximizes social welfare. : A : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Externalities : Applicative 11. The ference between social cost and private cost is a measure of the a. loss in profit to the seller as the result of a negative externality. b. cost of an externality. c. cost reduction when the negative externality is elimied. d. cost incurred by the government when it intervenes in the market. : B : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Externalities : Applicative 12. When a market is characterized by an externality, the government a. can correct the market failure only in the case of positive externalities. b. can correct the market failure only in the case of negative externalities. c. can correct the market failure in the case of both positive and negative externalities by inducing mar-ket participants to internalize the externality. d. cannot correct for externalities due to the existence of patents. : C : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Externalities : Interpretive 13. Which of the following statements is correct? a. Government should tax goods with either positive or negative externalities. b. Government should tax goods with negative externalities and subsidize goods with positive externali-ties. c. Government should subsidize goods with either positive or negative externalities. d. Government should tax goods with positive externalities and subsidize goods with negative externali-ties. : B : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Externalities : Applicative Figure 10-1 14. er to Figure 10-1. This graph represents the tobacco industry. The industry creates a. positive externalities. b. negative externalities. c. no externalities. d. no equilibrium in the market. : B : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Externalities : Applicative 15. er to Figure 10-1. This graph represents the tobacco industry. Without any government intervention, the equilibrium price and quantity are a. $1.90 and 38 units, respectively. b. $1.80 and 35 units, respectively. c. $1.60 and 42 units, respectively. d. $1.35 and 58 units, respectively. : C : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Externalities : Applicative 16. er to Figure 10-1. This graph represents the tobacco industry. The socially optimal price and quantity are a. $1.90 and 38 units, respectively. b. $1.80 and 35 units, respectively. c. $1.60 and 42 units, respectively. d. $1.35 and 58 units, respectively. : B : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Externalities : Applicative Figure 10-2 17. er 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? a. 200 b. 500 c. 650 d. 900 : C : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Negative externalities : Applicative 18. er 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, what price will the firm charge per unit of plas-tic? a. $3 b. $3.50 c. $5 d. $8 : B : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Negative externalities : Applicative 19. er to Figure 10-2. Suppose that the production of plastic creates a social cost which is depicted in the graph above. What is the socially optimal quantity of plastic? a. 200 units b. 450 units c. 500 units d. 650 units : C : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Negative externalities : Applicative This figure lects the market for outdoor concerts in a public park surrounded by residential neighborhoods. Figure 10-3 20. er to Figure 10-3. The social cost curve is above the supply curve because a. it takes into account the external costs imposed on society by the concert. b. it takes into account the effect of al noise restrictions on concerts in parks surrounded by residential neigh-borhoods. c. concert tickets are likely to cost more than the con-cert actually costs the organizers. d. residents in the surrounding neighborhoods get to listen to the concert for free. : A : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Negative externalities : Applicative 21. er to Figure 10-3. The ference between the social cost curve and the supply curve lects the a. profit margin of each concert. b. cost of spillover effects from the concert (e.g., noise and traffic). c. value of concerts to society as a whole. d. amount by which the city should subsidize the con-cert organizers. : B : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Negative externalities : Applicative 22. er to Figure 10-3. At the private market outcome, the equilibrium price will be a. P0. b. P1. c. P2. d. None of the above is correct. : B : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Negative externalities : Applicative 23. er to Figure 10-3. What price and quantity combiion best represents the optimum price and number of concerts that should be organized? a. P1, Q1 b. P2, Q0 c. P2, Q1 d. The optimum quantity is zero concerts as long as residents in surrounding neighborhoods are adversely affected by noise and congestion. : B : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Negative externalities : Applicative Figure 10-4 24. er to Figure 10-4. If this market is currently producing at Q4, then total economic well-being would be maximized if output a. decreased to Q1. b. decreased to Q2. c. decreased to Q3. d. stayed at Q4. : B : 1 : 10-1 : Analytical : Markets, market failure, and externalities : Negative externalities : Interpretive 25. er to Figure 10-4. This market is characterized by a. government intervention. b. a positive externality. c. a negative externality. d. None of the above is correct. : C : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Negative externalities : Interpretive 26. er to Figure 10-4. Without government intervention, the equilibrium quantity would be a. Q1. b. Q2. c. Q3. d. Q4. : C : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Negative externalities : Interpretive 27. er to Figure 10-4. The socially optimal quantity would be a. Q1. b. Q2. c. Q3. d. Q4. : B : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Negative externalities : Interpretive 28. er to Figure 10-4. This market a. has no need for government intervention. b. would benefit from a tax on the product. c. would benefit from a subsidy for the product. d. would maximize total well-being at Q3. : B : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Negative externalities : Interpretive 29. er to Figure 10-4. If this market is currently producing at Q2, then total economic well-being would increase if output a. increased beyond Q4. b. decreased to Q1. c. increased to Q3. d. stayed at Q2. : D : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Negative externalities : Interpretive 30. er to Figure 10-4. If all external costs were internalized, then the market’s equilibrium output would be a. Q1. b. Q2. c. Q3. d. Q4. : B : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Negative externalities : Interpretive 31. er to Figure 10-4. At Q3 a. the marginal consumer values this product less than the social cost of producing it. b. every consumer values this product less than the so-cial cost of producing it. c. the cost to society is equal to the value to society. d. the marginal consumer values this product more than the private cost. : A : 3 : 10-1 : Analytical : Markets, market failure, and externalities : Negative externalities : Interpretive 32. er to Figure 10-4. This market a. has no need for government intervention. b. would benefit from a tax on the product. c. would benefit from a subsidy for the product. d. would maximize total well-being at Q3. : B : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Negative externalities : Interpretive 33. er to Figure 10-4. Externalities in this market could be internalized if a. there were a tax on the product. b. there were a subsidy for the product. c. production were sped. d. the Coase theorem failed. : A : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Negative externalities : Interpretive Figure 10-5 34. er to Figure 10-5. Which price and quantity combiion represents the social optimum? a. P0 and Q1. b. P2 and Q1. c. P1 and Q0. d. P2 and Q0. : B : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Negative externalities : Interpretive 35. er to Figure 10-5. Which of the following statements is correct? a. The marginal benefit of the positive externality is measured by P3 - P1. b. The marginal cost of the negative externality is measured by P3 - P2. c. The marginal cost of the negative externality is measured by P3 - P1. d. The marginal cost of the negative externality is measured by P3 - P0. : C : 3 : 10-1 : Analytical : Markets, market failure, and externalities : Negative externalities : Interpretive Figure 10-6 36. er to Figure 10-6. Which price represents the equilibrium price of the product in this market? 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. : A : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Negative externalities : Interpretive 37. er to Figure 10-6. Which quantity represents the socially-optimal quantity of output in this market? a. Q b. Q’ c. Either Q or Q’. It is necessary to know whether the externality is positive or negative to determine the socially-optimal quantity. d. Some quantity between Q and Q’. The socially-optimal quantity depends on the negotiating skills of the interested parties. : B : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Negative externalities : Interpretive Table 10-1 The following table shows the private value, private cost, and external cost for various quantities of output in a market. Quantity Private Value Private Cost External Cost 1 14 10 2 2 13 11 2 3 12 12 2 4 11 13 2 5 10 14 2 6 9 15 2 7 8 16 2 38. er to Table 10-1. What is the equilibrium quantity of output in the market? a. 2 units b. 3 units c. 4 units d. 5 units : B : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Negative externalities : Applicative 39. er to Table 10-1. What is the socially-optimal quantity of output in this market? a. 1 unit b. 2 units c. 3 units d. 4 units : B : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Externalities : Applicative 40. er to Table 10-1. How large would a corrective tax need to be to move this market from the equilib-rium outcome to the socially-optimal outcome? a. 2 b. 3 c. 9 d. 10 : A : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Negative externalities : Applicative 41. Negative externalities occur when one person's actions a. cause another person to lose money in a stock market traction. b. cause his or her employer to lose business. c. reveal his or her perence for foreign-produced goods. d. adversely affect the well-being of a bystander who is not party to the action. : D : 1 : 10-1 : Analytical : Markets, market failure, and externalities : Negative externalities : Definitional 42. A negative externality a. is an adverse impact on a bystander. b. causes the product in a market to be under-produced. c. is an adverse impact on market participants. d. is present in markets where the good or service does not have any impact on bystanders. : A : 1 : 10-1 : Analytical : Markets, market failure, and externalities : Negative externalities : Definitional 43. A negative externality a. is a cost to a bystander. b. is a cost to the buyer. c. is a cost to the seller. d. exists with all market tractions. : A : 1 : 10-1 : Analytical : Markets, market failure, and externalities : Negative externalities : Definitional 44. Which of the following illustrates the concept of a negative externality? a. A college professor plays a vigorous game of racquet ball with the racquet he recently purchased. b. A flood wipes out a farmer's corn crop. c. A college student plays loud music on his new stereo system at 2:00 a.m. d. A janitor eats a hamburger during his lunch break. : C : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Negative externalities : Applicative 45. When a negative externality exists in a market, the cost to producers a. is greater than the cost to society. b. will be the same as the cost to society. c. will be less than the cost to society. d. will fer from the cost to society, regardless of whether an externality is present. : C : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Negative externalities : Analytical 46. When negative externalities are present in a market a. private costs will be greater than social costs. b. social costs will be greater than private costs. c. only government regulation will solve the problem. d. the market will not be able to reach any equilibrium. : B : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Negative externalities : Analytical 47. Negative externalities lead markets to produce a. greater than efficient output levels and positive exter-nalities lead markets to produce smaller than efficient output levels. b. smaller than efficient output levels and positive ex-ternalities lead markets to produce greater than effi-cient output levels. c. greater than efficient output levels and positive exter-nalities lead markets to produce efficient output lev-els. d. efficient output levels and positive externalities lead markets to produce greater than efficient output lev-els. : A : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Negative externalities : Interpretive 48. Suppose that large-scale pork production has the potential to create ground water pollution. Why might this type of pollution be considered an externality? a. The groundwater pollution reduces the cost of large-scale pork production. b. The economic impact of a large-scale pork produc-tion facility is alized in a small geographic area. c. The pollution has the potential for creating a health risk for water users in the region surrounding the pork production facility. d. Consumers will not reap the benefits of lower pro-duction cost from large-scale pork production. : C : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Negative externalities : Analytical 49. Markets are often inefficient when negative externalities are present because a. private costs exceed social costs at the private market solution. b. externalities cannot be corrected without government regulation. c. social costs exceed private costs at the private market solution. d. production externalities lead to consumption exter-nalities. : C : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Negative externalities : Analytical 50. When the social cost curve is above a product's supply curve, a. the government has intervened in the market. b. a negative externality exists in the market. c. a positive externality exists in the market. d. the distribution of resources is unfair. : B : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Negative externalities : Analytical 51. Suppose that a steel factory emits a certain amount of air pollution, which constitutes a negative externality. If the market does not internalize the externality, a. the supply curve would adequately lect the marginal social cost of production. b. consumers will be required to pay a higher price for steel than they would have if the externality were internalized. c. the market equilibrium quantity will not be the so-cially optimal quantity. d. producers will produce less steel than they otherwise would if the externality were internalized. : C : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Negative externalities : Applicative 52. When producers operate in a market characterized by negative externalities, a tax that forces them to internalize the externality will a. give sellers the incentive to account for the external effects of their actions. b. increase demand. c. increase the amount of the commodity exchanged in market equilibrium. d. restrict the producers' ability to take the costs of the externality into account when deciding how much to supply. : A : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Negative externalities : Analytical 53. When Lisa drives to work every morning, she drives on a congested highway. What Lisa does not realize is that when she enters the highway each morning she increases the travel time of all other drivers on the highway. In this case, the external cost of Lisa’s highway trip a. increases the social cost above the private cost. b. lowers the social cost below the private cost. c. increases the social value above the private benefit. d. decreases the social value below the private benefit. : A : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Negative externalities : Analytical 54. An optimal tax on pollution would result in which of the following? a. Producers will choose not to produce any pollution. b. Producers will internalize the cost of the pollution. c. Producers will maximize production. d. The value to consumers at market equilibrium will exceed the social cost of production. : B : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Negative externalities : Applicative 55. Which of the following statements is correct? a. Internalizing a negative externality will cause an industry to decrease the quantity it supplies to the market and decrease the price of the good produced. b. Internalizing a negative externality will cause an industry to decrease the quantity it supplies to the market and increase the price of the good produced. c. Internalizing a negative externality will cause an industry to increase the quantity it supplies to the mar-ket and decrease the price of the good produced. d. Internalizing a negative externality will cause an industry to increase the quantity it supplies to the mar-ket and increase the price of the good produced. : B : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Negative externalities : Analytical 56. A negative externality will cause a private market to produce a. less than is socially desirable. b. more than is socially desirable. c. exactly the quantity that is socially desirable. d. less than the same market would produce in the pres-ence of a positive externality. : B : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Negative externalities : Interpretive 57. Private markets fail to reach a socially optimal equilibrium when negative externalities are present because a. social costs equal private costs at the private market solution. b. private costs exceed social costs at the private market solution. c. social costs exceed private costs at the private market solution. d. they internalize externalities. : C : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Negative externalities : Interpretive 58. When negative externalities are present in a market, a. producers will be affected but consumers will not. b. producers will supply too much of the product. c. demand will be too high. d. the market will still maximize total benefits. : B : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Negative externalities : Applicative 59. Which of the following would not be considered a negative externality? a. Smelter, Inc. creates steel and pollution. b. Your friend buys a new puppy that barks every night. c. You have an adverse reaction to a medication your doctor prescribed for you. d. Your neighbor plays loud music that you dislike through stereo speakers set up on his deck. : C : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Negative externalities : Applicative 60. Suppose that meat producers create a negative externality. What is the relationship between the equilibrium quantity and the socially optimal quantity of meat to be produced? 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 wer the question. : B : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Negative externalities : Analytical 61. Suppose that electricity producers create a negative externality equal to $5 per unit. What is the rela-tionship between the equilibrium quantity and the socially optimal quantity of electricity to be pro-duced? 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 wer the question. : B : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Negative externalities : Analytical 62. Suppose that smoking creates a negative externality. If the government does not interfere in the ciga-rette market, then 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 ciga-rettes 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 wer the question. : B : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Negative externalities : Analytical 63. Suppose that a firm produces electricity by burning coal. The production process creates a negative externality of air pollution. If the firm does not internalize the cost of the externality, it will produce where a. the value of electricity to consumers equals the private cost of producing electricity. b. the value of electricity to consumers equals the social cost of producing electricity. c. the cost of the externality is maximized. d. the traction costs of private bargaining are minimized. : A : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Negative externalities : Analytical 64. Suppose that a negative externality is created by the production of good X. Which of the following statements is correct? a. The social cost of producing good X includes the private cost plus the cost to bystanders of the externality. b. The increased social cost can be graphed as a decrease in demand. c. The market equilibrium quantity will be the socially optimal quantity as long as the government does not interfere. d. Both a and b are correct. : A : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Negative externalities : Interpretive 65. Which of the following is NOT an example of a negative externality? a. air pollution from a manufacturing plant. b. disrupted sleep from a neighbor’s loud music. c. an illness caused by secondhand cigarette smoke. d. a decrease in your property value from neglecting your lawn and garden. : D : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Negative externalities : Applicative 66. A paper plant produces water pollution during the production process. If the government forces the plant to internalize the negative externality, then the a. supply curve for paper would shift to the right. b. supply curve for paper would shift to the left. c. demand curve for paper would shift to the right. d. demand curve for paper would shift to the left. : B : 3 : 10-1 : Analytical : Markets, market failure, and externalities : Negative externalities : Analytical Figure 10-7 67. er to Figure 10-7. Which quantity represents the social optimum for this market? a. Q1. b. Q2. c. Q3. d. Q4. : C : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Positive externalities : Analytical 68. er to Figure 10-7. To internalize the externality in this market, the government should a. impose a tax on this product. b. provide a subsidy for this product. c. forbid production. d. produce the product itself. : B : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Positive externalities : Analytical Figure 10-8 69. er to Figure 10-8. What is the equilibrium price in this market? a. $8 b. Between $8 and $10 c. $10 d. More than $10 : A : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Positive externalities : Applicative 70. er to Figure 10-8. What is the socially-optimal quantity of output in this market? a. 8 units b. Between 8 and 10 units c. 10 units d. More than 10 units : C : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Positive externalities : Applicative 71. er to Figure 10-8. If the government wanted to subsidize this market to achieve the socially-optimal level of output, how large would the subsidy need to be? a. Less than $2 b. $2 c. More than $2 d. The size of the subsidy cannot be determined from the figure. : C : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Positive externalities : Applicative Table 10-2 The following table shows the private value, private cost, and social value for a market with a positive ex-ternality. Quantity Private Value Private Cost Social Value 1 27 6 34 2 24 10 31 3 21 14 28 4 18 18 25 5 15 22 22 6 12 26 19 72. er to Table 10-2. What is the equilibrium quantity of output in this market? a. 3 units b. 4 units c. 5 units d. 6 units : B : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Positive externalities : Applicative 73. er to Table 10-2. What is the socially-optimal level of output in this market? a. 3 units b. 4 units c. 5 units d. 6 units : C : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Positive externalities : Applicative 74. er to Table 10-2. How large would a subsidy need to be in this market to move the market from the equilibrium level of output to the socially-optimal level of output? a. $3 b. $5 c. $7 d. $9 : C : 3 : 10-1 : Analytical : Markets, market failure, and externalities : Positive externalities : Applicative 75. Which of the following is an example of a positive externality? a. A college student buys a new car when she graduates. b. The mayor of a small town plants flowers in the city park. c. al high school teachers have pizza delivered every Friday for lunch. d. An avid fisherman buys new fishing gear for his next fishing trip. : B : 1 : 10-1 : Analytical : Markets, market failure, and externalities : Positive externalities : Applicative 76. Which of the following is an example of a positive externality? a. air pollution b. a person littering in a public park c. a nice garden in front of your neighbor's house d. the pollution of a stream : C : 1 : 10-1 : Analytical : Markets, market failure, and externalities : Positive externalities : Applicative 77. Internalizing a positive externality will cause the demand curve to a. shift to the right. b. shift to the left. c. become more elastic. d. remain unchanged. : A : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Positive externalities : Analytical 78. 错题Positive externalities a. result in a larger than efficient equilibrium quantity. b. result in smaller than efficient equilibrium quantity. c. result in an efficient equilibrium quantity. d. can be internalized with a corrective tax. : B : 1 : 10-1 : Analytical : Markets, market failure, and externalities : Positive externalities : Interpretive 79. A positive externality a. is a benefit to the producer of the good. b. is a benefit to the consumer of the good. c. is a benefit to someone other than the producer and consumer of the good. d. results in an optimal level of output. : C : 1 : 10-1 : Analytical : Markets, market failure, and externalities : Positive externalities : Definitional 80. If a market is characterized by a positive externality that is not the result of a technology spillover, a. the socially optimal level of output is less than the equilibrium level of output, and the optimal price is greater than the equilibrium price. b. the socially optimal level of output is greater than the equilibrium level of output, and the socially opti-mal price is less than the equilibrium price. c. the socially optimal level of output is greater than the equilibrium level of output, and the socially opti-mal price is greater than the equilibrium price. d. the socially optimal level of output is less than the equilibrium level of output, and the socially optimal price is less than the equilibrium price. : C : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Positive externalities : Analytical 81. To enhance the well-being of society, a social planner will encourage firms to increase production when a. the firms are producing basic goods. b. there is a shortage in the market. c. technology spillovers are associated with production. d. negative externalities “spill over” into production. : C : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Positive externalities : Analytical 82. When the production of a good results in a positive externality, the social value curve is: a. below the demand curve, indicating the total value to society is less than the private benefit. b. above the demand curve, indicating the total value to society is greater than the private benefit. c. identical to the demand curve, indicating the total cost to society is the equal to the private benefit. d. above the supply curve, indicating the total cost to society exceeds the private cost. : B : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Positive externalities : Analytical 83. A positive externality will cause a market to produce 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. : B : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Positive externalities : Interpretive 84. A positive externality a. causes the product to be overproduced. b. provides an additional benefit to market participants. c. benefits consumers because it results in a lower equi-librium price. d. is a benefit to a market bystander. : D : 1 : 10-1 : Analytical : Markets, market failure, and externalities : Positive externalities : Definitional 85. A positive externality occurs when a. Jack receives a benefit from John's consumption of a certain good. b. Jack receives personal benefits from his own con-sumption of a certain good. c. Jack's benefit exceeds John's benefit when they each consume the same good. d. Jack's receives a loss from John’s consumption of a certain good. : A : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Positive externalities : Interpretive 86. When a market experiences a positive externality, a. the demand curve does not lect the value to society of the good.positive一定是影响需求吗 b. too much of the good is being produced. c. the government can internalize the externality by imposing a tax on the product. d. the private value is greater than the social value. : A : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Positive externalities : Interpretive 87. Private markets fail to reach a socially optimal equilibrium when positive externalities are present because the a. private benefit equals the social benefit at the private market solution. b. private cost exceeds the private benefit at the private market solution. c. social value exceeds the private value at the private market solution. d. private cost exceeds the social benefit at the private market solution. : C : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Positive externalities : Interpretive 88. Which of the following policies is the government most inclined to use when faced with a positive externality? a. taxation b. permits c. subsidies d. usage fees : C : 1 : 10-1 : Analytical : Markets, market failure, and externalities : Positive externalities : Applicative 89. If education produces positive externalities, we would expect 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. : B : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Positive externalities : Applicative 90. If education produces positive externalities and the government does not intervene in the market, we would expect a. the equilibrium price to be higher than the optimal price. b. the equilibrium quantity to be lower than the optimal level. c. the equilibrium quantity to be higher than the optimal level. d. both a and b are correct : D : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Positive externalities : Applicative 91. Suppose that cookie producers create a positive externality equal to $2 per dozen. What is the rela-tionship between the equilibrium quantity and the socially optimal quantity of cookies to be produced? a. They are equal. b. The equilibrium quantity is greater than the socially optimal quantity. c. The equilibrium quantity is less than the socially op-timal quantity. d. There is not enough information to wer the question. : C : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Positive externalities : Analytical 92. Suppose that flower gardens create a positive externality equal to $1 per plant. What is the relation-ship between the equilibrium quantity and the socially optimal quantity of plants grown? a. They are equal. b. The equilibrium quantity is greater than the socially optimal quantity. c. The equilibrium quantity is less than the socially op-timal quantity. d. There is not enough information to wer the question. : C : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Positive externalities : Analytical 93. Suppose that flu shots create a positive externality equal to $12 per shot. What is the relationship between the equilibrium quantity and the socially optimal quantity of flu shots produced? a. They are equal. b. The equilibrium quantity is greater than the socially optimal quantity. c. The equilibrium quantity is less than the socially op-timal quantity. d. There is not enough information to wer the question. : C : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Positive externalities : Analytical 94. Suppose that elementary education creates a positive externality. If the government does not subsi-dize education, then a. the equilibrium quantity of education will be equal the socially optimal quantity of education. b. the equilibrium quantity of education will be greater than the socially optimal quantity of education. c. the equilibrium quantity of education will be less than the socially optimal quantity of education. d. There is not enough information to wer the question. : C : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Positive externalities : Analytical 95. Which of the following is an example of a positive externality? a. Sue not catching the flu because she got a flu vaccine. b. Mary not catching the flu from Sue because Sue got a flu vaccine. c. Sue catching the flu because she did not get a flu vaccine.. d. Mary catching the flu from Sue because Sue did not get a flu vaccine. : B : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Positive externalities : Applicative 96. 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. If there are no subsidies, what is the relationship between the equilibrium quantity of university research and the optimal quantity of university research produced? a. They are equal. b. The equilibrium quantity is greater than the socially optimal quantity. c. The equilibrium quantity is less than the socially op-timal quantity. d. There is not enough information to wer the question. : C : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Positive externalities : Analytical 97. Flu shots provide a positive externality. Suppose that the market for vacciions is perfectly competi-tive. Without government intervention in the vacciion market, which of the following statements is correct? a. At the current output level, the marginal social benefit exceeds the marginal private benefit. b. The current output level is inefficiently low. c. A per-shot subsidy could turn an inefficient situation into an efficient one. d. All of the above are correct. : D : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Positive externalities : Analytical 98. Because there are positive externalities from higher education, a. private markets will under-supply college classes. b. private markets will over-supply college classes. c. the government should impose a tax on college students. d. government intervention cannot improve the market for college classes. : A : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Positive externalities : Analytical 99. Which of the following is true of markets characterized by positive externalities? 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; theore, social quantity is less than private quantity. : C : 3 : 10-1 : Analytical : Markets, market failure, and externalities : Positive externalities : Interpretive 100. In the case of a technology spillover, internalizing a positive externality will cause the supply curve of an industry to a. shift to the right. b. shift to the left. c. become more elastic. d. remain unchanged. : A : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Positive externalities | Technology spillovers : Analytical 101. Which of the following statements is not correct? a. A patent is a way for the government to encourage the production of a good with technology spillovers. b. A tax is a way for the government to reduce the production of a good with a negative externality. c. A tax that accurately lects social costs produces the socially optimal outcome. d. Government policies cannot improve upon private market outcomes. : D : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Externalities | Technology spillovers : Interpretive 102. Technology spillover is one type of a. negative externality. b. positive externality. c. subsidy. d. producer surplus. : B : 1 : 10-1 : Analytical : Markets, market failure, and externalities : Technology spillovers : Applicative 103. Which of the following best defines the situation where one firm's research yields knowledge that is used by society as a whole? a. social cost b. opportunity cost of technology c. internalization of an externality d. technology spillover : D : 1 : 10-1 : Analytical : Markets, market failure, and externalities : Technology spillovers : Definitional 104. Government intervention that aims to promote technology-enhancing industries is called a. assisted technology. b. intervention policy. c. industrial technology assistance. d. industrial policy. : D : 1 : 10-1 : Analytical : Markets, market failure, and externalities : Technology spillovers : Definitional 105. Technology spillover occurs when a. a firm passes the high costs of technical research on to society through higher prices. b. a firm's research yields technical knowledge that is used by society as a whole. c. the government subsidizes firms engaged in high-tech research. d. copyright laws prohibit firms from profiting from the research of others. : B : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Technology spillovers : Definitional 106. When technology spillover occurs, a. it is the government's responsibility to own firms that are engaged in high-tech research. b. a firm's research yields technological knowledge that can then be used by society as a whole. c. those firms engaged in technology research should be taxed by the government. d. when firms invest in the latest production technology, the cost of that technology "spills over" to the prices consumers must pay for the product. : B : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Technology spillovers : Definitional 107. Research into new technologies a. provides positive externalities because it creates knowledge others can use. b. results in negative externalities because government funding for research causes less government spending in other areas. c. is protected by patent laws, which elimies the need for government intervention. d. should only be funded by the corporations that will receive the profits from the research. : A : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Externalities : Applicative 108. If the government wanted to ensure that the market reaches the socially optimal equilibrium in the presence of a technology spillover, it should a. impose a corrective tax on any firm producing a technology spillover. b. offer tax credits税收抵免 to consumers who are adversely affected by the new technology. c. subsidize producers by an amount equal to the value of the technology spillover. d. provide research grants 研究补助to those firms not currently engaging in research to increase competition in the industry. : C : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Technology spillovers : Applicative 109. When an industry is characterized by technology spillover, what should the government do to ensure that the market equilibrium equals the socially optimal equilibrium? a. Impose a tax greater than the value of the technology spillover. b. Not allow production of any product that causes a technology spillover. c. Provide a subsidy equal to the value of the technology spillover. d. Require producers to "clean up" any spillover that results from their production process. : C : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Technology spillovers : Applicative 110. In the case of a technology spillover, the government can encourage firms to internalize a positive externality by a. taxing production, which would decrease supply. b. taxing production, which would increase supply. c. subsidizing production, which would decrease supply. d. subsidizing production, which would increase supply. : D : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Positive externalities | Technology spillovers : Applicative 111. In the case of a technology spillover, internalizing a positive externality through a government subsi-dy will cause the industry's supply curve to a. shift up by an amount equal to the subsidy. b. shift down by an amount less than the subsidy. c. shift down by an amount equal to the subsidy. d. shift down by an amount greater than the subsidy. : C : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Positive externalities | Technology spillovers : Applicative 112. Which of the following is NOT a way of internalizing technology spillovers? a. subsidies b. patent protection c. industrial policy d. taxes : D : 1 : 10-1 : Analytical : Markets, market failure, and externalities : Technology spillovers : Interpretive 113. If the production of computer chips yields greater technology spillovers than the production of potato chips, the government should a. encourage the production of computer chips with subsidies. b. discourage the production of potato chips with taxes. c. encourage the production of potato chips with subsi-dies. d. discourage the production of computer chips with taxes. : A : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Technology spillovers : Applicative 114. One drawback to industrial policy is that a. technology spillovers are too expensive to control. b. measuring the size of spillovers from ferent markets is ficult. c. spillovers often occur in industries that produce un-desirable products for society. d. positive side effects are often outweighed by negative side effects. : B : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Technology spillovers : Applicative 115. The goal of industrial policy should be that a. industries yielding the largest positive externalities should receive the biggest subsidies. b. any industry that produces negative externalities should be heavily taxed. c. any production process that produces negative exter-nalities should be shut down. d. all industries that produce positive externalities should be equally subsidized. : A : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Technology spillovers : Interpretive 116. Which of the following is the most effective way to internalize a technology spillover? a. taxes b. patents c. government regulations d. free markets : B : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Technology spillovers : Applicative 117. A patent is used to a. dissemie information. b. offset the negative effects of taxes. c. protect inventors for as long as they live. d. assign property rights. : D : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Technology spillovers : Applicative 118. Patents do not a. provide firms an incentive to research. b. assign property rights to inventors. c. protect the rights of inventors for their lifetimes. d. internalize externalities. : C : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Technology spillovers : Applicative Figure 10-9 119. er to Figure 10-9. Which graph represents a market with no externality? a. Panel (a) b. Panel (b) c. Panel (c) d. None of the above is correct. : A : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Markets | Externalities : Interpretive 120. er to Figure 10-9. Which graph represents a market with a positive externality? a. Panel (a) b. Panel (b) c. Panel (c) d. Both (b) and (c) are correct. : C : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Positive externalities : Interpretive 121. er to Figure 10-9. Which graph represents a market with a negative externality? a. Panel (a) b. Panel (b) c. Panel (c) d. Both (b) and (c) are correct. : B : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Negative externalities : Interpretive 122. er to Figure 10-9, Panel (b). The market equilibrium quantity is a. Q2, which is the socially optimal quantity. b. Q3, which is the socially optimal quantity. c. Q2, and the socially optimal quantity is Q3. d. Q3, and the socially optimal quantity is Q2. : D : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Negative externalities : Interpretive 123. er to Figure 10-9, Panel (b). The market equilibrium price is a. P2. b. P3a. c. P3b. d. P3a - P3b. : C : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Negative externalities : Interpretive 124. er to Figure 10-9, Panel (c). The market equilibrium quantity is a. Q4, which is the socially optimal quantity. b. Q5, which is the socially optimal quantity. c. Q4, and the socially optimal quantity is Q5. d. Q5, and the socially optimal quantity is Q4. : C : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Positive externalities : Interpretive 125. er to Figure 10-9, Panel (c). The market equilibrium price is a. P4a. b. P4b. c. P5. d. P4a - P4b. : B : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Positive externalities : Interpretive 126. er to Figure 10-9. The overuse of antibiotics leads to the development of antibiotic-resistant diseas-es. Theore, the market for antibiotics is shown in a. Panel (a). b. Panel (b). c. Panel (c). d. Both (b) and (c) are correct. : B : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Negative externalities : Applicative 127. er to Figure 10-9, Panel (b) and Panel (c). The overuse of antibiotics leads to the development of antibiotic-resistant diseases. Theore, the socially optimal quantity of antibiotics is represented by point a. Q2. b. Q3. c. Q4. d. Q5. : A : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Negative externalities : Applicative 128. er to Figure 10-9, Panel (b) and Panel (c). The overuse of antibiotics leads to the development of antibiotic-resistant diseases. Theore, the external cost of antibiotic overuse is represented by a. Q3 - Q2. b. Q5 - Q4. c. P3a - P3b. d. P4a - P4b. : C : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Negative externalities : Applicative 129. er to Figure 10-9, Panel (b) and Panel (c). The overuse of antibiotics leads to the development of antibiotic-resistant diseases. Theore, a government policy that internalized the externality would move the quantity of antibiotics used from point a. Q2 to point Q3. b. Q3 to point Q2. c. Q4 to point Q5. d. Q5 to point Q4. : B : 3 : 10-1 : Analytical : Markets, market failure, and externalities : Negative externalities : Analytical 130. er to Figure 10-9. The installation of a scrubber in a smokestack reduces the emission of harmful chemicals from the smokestack. Theore, the market for smokestack scrubbers is shown in a. Panel (a). b. Panel (b). c. Panel (c). d. Both (b) and (c) are correct. : C : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Positive externalities : Applicative 131. er to Figure 10-9, Panel (b) and Panel (c). The installation of a scrubber in a smokestack reduces the emission of harmful chemicals from the smokestack. Theore, the socially optimal quantity of smokestack scrubbers is represented by point a. Q2. b. Q3. c. Q4. d. Q5. : D : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Positive externalities : Applicative 132. er to Figure 10-9, Panel (b) and Panel (c). The installation of a scrubber in a smokestack reduces the emission of harmful chemicals from the smokestack. Theore, the external benefit of smokestack scrubber installation is represented by a. Q3 - Q2. b. Q5 - Q4. c. P3a - P3b. d. P4a - P4b. : D : 2 : 10-1 : Analytical : Markets, market failure, and externalities : Positive externalities : Applicative 133. er to Figure 10-9, Panel (b) and Panel (c). The installation of a scrubber in a smokestack reduces the emission of harmful chemicals from the smokestack. Theore, a government policy that internal-ized the externality would move the quantity of smokestack scrubbers installed from point a. Q2 to point Q3. b. Q3 to point Q2. c. Q4 to point Q5. d. Q5 to point Q4. : C : 3 : 10-1 : Analytical : Markets, market failure, and externalities : Positive externalities : Analytical 134. er to Figure 10-9, Panel (b) and Panel (c). Which of the following is correct? a. A tax would move the market in Panel (b) and the market in Panel (c) closer to the socially optimal out-come. b. A subsidy would move the market in Panel (b) and the market in Panel (c) closer to the socially optimal outcome. c. A tax would move the market in Panel (b) closer to the socially optimal outcome, but a subsidy would move the market in Panel (c) closer to the socially optimal outcome. d. A subsidy would move the market in Panel (b) closer to the socially optimal outcome, but a tax would move the market in Panel (c) closer to the socially optimal outcome. : C : 3 : 10-1 : Analytical : Markets, market failure, and externalities : Externalities : Analytical Sec02-Public Policies Toward Externalities MULTIPLE CHOICE Figure 10-2 1. er to Figure 10-2. Assume the production of plastic imposes a cost on society of $2.00 per unit. If the free market equilibrium output is 650 units, the government should a. impose a tax of $1.50 per unit. b. increase the output of the firm by 50 units. c. offer a subsidy of $2.00 per unit.. d. impose a tax of $2.00 per unit. : D : 2 : 10-2 : Analytical : Markets, market failure, externalities : Corrective taxes : Analytical 2. er to Figure 10-2. Suppose that the production of plastic creates a social cost which is depicted in the graph above. If the government wanted to force the firm to internalize the cost of the externality, what action should it take? a. Impose a tax of $1.50 per unit of plastic. b. Impose a tax of $2 per unit of plastic. c. Impose a tax of $6 per unit of plastic. d. Offer a subsidy of $1.50 per unit of plastic. : B : 2 : 10-2 : Analytical : Markets, market failure, externalities : Corrective taxes : Analytical Figure 10-5 3. er to Figure 10-5. Which of the following statements is correct? a. To induce firms to internalize the externality in this market, the government should impose a tax meas-ured by P2 - P0. b. To induce firms to internalize the externality in this market, the government should offer a subsidy measured by P2 - P0. c. To induce firms to internalize the externality in this market, the government should impose a tax meas-ured by P2 - P1. d. There is no externality in this market. : A : 3 : 10-2 : Analytical : Markets, market failure, externalities : Negative externalities : Analytical 4. Suppose that an MBA degree creates no externality because the benefits of an MBA are internalized by the student in the form of higher wages. If the government offers subsidies for MBAs, then which of the following statements is correct? a. The equilibrium quantity of MBAs will equal the socially optimal quantity of MBAs. b. The equilibrium quantity of MBAs will be greater than the socially optimal quantity of MBAs. c. The equilibrium quantity of MBAs will be less than the socially optimal quantity of MBAs. d. There is not enough information to wer the question. : B : 3 : 10-1 | 10-2 : Analytical : Markets, market failure, externalities : Externalities : Analytical 5. Suppose that an MBA degree creates no externality because the benefits of an MBA are internalized by the student in the form of higher wages. If there are no government subsidies for MBAs, then which of the following statements is correct? a. The equilibrium quantity of MBAs will equal the socially optimal quantity of MBAs. b. The equilibrium quantity of MBAs will be greater than the socially optimal quantity of MBAs. c. The equilibrium quantity of MBAs will be less than the socially optimal quantity of MBAs. d. There is not enough information to wer the question. : A : 3 : 10-1 | 10-2 : Analytical : Markets, market failure, externalities : Externalities : Analytical 6. Since almost all forms of trportation produce some type of pollution, a. the government should ban all trportation. b. the government should ban all pollution. c. society has to weigh the cost and benefits when deciding how much pollution to allow. d. rain from intervening because the market can best solve this problem. : C : 2 : 10-2 : Analytical : Markets, market failure, externalities : Externalities : Interpretive 7. Some environmentalists argue that we should protect the environment as much as possible, regardless of cost. Which of the following is not a likely outcome of pursuing such a course of action? a. lower levels of nutrition, health care, and housing b. a lower standard of living c. slowing or reversing technological advancement d. the elimiion of all pollution : D : 2 : 10-2 : Analytical : Markets, market failure, externalities : Externalities : Applicative 8. The best remedy for market failure is often a. a market-based solution. b. shutdown of the market. c. no government intervention. d. externalizing the externalities. : A : 2 : 10-2 : Analytical : Markets, market failure, externalities : Externalities : Interpretive 9. Which of the following statements is correct? a. Because a clean environment is a public good, a feasible goal is to elimie all pollution, regardless of the cost. b. Rich countries usually have cleaner environments than poor countries because a clean environment is like other normal goods in that it has a positive income elasticity. c. Clean water and clean air are priceless goods. d. All of the above are correct. : B : 2 : 10-2 : Analytical : Markets, market failure, externalities : Externalities : Interpretive 10. A command-and-control policy is another term for a a. pollution permit. b. government regulation. c. corrective tax. d. Both a and b are correct. : B : 1 : 10-2 : Analytical : Markets, market failure, externalities : Command-and-control policies : Definitional 11. If the government were to limit the release of air-pollution produced by a steel mill to 75 parts per million, the policy would be considered a a. regulation. b. corrective tax. c. subsidy. d. market-based policy. : A : 1 : 10-2 : Analytical : Markets, market failure, externalities : Command-and-control policies : Applicative 12. When the government uses a command-and-control policy to solve an externality, it a. is usually the most effective policy option available. b. creates policies that directly regulate behavior. c. usually involves taxing the consumption of a commodity. d. typically ers to the Coase theorem to structure the policy. : B : 2 : 10-2 : Analytical : Markets, market failure, externalities : Command-and-control policies : Interpretive 13. A al manufacturing plant that emitted sulfur dioxide was forced to s production because it did not comply with al clean air standards. This decision provides an example of a. a direct regulation of an externality. b. corrective taxes. c. a Coase theorem solution to an externality. d. the misuse of a subsidy. : A : 2 : 10-2 : Analytical : Markets, market failure, externalities : Command-and-control policies : Applicative 14. Emission controls 废气排放控制on automobiles are an example of a a. corrective tax. b. command-and-control policy to increase social efficiency. c. policy that reduces pollution by alating resources through market mechanisms. d. policy to reduce congestion on urban freeways. : B : 2 : 10-2 : Analytical : Markets, market failure, externalities : Command-and-control policies : Applicative 15. If it is illegal for a biochemical manufacturer to release its waste into a nearby stream, then this is an example of a. a market-based policy. b. a command-and-control policy. c. tradable pollution permits. d. traction costs. : B : 2 : 10-2 : Analytical : Markets, market failure, externalities : Command-and-control policies : Applicative 16. If the government were to impose a fine of $1,000 for each unit of air-pollution released by a steel mill, the policy would be considered a. a subsidy. b. a regulation. c. a corrective tax. d. an application of the Coase theorem. : C : 1 : 10-2 : Analytical : Markets, market failure, externalities : Corrective taxes : Applicative 17. A gasoline tax is designed to correct each of the following problems except a. traffic congestion. b. traffic accidents. c. air pollution. d. EPA regulations. : D : 1 : 10-2 : Analytical : Markets, market failure, externalities : Corrective taxes : Applicative 18. Which of the following statements is correct? a. Gasoline taxes are an example of an EPA regulation. b. Gasoline taxes are higher in many European coun-tries than in the United States. c. Gasoline taxes contribute to global warming. d. Gasoline taxes are an example of a command-and-control policy. : B : 1 : 10-2 : Analytical : Markets, market failure, externalities : Corrective taxes : Applicative 19. The tax on gasoline is an example of a. a consumption tax. b. a corrective tax. c. an income tax. d. a command-and-control policy. : B : 1 : 10-2 : Analytical : Markets, market failure, externalities : Corrective taxes : Applicative 20. Which of the following statements is correct? a. Automotive manufacturers per stricter fuel economy regulations to higher gasoline taxes. b. Higher gasoline taxes have provided a market-based incentive for Europe to buy more fuel-efficient vehicles. c. Higher gasoline taxes have had no effect on the U.S. demand for gasoline because the demand for gaso-line is perfectly inelastic. d. Fuel efficiency regulations are more effective than gasoline taxes in reducing the demand for gasoline in the United States and Europe. : B : 2 : 10-2 : Analytical : Markets, market failure, externalities : Corrective taxes : Applicative 21. Which of the following is not an advantage of corrective taxes? a. They raise revenues for the government. b. They enhance economic efficiency. c. They subsidize the production of goods with positive externalities. d. They move the alation of resources closer to the so-cial optimum. : C : 1 : 10-2 : Analytical : Markets, market failure, externalities : Corrective taxes : Applicative 22. Which of the following statements is not correct? a. Corrective taxes can be used to place a price on the right to pollute. b. Corrective taxes alate pollution to those producers who face the highest cost of reducing pollution. c. Corrective taxes provide incentives to develop cleaner technologies. d. Corrective taxes require the government to set a target level of pollution. : D : 2 : 10-2 : Analytical : Markets, market failure, externalities : Corrective taxes : Interpretive 23. Most taxes distort incentives and move the alation of resources away from the social optimum. Why do corrective taxes avoid the disadvantages of most other taxes? a. Corrective taxes apply only to goods that are bad for people's health, such as cigarettes and alcohol. b. Because corrective taxes correct for market externalities, they take into consideration the well-being of bystanders. c. Corrective taxes provide incentives for the conservation of ural resources. d. Corrective taxes do not affect deadweight loss. : B : 2 : 10-2 : Analytical : Markets, market failure, externalities : Corrective taxes : Interpretive 24. Corrective taxes fer from most taxes in that corrective taxes a. enhance economic efficiency. b. do not raise revenue for the government. c. cause deadweight loss. d. cannot be divided between the buyer and seller. : A : 2 : 10-2 : Analytical : Markets, market failure, externalities : Corrective taxes : Applicative 25. A corrective tax a. alates pollution to those factories that face the highest cost of reducing it. b. is a form of regulation. c. works well for all types of externalities. d. is inferior to regulatory policy according to most economists. : A : 2 : 10-2 : Analytical : Markets, market failure, externalities : Corrective taxes : Interpretive 26. Corrective taxes are unlike most other taxes because they a. distort incentives. b. move the alation of resources away from the social optimum. c. raise revenue for the government. d. move the alation of resources closer to the social optimum. : D : 2 : 10-2 : Analytical : Markets, market failure, externalities : Corrective taxes : Interpretive 27. In Singapore, littering fines are strictly enforced. This is an example of a policy that a. relies on moral codes to reduce the pollution exter-nality. b. relies on the Coase Theorem. c. discrimies against foreigners. d. relies on incentives to reduce the pollution externali-ty. : D : 2 : 10-2 : Analytical : Markets, market failure, externalities : Corrective taxes : Applicative 28. Corrective taxes are typically advocated to correct for the effects of a. positive externalities. b. negative externalities. c. patents. d. All of the above are correct. : B : 2 : 10-2 : Analytical : Markets, market failure, externalities : Corrective taxes : Applicative 29. With a corrective tax, the supply curve for pollution is a. perfectly inelastic. b. perfectly elastic. c. upward sloping. d. downward sloping. : B : 2 : 10-2 : Analytical : Markets, market failure, externalities : Corrective taxes : Analytical 30. A corrective tax is also known as: a. a command-and-control regulation. b. a Coase tax. c. a Pigouvian tax. d. a Smithian tax. : C : 1 : 10-2 : Analytical : Markets, market failure, externalities : Corrective taxes : Definitional 31. Corrective taxes a. encourage consumers to avoid sales taxes by shop-ping online. b. are frequently used to discourage imports. c. are less efficient than direct regulation. d. give factory owners an economic incentive to reduce pollution. : D : 2 : 10-2 : Analytical : Markets, market failure, externalities : Corrective taxes : Applicative 32. Suppose that cigarette smokers create a negative externality. Further suppose that the government imposes a tax on cigarettes equal to the per-unit externality. What is the relationship between the af-ter-tax equilibrium quantity and the socially optimal quantity of cigarettes? a. They are equal. b. The after-tax equilibrium quantity is greater than the socially optimal quantity. c. The after-tax equilibrium quantity is less than the socially optimal quantity. d. There is not enough information to wer the question. : A : 2 : 10-2 : Analytical : Markets, market failure, externalities : Corrective taxes | Negative externalities : Analytical 33. Suppose that alcohol consumption creates a negative externality. What can the government do to equate the equilibrium quantity of alcohol and the socially optimal quantity of alcohol? a. impose a tax on alcohol that is equal to the per-unit externality b. offer a subsidy on alcohol that is equal to the per-unit externality c. impose a regulation limiting the amount of alcohol that each consumer can purchase d. nothing : A : 2 : 10-2 : Analytical : Markets, market failure, externalities : Corrective taxes | Negative externalities : Analytical 34. Suppose that smoking creates a negative externality. If the government imposes a per-cigarette tax equal to the per-cigarette externality, then a. the after-tax equilibrium quantity of cigarettes smoked will be less than the socially optimal quantity of cigarettes smoked. b. the after-tax equilibrium quantity of cigarettes smoked will be greater than the socially optimal quantity of cigarettes smoked. c. the after-tax equilibrium quantity of cigarettes smoked will equal the socially optimal quantity of cigarettes smoked. d. There is not enough information to wer the question. : C : 2 : 10-2 : Analytical : Markets, market failure, externalities : Corrective taxes | Negative externalities : Analytical 35. Suppose that electricity producers create a negative externality equal to $5 per unit. Further suppose that the government impose a $5 per-unit tax on the producers. What is the relationship between the after-tax equilibrium quantity and the socially optimal quantity of electricity to be produced? a. They are equal. b. The after-tax equilibrium quantity is greater than the socially optimal quantity. c. The after-tax equilibrium quantity is less than the socially optimal quantity. d. There is not enough information to wer the question. : A : 2 : 10-2 : Analytical : Markets, market failure, externalities : Corrective taxes | Negative externalities : Analytical 36. Corrective taxes that are imposed upon the producer of a nasty smell can be successful in reducing that smell because the tax makes the producer a. externalize the positive externality. b. externalize the negative externality. c. internalize the positive externality. d. internalize the negative externality. : D : 2 : 10-2 : Analytical : Markets, market failure, externalities : Corrective taxes | Negative externalities : Interpretive 37. 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? 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 wer the question. : B : 3 : 10-2 : Analytical : Markets, market failure, externalities : Corrective taxes | Negative externalities : Analytical 38. Suppose that electricity producers create a negative externality equal to $6 per unit. Further suppose that the government imposes a $8 per-unit tax on the producers. What is the relationship between the after-tax equilibrium quantity and the socially optimal quantity of electricity to be produced? a. They are equal. b. The after-tax equilibrium quantity is greater than the socially optimal quantity. c. The after-tax equilibrium quantity is less than the socially optimal quantity. d. There is not enough information to wer the question. : C : 3 : 10-2 : Analytical : Markets, market failure, externalities : Corrective taxes | Negative externalities : Analytical 39. Suppose that elementary education creates a positive externality. If the government subsidizes education by an amount equal to the per-unit externality it creates, then a. the equilibrium quantity of education will equal the socially optimal quantity of education. b. the equilibrium quantity of education will be greater than the socially optimal quantity of education. c. the equilibrium quantity of education will be less than the socially optimal quantity of education. d. There is not enough information to wer the question. : A : 2 : 10-2 : Analytical : Markets, market failure, externalities : Corrective taxes | Positive externalities : Analytical 40. 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. What could the federal government do to equate the equilibrium quantity of university research and the socially optimal quantity of university research produced? a. tax university researchers b. offer grants to university researchers c. elimie subsidized student lo d. nothing : B : 2 : 10-2 : Analytical : Markets, market failure, externalities : Corrective taxes | Positive externalities : Analytical 41. 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? 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 wer the question. : B : 2 : 10-2 : Analytical : Markets, market failure, externalities : Corrective taxes | Positive externalities : Analytical 42. Suppose that planting trees creates a positive externality equal to $25 per tree. Further suppose that the al government offers a $25 per-tree subsidy to planters. What is the relationship between the equilibrium quantity and the socially optimal quantity of trees planted? a. The equilibrium quantity is less than the socially optimal quantity. b. The equilibrium quantity is greater than the socially optimal quantity. c. They are equal. d. There is not enough information to wer the question. : C : 2 : 10-2 : Analytical : Markets, market failure, externalities : Corrective taxes | Positive externalities : Analytical 43. Suppose that cookie producers create a positive externality equal to $2 per dozen. Further suppose that the government offers a $2 per-dozen subsidy to the producers. What is the relationship between the equilibrium quantity and the socially optimal quantity of cookies to be produced? a. The equilibrium quantity is greater than the socially optimal quantity. b. The equilibrium quantity is less than the socially optimal quantity. c. They are equal. d. There is not enough information to wer the question. : C : 2 : 10-2 : Analytical : Markets, market failure, externalities : Corrective taxes | Positive externalities : Analytical 44. Suppose that flu shots create a positive externality equal to $12 per shot. Further suppose that the government offers a $12 per-shot subsidy to producers. What is the relationship between the equilib-rium quantity and the socially optimal quantity of flu shots produced? a. They are equal. b. The equilibrium quantity is greater than the socially optimal quantity. c. The equilibrium quantity is less than the socially op-timal quantity. d. There is not enough information to wer the question. : A : 2 : 10-2 : Analytical : Markets, market failure, externalities : Corrective taxes | Positive externalities : Analytical 45. Suppose that flu shots create a positive externality equal to $12 per shot. Further suppose that the government offers a $5 per-shot subsidy to producers. What is the relationship between the equilibri-um quantity and the socially optimal quantity of flu shots produced? 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 wer the question. : C : 3 : 10-2 : Analytical : Markets, market failure, externalities : Corrective taxes | Positive externalities : Analytical 46. Suppose that flu shots create a positive externality equal to $12 per shot. Further suppose that the government offers a $15 per-shot subsidy to producers. What is the relationship between the equilib-rium quantity and the socially optimal quantity of flu shots produced? a. They are equal. b. The equilibrium quantity is greater than the socially optimal quantity. c. The equilibrium quantity is less than the socially op-timal quantity. d. There is not enough information to wer the question. : B : 3 : 10-2 : Analytical : Markets, market failure, externalities : Corrective taxes | Positive externalities : Analytical 47. Which of the following statements is not correct? a. Tradable pollution permits have an advantage over corrective taxes if the government is uncertain as to the optimal size of the tax necessary to reduce pollu-tion to a specific level. b. Both corrective taxes and tradable pollution permits provide market-based incentives for firms to reduce pollution. c. Corrective taxes set the maximum quantity of pollu-tion, whereas tradable pollution permits fix the price of pollution. d. Both corrective taxes and tradable pollution permits reduce the cost of environmental protection and thus should increase the public's demand for a clean envi-ronment. : C : 3 : 10-2 : Analytical : Markets, market failure, externalities : Corrective taxes : Interpretive Figure 10-10 48. er to Figure 10-10. Which graph illustrates a pollution permit program? a. the left graph b. the right graph c. both graphs d. neither graph : B : 2 : 10-2 : Analytical : Markets, market failure, externalities : Command-and-control policies : Analytical 49. er to Figure 10-10. Which graph illustrates a corrective tax? a. the left graph b. the right graph c. both graphs d. neither graph : A : 2 : 10-2 : Analytical : Markets, market failure, externalities : Corrective taxes : Analytical 50. er to Figure 10-10. Which of the following is not necessary in order for the corrective tax and pollu-tion permit to have equivalent effects? 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. : D : 3 : 10-2 : Analytical : Markets, market failure, externalities : Corrective taxes | Tradable pollution permits : Analytical 51. er to Figure 10-10. The supply of pollution permits is a. elastic and represented by line A. b. inelastic and represented by line A. c. elastic and represented by line F d. inelastic and represented by line F. : D : 2 : 10-2 : Analytical : Markets, market failure, externalities : Tradable pollution permits : Analytical 52. Which of the following statements is correct? a. Corrective taxes are often perred over direct regulation because they typically reduce externalities at a lower cost. b. Corrective taxes distort economic incentives. c. Corrective taxes are often perred over direct regulation because they typically reduce externalities at a faster rate. d. Both a and b are correct. : A : 3 : 10-2 : Analytical : Markets, market failure, externalities : Corrective taxes | Command-and-control policies : Analytical 53. Regulations to reduce pollution a. cause pollution levels to drop below the regulated amount. b. are a more costly solution to society than a corrective tax. c. allow firms with the lowest cost to reduce pollution by more than those with highest costs. d. are a better solution for the environment than a corrective tax. : B : 2 : 10-2 : Analytical : Markets, market failure, externalities : Command-and-control policies | Corrective taxes : Applicative 54. A corrective tax a. causes each factory to reduce pollution by the same amount. b. assigns a legal pollution limit for firms. c. places a price on the right to pollute. d. costs society more than pollution regulations. : C : 2 : 10-2 : Analytical : Markets, market failure, externalities : Corrective taxes | Command-and-control policies : Applicative 55. A corrective tax a. can be used to internalize a negative externality. b. imposed on sellers shifts the supply curve to the left. c. imposed on buyers shifts the demand curve to the left. d. All of the above. : D : 2 : 10-2 : Analytical : Markets, market failure, externalities : Corrective taxes : Interpretive 56. Most economists per corrective taxes to regulation to correct the pollution problem because: a. the market-based solution is less costly to society. b. the market-based solution can result in a greater re-duction in pollution. c. the market-based solution raises revenue for the gov-ernment. d. all of the above. : D : 1 : 10-2 : Analytical : Markets, market failure, externalities : Corrective taxes 57. Which of the following statements is correct? a. Taxes are more ficult to administer than regulations. b. Taxes provide incentives for firms to adopt new methods to reduce negative externalities. c. Command-and-control policies provide incentives for private decisionmakers to solve their problems on their own. d. Corrective taxes distort incentives. : B : 2 : 10-2 : Analytical : Markets, market failure, externalities : Corrective taxes | Command-and-control policies : Interpretive 58. Which of the following is not an effective method to reduce negative externalities? a. relying on voluntary compliance b. taxing the output of industries that pollute c. creating legal environmental standards d. increasing public spending on cleanup and reduction of pollution : A : 2 : 10-2 : Analytical : Markets, market failure, externalities : Corrective taxes | Command-and-control policies : Applicative 59. What is the ference between command-and-control policies and market-based policies toward exter-nalities? a. Command-and-control policies provide incentives for private decisionmakers to solve the problems on their own, whereas market-based policies regulate behavior directly. b. Command-and-control policies rely on taxes, where-as market-based policies rely on quotas. c. Command-and-control policies regulate behavior directly, whereas market-based policies provide in-centives for private decisionmakers to change their behavior. d. Command-and-control policies are efficient, whereas market-based policies are inefficient. : C : 1 : 10-2 : Analytical : Markets, market failure, externalities : Command-and-control policies : Definitional 60. Which of the following statements is not correct? a. Patents help internalize the externalities associated with technological advances. b. Economists typically per 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 tractions costs. : B : 3 : 10-2 : Analytical : Markets, market failure, externalities : Command-and-control policies | Tradable pollution permits : Analytical 61. In many cases selling pollution permits is a better method for reducing pollution than imposing a corrective tax because a. it is hard to estimate the market demand curve and thus charge the "right" corrective tax. b. selling pollution permits create a net increase in pollution. c. Corrective taxes distort incentives. d. Corrective taxes provide greater flexibility to firms that can reduce pollution at a low cost. : A : 2 : 10-2 : Analytical : Markets, market failure, externalities : Corrective taxes | Tradable pollution permits : Interpretive 62. The ference between a corrective tax and a tradable pollution permit is that a. a corrective tax sets the price of pollution and a permit sets the quantity of pollution. b. a corrective tax creates a more efficient outcome than a permit. c. a corrective tax sets the quantity of pollution and a permit sets the price of pollution. d. a permit creates a more efficient outcome than a corrective tax. : A : 2 : 10-2 : Analytical : Markets, market failure, externalities : Corrective taxes | Tradable pollution permits : Analytical 63. In some cases, tradable pollution permits may be better than a corrective tax because a. pollution permits allow for a market solution while a corrective tax does not. b. pollution permits generate more revenue for the government than a corrective tax. c. pollution permits are never perred over a corrective tax. d. the government can set a maximum level of pollution using permits. : D : 2 : 10-2 : Analytical : Markets, market failure, externalities : Tradable pollution permits | Corrective taxes : Interpretive 64. Which of the following helped reduce sulfur dioxide emissions, a leading cause of acid rain? (i) corrective taxes (ii) tradable pollution permits (iii) amendments to the Clean Air Act a. (i) only b. both (i) and (ii) c. (iii) only d. both (ii) and (iii) : D : 3 : 10-2 : Analytical : Markets, market failure, externalities : Tradable pollution permits | Corrective taxes : Applicative 65. With pollution permits, the supply curve for pollution rights is a. perfectly elastic. b. perfectly inelastic. c. upward sloping. d. downward sloping. : B : 2 : 10-2 : Analytical : Markets, market failure, externalities : Tradable pollution permits : Analytical 66. Tradable pollution permits 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. : D : 2 : 10-2 : Analytical : Markets, market failure, externalities : Tradable pollution permits : Applicative 67. Once tradable pollution permits have been alated to firms, 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. : B : 2 : 10-2 : Analytical : Markets, market failure, externalities : Tradable pollution permits : Interpretive 68. Tradable pollution permits a. have prices that are set by the government. b. will be more valuable to firms that can reduce pollution only at high costs. c. are likely to create a higher level of total pollution. d. are less desirable than corrective taxes in reducing pollution. : B : 2 : 10-2 : Analytical : Markets, market failure, externalities : Tradable pollution permits : Analytical 69. Which of the following is not a characteristic of pollution permits? a. Prices are set by supply and demand. b. Allowing firms to trade their permits reduces the total quantity of pollution beyond the initial alation. c. Real-world markets for pollution permits include sulfur dioxide and carbon. d. Firms for whom pollution reduction is very expensive are willing to pay more for permits than firms for whom pollution reduction is less expensive. : B : 3 : 10-2 : Analytical : Markets, market failure, externalities : Tradable pollution permits : Analytical 70. When one firm sells its pollution permit to another firm, a. both firms benefit. b. the total amount of pollution remains the same. c. the total amount of pollution decreases. d. Both a and b are correct. : D : 3 : 10-2 : Analytical : Markets, market failure, externalities : Tradable pollution permits : Analytical 71. Which of the following is an advantage of tradable pollution permits? a. Each firm is allowed to pollute exactly the same amount. b. Revenue from the sale of permits is greater than rev-enue from a corrective tax. c. The initial alation of permits to firms does not affect the efficiency of the market. d. Firms will engage in joint research efforts to reduce pollution. : C : 3 : 10-2 : Analytical : Markets, market failure, externalities : Tradable pollution permits : Analytical 72. Which of the following is a way to address an externality problem? a. command and control solution b. corrective tax c. corrective subsidy d. all of the above. : D : 1 : 10-2 : Analytical : Markets, market failure, externalities : Corrective taxes : Definitional 73. Which of the following is a ference between corrective taxes and tradable pollution permits? 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, de-mand 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. : B : 2 : 10-2 : Analytical : Markets, market failure, externalities : Corrective taxes : Interpretive Figure 10-11 74. er to Figure 10-11. This graph shows the market for pollution when permits are issued to firms and traded in the marketplace. The equilibrium price of pollution is a. $50 b. $500 c. $1,000 d. $2,000 : C : 2 : 10-2 : Analytical : Markets, market failure, externalities : Tradable pollution permits : Analytical 75. er to Figure 10-11. This graph shows the market for pollution when permits are issued to firms and traded in the marketplace. The equilibrium number of permits is a. 50 b. 100 c. 1,000 d. 2,000 : A : 2 : 10-2 : Analytical : Markets, market failure, externalities : Tradable pollution permits : Analytical 76. er to Figure 10-11. This graph shows the market for pollution when permits are issued to firms and traded in the marketplace. In the absence of a pollution permit system, the quantity of pollution would be a. 25 b. 50 c. 75 d. 100 : D : 2 : 10-2 : Analytical : Markets, market failure, externalities : Tradable pollution permits : Analytical 77. Two firms, A and B, each currently emit 100 tons of chemicals into the air. The government has de-cided to reduce the pollution and from now on will require a pollution permit for each ton of pollu-tion 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 elimies before it is emit-ted into the air, and it costs Firm B $100 for each ton of pollution that it elimies before it is emitted into the air. After the two firms buy or sell pollution permits from each other, we would expect that Firm A will emit a. 20 fewer tons of pollution into the air, and Firm B will emit 100 fewer tons of pollution into the air. b. 100 fewer tons of pollution into the air, and Firm B will emit 20 fewer tons of pollution into the air. c. 50 fewer tons of pollution into the air, and Firm B will emit 50 fewer tons of pollution into the air. d. 20 more tons of pollution into the air, and Firm B will emit 100 fewer tons of pollution into the air. : A : 3 : 10-2 : Analytical : Markets, market failure, externalities : Tradable pollution permits : Analytical 78. Two firms, A and B, each currently emit 100 tons of chemicals into the air. The government has de-cided to reduce the pollution and from now on will require a pollution permit for each ton of pollu-tion 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 elimies before it is emit-ted into the air, and it costs Firm B $100 for each ton of pollution that it elimies before it is emitted into the air. It is likely that 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. : A : 3 : 10-2 : Analytical : Markets, market failure, externalities : Tradable pollution permits : Analytical 79. Two firms, A and B, each currently dump 50 tons of chemicals into the al river. The government has decided to reduce the pollution and from now on will require a pollution permit for each ton of pollu-tion dumped into the river. It costs Firm A $100 for each ton of pollution that it elimies before it reaches the river, and it costs Firm B $50 for each ton of pollution that it elimies before it reaches the river. The government gives each firm 20 pollution permits. Government officials are not sure whether to allow the firms to buy or sell the pollution permits to each other. What is the total cost of reducing pollution if firms are not allowed to buy and sell pollution permits from each other? What is the total cost of reducing pollution if the firms are allowed to buy and sell permits from each other? a. $3,000; $1,500 b. $4,500; $3,500 c. $4,500; $4,000 d. $4,500; $2,500 : B : 3 : 10-2 : Analytical : Markets, market failure, externalities : Tradable pollution permits : Analytical 80. Two firms, A and B, each currently dump 20 tons of chemicals into the al river. The government has decided to reduce the pollution and from now on will require a pollution permit for each ton of pollu-tion dumped into the river. The government gives each firm 10 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 elimies before it reaches the river, and it costs Firm B $50 for each ton of pollution that it elimies before it reaches the river. After the two firms buy or sell pollution permits from each other, we would expect that a. Firm A will no longer pollute, and Firm B will not reduce its pollution at all. b. Firm B will no longer pollute, and Firm A will not reduce its pollution at all. c. Firm A will dump 10 tons of pollution into the river, and Firm B will dump 10 tons of pollution into the river. d. Firm A will increase its pollution and Firm B will reduce its pollution. : B : 3 : 10-2 : Analytical : Markets, market failure, externalities : Tradable pollution permits : Analytical 81. Two firms, A and B, each currently dump 50 tons of chemicals into the al river. The government has decided to reduce the pollution and from now on will require a pollution permit for each ton of pollu-tion dumped into the river. The government will sell 40 pollution permits for $75 each. It costs Firm A $100 for each ton of pollution that it elimies before it reaches the river, and it costs Firm B $50 for each ton of pollution that it elimies before it reaches the river. Neither firm produces any less output, but they both conform to the law. It is likely that between the cost of permits and the cost of addi-tional pollution abatement, a. Firm B will spend $3,500. b. Firm A will spend $4,000. c. Firm A will spend $4,500. d. Firm B will spend $3,000. : B : 3 : 10-2 : Analytical : Markets, market failure, externalities : Tradable pollution permits : Analytical 82. Which of the following require firms to pay to pollute? (i) corrective taxes (ii) tradable pollution permits (iii) pollution regulations a. (i) only b. both (i) and (ii) c. (iii) only d. both (ii) and (iii) : B : 2 : 10-2 : Analytical : Markets, market failure, externalities : Corrective taxes | Tradable pollution permits | Command-and-control policies : Applicative Figure 10-6 83. er to Figure 10-6. How large would a corrective tax need to be to move this market from the equi-librium outcome to the socially-optimal outcome? 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. : D : 2 : 10-2 : Analytical : Markets, market failure, externalities : Corrective taxes : Analytical Table 10-3 The following table shows the marginal costs for each of four firms (A, B, C, and D) to elimie units of pol-lution from their production processes. For example, for Firm A to elimie one unit of pollution, it would cost $54, and for Firm A to elimie a second unit of pollution it would cost an additional $67. Firm Unit to be elimied A B C D First unit 54 57 54 62 Second unit 67 68 66 73 Third unit 82 86 82 91 Fourth unit 107 108 107 111 84. er to Table 10-3. If the government charged a fee of $69 per unit of pollution, how many units of pollution would the firms elimie altogether?如果成本大于69，人们会依旧污染。 a. 7 b. 8 c. 9 d. 10 : A : 2 : 10-2 : Analytical : Markets, market failure, externalities : Corrective taxes : Applicative 85. er to Table 10-3. If the government charged a fee of $84 per unit of pollution, how many units of pollution would the firms elimie altogether? a. 7 b. 8 c. 9 d. 10 : D : 2 : 10-2 : Analytical : Markets, market failure, externalities : Corrective taxes : Applicative 86. er to Table 10-3. If the government wanted to reduce pollution from 16 units to 6 units, which of the following fees per unit of pollution would achieve that goal? a. $67 b. $68 c. $81 d. $83 : D : 3 : 10-2 : Analytical : Markets, market failure, externalities : Corrective taxes : Applicative 87. er to Table 10-3. If the government wanted to elimie exactly 11 units of pollution, which of the fol-lowing fees per unit of pollution would achieve that goal? a. $75 b. $87 c. $90 d. $106 : B : 3 : 10-2 : Analytical : Markets, market failure, externalities : Corrective taxes : Applicative 88. er to Table 10-3. Suppose the government wants to reduce pollution from 16 units to 8 units and auctions off 8 pollution permits to achieve this goal. Which of the following is a likely auction price of the permits? a. $69 b. $81 c. $83 d. $97 : B : 3 : 10-2 : Analytical : Markets, market failure, externalities : Tradable pollution permits : Applicative Table 10-4 The following table shows the total costs for each of four firms (A, B, C, and D) to elimie units of pollution from their production processes. For example, for Firm A to elimie one unit of pollution, it would cost $46, and for Firm A to elimie two units of pollution, it would cost a total of $103.应换算为边际成本 Firm Unit to be elimied A B C D One unit 46 45 42 49 Two units 103 100 98 108 Three units 180 173 169 183 Four units 282 268 264 280 89. er to Table 10-4. If the government charged a fee of $93 per unit of pollution, how many units of pollution would the firms elimie altogether? a. 5 b. 6 c. 12 d. 16 : C : 3 : 10-2 : Analytical : Markets, market failure, externalities : Corrective taxes : Applicative 90. er to Table 10-4. If the government charged a fee of $101 per unit of pollution, how many units of pollution would the firms elimie altogether? a. 9 b. 12 c. 15 d. 16 : C : 3 : 10-2 : Analytical : Markets, market failure, externalities : Corrective taxes : Applicative 91. er to Table 10-4. Suppose the government wanted to reduce pollution from 16 units to exactly 7 units. Which of the following fees per unit of pollution would achieve that goal? a. $58 b. $82 c. $96 d. $102 : A : 3 : 10-2 : Analytical : Markets, market failure, externalities : Corrective taxes : Applicative 92. er to Table 10-4. Suppose the government wanted to elimie exactly 10 units of pollution. Which of the following fees per unit of pollution would achieve that goal? a. $68 b. $74 c. $120 d. $134 : B : 3 : 10-2 : Analytical : Markets, market failure, externalities : Corrective taxes : Applicative 93. Which of the following is not an argument for imposing a carbon tax to address global warming? a. Revenue from a carbon tax could be used to reduce payroll taxes leaving the total tax burden un-changed while reducing carbon emissions. b. A carbon tax would allow the government to set the quantity of carbon dioxide pollution. c. A carbon tax would be less costly to consumers and result in greater carbon reduction than regulations requiring increased fuel efficiency. d. A global carbon tax would be easier to negotiate with foreign governments than the terms of a trada-ble pollution permit system. : B : 2 : 10-2 : Analytical : Markets, market failure, externalities : Corrective taxes : Applicative Sec03-Private Solutions to Externalities MULTIPLE CHOICE 1. Externalities can be corrected by each of the following except a. self-interest. b. moral codes and social sanctions. c. charity. d. normal market adjustments. : D : 1 : 10-3 : Analytical : Markets, market failure, and externalities : Externalities : Interpretive 2. The Golden Rule is an example of a private solution for a. subsidizing higher education. b. internalizing externalities. c. increasing production. d. reducing scarcity. : B : 1 : 10-3 : Analytical : Markets, market failure, and externalities : Externalities : Applicative 3. Two types of private solutions to the problem of externalities are a. charities and the Golden Rule. b. charities and subsidies. c. the Golden Rule and taxes. d. taxes and subsidies. : A : 1 : 10-3 : Analytical : Markets, market failure, and externalities : Externalities : Applicative 4. When externalities cause markets to be inefficient, a. government action is always needed to solve the problem. b. private solutions can be developed to solve the problem. c. given enough time, externalities can be solved through normal market adjustments. d. there is no way to elimie the problem of externalities in a market. : B : 1 : 10-3 : Analytical : Markets, market failure, and externalities : Externalities : Interpretive 5. Honey producers provide a positive externality to orchards because a. the honey producers get more honey. b. the orchard owner frequently gets stung by the honey producer's bees. c. the orchard owner does not have to purchase bees to pollie his flowers. d. the honey producers have to rent access to the orchard grounds. : C : 1 : 10-3 : Analytical : Markets, market failure, and externalities : Externalities : Interpretive 6. Since externalities tend to keep markets from reaching a socially optimal equilibrium, government action 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. : B : 2 : 10-3 : Analytical : Markets, market failure, and externalities : Externalities : Interpretive 7. Firms that are involved in more than one type of business could be evidence of an attempt to a. increase private profit at the expense of consumers. b. internalize some forms of positive externalities. c. reduce the impact of government regulations on their business. d. increase the private marginal cost of production. : B : 2 : 10-3 : Analytical : Markets, market failure, and externalities : Externalities : Applicative 8. Private contracts between parties with mutual interests a. will reduce the well-being of society. b. will lead to market outcomes in which the public interest is sacrificed for personal gain. c. can solve some inefficiencies associated with positive externalities. d. will create negative externalities. : C : 2 : 10-3 : Analytical : Markets, market failure, and externalities : Externalities : Applicative 9. Which of the following statements is not correct? a. Private markets tend to over-produce products with negative externalities. b. Private markets tend to under-produce products with positive externalities. c. Private parties can bargain to efficient outcomes even in the presence of externalities. d. Private parties are usually more successful in achiev-ing efficient outcomes than government policies. : D : 2 : 10-3 : Analytical : Markets, market failure, and externalities : Externalities | Coase theorem : Interpretive 10. Private solutions may not be possible due to the costs of negotiating and enforcing these solutions. Such costs are called a. traction costs. b. corrective costs. c. input costs. d. private costs. : A : 1 : 10-3 : Analytical : Markets, market failure, and externalities : Coase theorem : Definitional 11. Employing a lawyer to draft and enforce a private contract between parties wishing to solve an externality problem is an example of a. an opportunity cost. b. an implicit cost. c. a sunk cost. d. a traction cost. : D : 1 : 10-3 : Analytical : Markets, market failure, and externalities : Coase theorem : Applicative 12. The proposition that if private parties can bargain without cost over the alation of resources, they can solve the problem of externalities on their own, is called a. the Pigouvian theorem. b. a corrective tax. c. the externality theorem. d. the Coase theorem. : D : 1 : 10-3 : Analytical : Markets, market failure, and externalities : Coase theorem : Definitional 13. Which of the following suggests that private markets can be effective in dealing with externalities? a. the "invisible hand" b. the law of diminishing social returns c. the Coase theorem d. technology policy : C : 2 : 10-3 : Analytical : Markets, market failure, and externalities : Coase theorem : Applicative 14. The Coase theorem suggests that private markets may not be able to solve the problem of externali-ties 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. : B : 2 : 10-3 : Analytical : Markets, market failure, and externalities : Coase theorem : Applicative 15. Traction costs a. can keep private parties from solving externality problems. b. are incurred in the production process due to exter-nalities. c. increase when taxes are imposed to correct negative externalities. d. are elimied when the government intervenes in a market with externalities. : A : 2 : 10-3 : Analytical : Markets, market failure, and externalities : Coase theorem : Applicative 16. One reason that private solutions to externalities do not always work is that a. government intervention negates the benefits of posi-tive externalities. b. some people benefit from externalities. c. interested parties incur costs in the bargaining pro-cess. d. charities are not well organized. : C : 2 : 10-3 : Analytical : Markets, market failure, and externalities : Coase theorem : Interpretive 17. Assuming traction costs are small, the Coase theorem would predict that private parties could arrive at an efficient solution for which of the following problems? a. One neighbor lets his dog run through another neigh-bor’s garden, damaging her flowers. b. One neighbor doesn't mow her yard. c. One neighbor plays his music loudly. d. All of the above are correct. : D : 2 : 10-3 : Analytical : Markets, market failure, and externalities : Coase theorem : Applicative 18. If only a few people are affected by an externality, then it is likely that a. corrective taxes will provide the most efficient solu-tion to the externality. b. command-and-control regulation will provide the most efficient solution to the externality. c. a private solution to the inefficiency will occur. d. a private solution will be very ficult to negotiate. : C : 2 : 10-3 : Analytical : Markets, market failure, and externalities : Coase theorem : Interpretive 19. Reaching an efficient bargain is ficult when the a. externality is large. b. number of interested parties is large. c. externality is negative. d. government becomes involved. : B : 2 : 10-3 : Analytical : Markets, market failure, and externalities : Coase theorem : Applicative 20. Which of the following is a problem that keeps people from privately solving externality problems? a. Each party involved holds out for a better deal. b. The externality is large. c. Only problems with a sufficiently large number of parties can be solved. d. There is a lack of government intervention. : A : 2 : 10-3 : Analytical : Markets, market failure, and externalities : Coase theorem : Applicative 21. In class action lawsuits interested parties to the lawsuit are not required to pay attorney fees directly. This is an example of an attempt to a. maximize attorney fees. b. reduce the incentive of attorneys to file class action lawsuits. c. reduce the traction costs of finding a private solution to an externality. d. regulate attorney fees. : C : 2 : 10-3 : Analytical : Markets, market failure, and externalities : Coase theorem : Applicative 22. Nancy loves to landscape her yard, but her neighbor Lee places a low value on his landscaping. When Lee's grass is neglected and gets long, Nancy will mow it for Lee. This is an example of a. a situation in which the Coase theorem fails to explain the lawn mowing arrangement. b. an improper alation of resources. c. a private solution to a negative externality problem. d. an exploitation of a common resource. : C : 2 : 10-3 : Analytical : Markets, market failure, and externalities : Coase theorem : Applicative 23. The Coase theorem suggests that private solutions to an externality problem a. are effective under all conditions. b. will usually alate 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. : B : 2 : 10-3 : Analytical : Markets, market failure, and externalities : Coase theorem : Applicative 24. In which of the following cases is the Coase theorem most likely to solve the externality? a. Ed is allergic to his roommate’s cat. b. Chemicals from manufacturing plants in the Midwest are causing acid rain in Canada. c. Polluted water runoff from farms is making residents of a nearby town sick. d. Industrialization around the world is causing global warming. : A : 2 : 10-3 : Analytical : Markets, market failure, and externalities : Coase theorem : Applicative 25. According to the Coase theorem, private parties can solve the problem of externalities if a. the cost of bargaining is small. b. the initial distribution of legal rights favors the person being adversely affected by the externality. c. the number of parties involved is sufficiently large. d. All of the above are correct. : A : 2 : 10-3 : Analytical : Markets, market failure, and externalities : Coase theorem : Applicative 26. According to the Coase theorem, private markets will solve externality problems and alate resources efficiently as long as a. the externalities that are present are positive, not negative. b. government assigns property rights to the harmed party. c. private parties can bargain with sufficiently low traction costs. d. businesses determine an appropriate level of production. : C : 2 : 10-3 : Analytical : Markets, market failure, and externalities : Coase theorem : Applicative 27. The Coase theorem states that a. under certain circumstances government intervention is not needed to reach efficient outcomes when an externality is present. b. government intervention is always required to reach an efficient outcome when an externality is present. c. government intervention cannot lead to an efficient outcome when an externality is present. d. only negative externalities can be resolved using government intervention. : A : 1 : 10-3 : Analytical : Markets, market failure, and externalities : Coase theorem : Definitional 28. Which of the following is not a necessary condition for the Coase theorem? a. Property rights are clearly defined. b. There are no bargaining costs. c. The government intervenes to internalize the externality. d. There are only a few parties involved. : C : 1 : 10-3 : Analytical : Markets, market failure, and externalities : Coase theorem : Definitional 29. In many cases the Coase theorem does not work well because a. there are too few parties at the negotiation table. b. the government does not know about the Coase theorem. c. traction costs are too high. d. traction costs are too low. : C : 2 : 10-3 : Analytical : Markets, market failure, and externalities : Coase theorem : Interpretive 30. Why can't private individuals always internalize an externality without the help of government? a. Legal restrictions prevent side payments between individuals. b. Tractions costs may be too high. c. Side payments between individuals are inefficient. d. Side payments between individuals are insufficient. : B : 2 : 10-3 : Analytical : Markets, market failure, and externalities : Coase theorem : Applicative 31. What economic argument suggests that if tractions costs are sufficiently low, the equilibrium is eco-nomically efficient regardless of how property rights are distributed? a. the Coase theorem b. the laws of supply and demand c. the law of comparative advantage d. the law of externalities : A : 2 : 10-3 : Analytical : Markets, market failure, and externalities : Coase theorem : Interpretive 32. The Coase theorem states that a. taxes are an efficient way for governments to remedy negative externalities. b. subsidies are an efficient way for governments to remedy positive externalities. c. industrial policies encourage technology spillovers. d. in the absence of traction costs, private parties can solve the problem of externalities on their own. : D : 2 : 10-3 : Analytical : Markets, market failure, and externalities : Coase theorem : Applicative 33. Mary and Cathy are roommates. Mary assigns a $30 value to smoking cigarettes. Cathy values smoke-free air at $15. Which of the following scenarios is a successful example of the Coase theorem? a. Cathy offers Mary $20 not to smoke. Mary accepts and does not smoke. b. Mary pays Cathy $16 so that Mary can smoke. c. Mary pays Cathy $14 so that Mary can smoke. d. Cathy offers Mary $15 not to smoke. Mary accepts and does not smoke. : B : 3 : 10-3 : Analytical : Markets, market failure, and externalities : Coase theorem : Analytical 34. A dentist shares an office building with a radio station. The electrical current from the dentist's drill causes static in the radio broadcast, causing the radio station to lose $10,000 in profits. The radio station could put up a shield at a cost of $30,000; the dentist could buy a new drill that causes less interference for $6,000. Either would restore the radio station's lost profits. What is the economically efficient outcome? a. The radio station puts up a shield, which it pays for. b. The radio station puts up a shield, which the dentist pays for. c. Neither the radio station nor the dentist purchase additional equipment. d. The dentist gets a new drill; it does not matter who pays for it. : D : 3 : 10-3 : Analytical : Markets, market failure, and externalities : Coase theorem : Analytical 35. Dick owns a dog whose barking annoys Dick's neighbor Jane. Suppose that the benefit of owning the dog is worth $200 to Dick and that Jane bears a cost of $400 from the barking. Assuming Dick has the legal right to keep the dog, a possible private solution to this problem is that a. Jane pays Dick $150 to give the dog to his parents who live on an isolated farm. b. Dick pays Jane $350 for her inconvenience. c. Jane pays Dick $300 to give the dog to his parents who live on an isolated farm. d. There is no private traction that would improve this situation. : C : 3 : 10-3 : Analytical : Markets, market failure, and externalities : Coase theorem : Analytical 36. Dick owns a dog whose barking annoys Dick's neighbor Jane. Suppose that the benefit of owning the dog is worth $700 to Dick and that Jane bears a cost of $500 from the barking. Assuming Dick has the legal right to keep the dog, a possible private solution to this problem is that a. Dick pays Jane $600 for her inconvenience. b. Jane pays Dick $650 to give the dog to his parents who live on an isolated farm. c. Jane pays Dick $800 to give the dog to his parents who live on an isolated farm. d. The current situation is efficient. : D : 3 : 10-3 : Analytical : Markets, market failure, and externalities : Coase theorem : Analytical 37. Dick owns a dog whose barking annoys Dick's neighbor Jane. Dick receives personal benefit from owning the dog, and Jane bears a cost of Dick's ownership of the dog. Assuming Jane has the legal right to peace and quiet, which of the following statements is correct? a. If Dick's benefit exceeds Jane's cost, government intervention is necessary. b. Dick will pay to keep his dog if his benefit exceeds Jane's cost. c. If Jane's cost exceeds Dick's benefit, Dick will pay Jane to keep his dog. d. If Jane has the legal right to peace and quiet, no further tractions will be mutually beneficial. : B : 3 : 10-3 : Analytical : Markets, market failure, and externalities : Coase theorem : Analytical 38. Betty’s cat causes Suzy to sneeze. Betty values her cat’s companionship at $300 per year. The cost to Suzy of tissues and her allergy medication is $350 per year. Based on the Coase theorem, a. Betty should pay Suzy $400 so that she may keep her cat. b. Betty should pay Suzy $350 to purchase her tissues and allergy medication. c. Suzy should pay Betty $325 to give away her cat. d. Suzy should move. : C : 3 : 10-3 : Analytical : Markets, market failure, and externalities : Coase theorem : Analytical 39. According to the Coase theorem, in the presence of externalities a. private parties can bargain to reach an efficient outcome. b. government assistance is necessary to reach an efficient outcome. c. the assignment of legal rights can prevent externalities. d. the initial distribution of property rights will determine the efficient outcome. : A : 3 : 10-3 : Analytical : Markets, market failure, and externalities : Coase theorem : Analytical 40. Assume that your roommate is very messy. Suppose she gets a $50 benefit from being messy but imposes a $100 cost on you. The Coase theorem would suggest that an efficient solution would be for you to a. pay your roommate at least $50 but no more than $100 to clean up after herself. b. pay your roommate at least $101 to clean up after herself. c. charge your roommate at least $50 to have you clean up after her. d. charge your roommate at least $100 but no more than $200 to keep you from complaining about the mess. : A : 3 : 10-3 : Analytical : Markets, market failure, and externalities : Coase theorem : Analytical 41. Assume that your roommate is very messy. According to campus policy, you have a right to live in an uncluttered apartment. Suppose she gets a $200 benefit from being messy but imposes a $100 cost on you. The Coase theorem would suggest that an efficient solution would be for your roommate to a. s her messy habits or else move out. b. pay you at least $100 but less than $200 to live with the clutter. c. continue to be messy and force you to move out. d. demand payment of at least $100 but no more than $200 to clean up after herself. : B : 3 : 10-3 : Analytical : Markets, market failure, and externalities : Coase theorem : Analytical 42. 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 elimie the damaging sparks. The grease costs $1,200. Suppose that the farmer has the right to compen-sation for any damage that his crops suffer. Assume that there are no traction costs. Which of the following characterizes the efficient outcome? 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. : B : 3 : 10-3 : Analytical : Markets, market failure, and externalities : Coase theorem : Analytical 43. 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 elimie the damaging sparks. The grease costs $1,200. Suppose that the railroad is not liable for any damage caused to the crops. Assume that there are no traction costs. Which of the following characterizes the efficient outcome? 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. : D : 3 : 10-3 : Analytical : Markets, market failure, and externalities : Coase theorem : Analytical 44. Suppose that Bill wants to dine at a fancy restaurant, but the only available table is in the smoking section. Bill dislikes the smell of cigarette smoke. He notices that only one person, Peter, is smoking in the smoking section. Bill values the absence of smoke at $15. Peter values the ability to smoke in the restaurant at $5. Which of the following represents an efficient solution in the absence of traction costs? a. Peter continues to smoke because he has a right to smoke in the smoking section. b. Bill offers Peter between $5 and $15 not to smoke. Peter accepts, and both parties are better off. c. Bill offers Peter between $5 and $15 not to smoke. Peter 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. : B : 3 : 10-2 : Analytical : Markets, market failure, and externalities : Coase theorem : Analytical 45. Suppose that Bill wants to dine at a fancy restaurant, but the only available table is in the smoking section. Bill dislikes the smell of cigarette smoke. He notices that only one person, Peter, is smoking in the smoking section. Bill values the absence of smoke at $15. Peter values the ability to smoke in the restaurant at $10. In order for Bill to pay Peter not to smoke, he will need to tip the waiter $10 to facilitate the traction. Which of the following represents an efficient solution? a. Peter continues to smoke because the cost to Bill to pay him not to smoke is between $20 and $25, which exceeds the benefit to him of no smoking ($15). b. Bill offers Peter between $10 and $15 not to smoke, and he pays the waiter $10. Peter accepts, and both parties are better off. c. Bill offers Peter between $10 and $15 not to smoke, and he pays the waiter $10. Peter declines because he has a right to smoke in the smoking section. d. Bill offers Peter $5 not to smoke, and he pays the waiter $10. Peter accepts, and both parties are better off. : A : 3 : 10-3 : Analytical : Markets, market failure, and externalities : Coase theorem : Analytical 46. John lives in an apartment building and gets a $700 benefit from playing his stereo. Mary, who lives next door to John and often loses sleep due to the music coming from John’s stereo, bears a $1,000 cost from the noise. At which of the following offers from Mary could both Mary and John benefit from the silencing of John’s stereo? a. $200 b. $600 c. $900 d. $1,100 : C : 2 : 10-3 : Analytical : Markets, market failure, and externalities : Coase Theorem : Analytical 47. John lives in an apartment building and gets a $500 benefit from playing his stereo. Mary, who lives next door to John and often loses sleep due to the loud music coming from John’s stereo, bears a $700 cost from the noise. Mary would like to offer John 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 John and Mary would benefit from the agreement? a. An amount less than $200. b. An amount between $200 and $500. c. An amount between $500 and $700. d. Any amount could result in both parties benefitting from the agreement. : A : 3 : 10-3 : Analytical : Markets, market failure, and externalities : Traction costs : Applicative 48. John lives in an apartment building and gets a benefit from playing his stereo. Mary, who lives next door to John and often loses sleep due to the loud music coming from John’s stereo, bears a cost from the noise. Mary is threatening to call the police to force John to turn down his stereo. Under which of the following conditions would John be able to offer Mary some amount of money to keep her from calling the police and to allow him to continue to play his stereo loudly? a. The cost of the noise to Mary must exceed the benefit of the music to John. b. The benefit of the music to John must exceed the cost of the noise to Mary. c. The Coase Theorem guarantees that Mary and John will always be able to come to an agreement that keeps Mary from calling the police regardless of the individual benefits and costs. d. The cost of the noise to Mary must exceed the benefit of the music to John by an amount greater than the traction costs associated with the agreement. : B : 3 : 10-3 : Analytical : Markets, market failure, and externalities : Coase Theorem : Analytical 49. Ed is a writer who works from his home. Ed lives nextdoor to Ricky, the drummer for a al band. Ricky needs lots of practice to earn his share of the bands profits, $250. Ed gets distracted by Ricky’s drumming but needs to get his writing done to earn $500 for his current article. Which of the following is an efficient solution? a. Ricky offers Ed $499 to allow Ricky to continue drumming. Ed accepts and both are better off. b. Ricky offers Ed $249 to allow Ricky to continue drumming. Ed accepts and both are better off. c. Ed offers Ricky $251 to s practicing his drumming. Ricky agrees and both are better off. d. Ed offers Ricky $501 to s practicing his drumming. Ricky agrees and both are better off. : C : 2 : 10-3 : Analytical : Markets, market failure, and externalities : Coase Theorem : Analytical 50. Ed is a writer who works from his home. Ed lives nextdoor to Ricky, the drummer for a al band. Ricky needs lots of practice to earn his share of the bands profits, $250. Ed gets distracted by Ricky’s drumming but needs to get his writing done to earn $500 for his current article. If Ed needs to hire a lawyer to help him reach an agreement with Ricky, what price is Ed willing to pay the lawyer? a. less than $250 c. less than $500 b. less than $450 d. less than $750 : C : 2 : 10-3 : Analytical : Markets, market failure, and externalities : Coase theorem : Analytical [Show More]

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