Chapter 10 & 11

when an externality is present, the market equilibrium is a. inefficient, and the equilibrium does not maximize the total benefit to society as a whole b. inefficient, but the equilibrium maximizes the total benefit to society as a whole c. efficient but the equilibrium does not maximize the total benefit to society as a whole d. efficient, and the equilibrium maximizes the total benefit to society as a whole

a. inefficient, and the equilibrium does not maximize the total benefit to society as a whole

if it is illegal for a manufacturer to release its waste into a nearby stream, then this is an example of a. transaction costs b. a command and control policy c. tradable pollution permits d. a market based policy

b. a command and control policy

Assume that your roommate is very messy. According to campus policy you have a right to live in an uncluttered apartment. Suppose she gets $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. stop her messy habits or else move out b. pay you at least $100 but no more than $200 to live with the clutter c. demand payment of at least $100 but no more than $200 to clean up after herself d. continue to be messy and force you to move out

b. pay you at least $100 but no more than $200 to live with the clutter

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 research and the optimal quantity of research produced? a. the equilibrium quantity is greater than the socially optimal quantity b. the equilibrium quantity is less than socially optimal quantity c. they are equal d. there is not enough information to answer the question

b. the equilibrium quantity is less than socially optimal quantity

suppose that smoking creates a negative externality. If the government does not interfere in the cigarette market then a. the equilibrium quantity of cigarettes smoked will be less than the socially optimal quantity of cigarettes smoked b. the equilibrium quantity of cigarettes smoked will be greater than the socially optimal quantity of cigarettes smoked c. the equilibrium quantity of cigarettes smoked will equal the socially optimal quantity of cigarettes smoked d. there is not enough information to answer this question

b. the equilibrium quantity of cigarettes smoked will be greater than the socially optimal quantity of cigarettes smoked

the goal of requiring licenses for hunting and fishing is a. to ensure that the people hunting and fishing are qualified b. to reduce the use of a common resource c. to generate revenue for the government d. to monitor compliance with federal gun laws

b. to reduce the use of a common resource

without gov intervention public goods tend to be a. underproduced and common resources tend to be underconsumed b. underproduced and common resources tend to be overconsumed c. overproduced and common resources tend to be overconsumed d. overproduced and common resources tend to be underconsumed

b. underproduced and common resources tend to be overconsumed

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. bystanders in the market for that activity and yet neither pays nor receives any compensation for that effect

suppose the town of bumblebee is considering hiring an extra police officer. The reduction in crime is estimated to be worth $10 for each of bumblebees 5,000 residents. what should the city do? a. hire the police officer because additional safety is priceless b. do not hire the police officer because the costs exceed the benefits c. hire the officer if the cost of the new officer is less than $50,000 d. hire the officer only if the benefit to the residents exceeds $50,000

c. hire the officer if the cost of the new officer is less than $50,000

because of the free rider problem a. firework displays have become increasingly dangerous b. poverty has increased c. private markets tend to undersupply public goods d. the federal government spends too many resources on national defense and not enough resources on medical research

c. private markets tend to undersupply public goods

suppose that flue shots create a positive externality equal to $12 per shot. Further suppose that the gov offers a $12 per shot subsidy to producers. What is the relationship between equilibrium quantity and the socially optimal quantity of flu shots produced a. the equilibrium quantity is less than 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 answer the question

c. they are equal

the difference between a corrective tax and a tradable pollution permit is that a. a corrective tax creates a more efficient outcome than a permit b. a corrective tax sets the quantity of pollution and a permit sets the price of pollution c. a permit creates a more efficient outcome than a corrective tax d. a corrective tax sets the price of pollution and a permit sets the quantity of pollution

d. a corrective tax sets the price of pollution and a permit sets the quantity of pollution

two types of private solutions to the problem of externalities are a. tax and subsidies b. moral codes and taxes c. charities and subsidies d. charities and moral codes

d. charities and moral codes