Chapter 10 Final

Refer to Figure 10-10. Taking into account private and external costs, the maximum total surplus that can be achieved in this market is

$1,080.

Refer to Table 10-1. How large would a corrective tax need to be to move this market from the equilibrium outcome to the socially-optimal outcome?

$2

Flu shots provide a positive externality. Suppose that the market for vaccinations is perfectly competitive. Without government intervention in the vaccination market, which of the following statements is correct?

All of the above are correct.

If gasoline taxes were significantly increased in the United States, then

All of the above are correct.

To economists, good environmental policy begins by acknowledging one of the Ten Principles of Economics:

People face trade-offs.

Assuming education results in a positive externality, which of the following statements is correct?

The socially optimal quantity of education will exceed the market equilibrium quantity of education.

If the government were to impose a fine of $4,000 for each unit of air-pollution released by a fertilizer plant, the policy would be considered

a corrective tax.

Regulations to reduce pollution

are a more costly solution to society than a corrective tax.

Private contracts between parties with mutual interests

can solve some inefficiencies associated with positive externalities.

When producers operate in a market characterized by negative externalities, a tax that forces them to internalize the externality will

give sellers the incentive to account for the external effects of their actions.

Assume the production of a good causes a negative externality. In the market equilibrium, the marginal consumer values the good at

less than the social cost of producing it.

Refer to Figure 10-12. Which of the following is an appropriate label for Line 1?

private value

A paper plant produces water pollution during the production process. If the government forces the plant to internalize the negative externality, then the

supply curve for paper would shift to the left.

If we know that the supply curve for good x fails to reflect the total cost to society of producing that good, then we know that

the market for good x is characterized by a negative externality.

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

there is a negative externality.

Which of the following helped reduce sulfur dioxide emissions, a leading cause of acid rain?

tradable pollution permits amendments to the Clean Air Act

In markets, the invisible hand allocates resources efficiently

when the buyers and sellers are the only interested parties.

Tradable pollution permits

will be more valuable to firms that can reduce pollution only at high costs.