Ch 10

A corrective tax distorts market incentives and moves the allocation of resources away from the social optimum. True False

False

A corrective tax sets the quantity of pollution while a pollution permit program sets the price of pollution. True False

False

A government can set the price of pollution by issuing pollution permits. True False

False

A subsidy will give market participants an incentive to internalize a negative externality. True False

False

Emissions controls on factories are an example of a market-based policy. True False

False

If it costs Firm A $1,000 to reduce pollution by 10 units, yet it costs Firm B $800 to reduce pollution by 10 units, then a corrective tax will affect both firms equally. True False

False

Markets always allocate resources efficiently. True False

False

Private solutions produce efficient solutions to the problem of externalities, whereas public solutions do not. True False

False

Rich countries usually have cleaner environments than poor countries because a clean environment is an inferior good. True False

False

Taxes, subsidies, and the Coase theorem are all examples of private solutions to externalities. True False

False

When a market experiences a positive externality, the government can internalize the externality by imposing a tax on the product. True False

False

If the government subsidizes a good, the market demand curve shifts up. True False

True

An example of a command-and-control policy is government restrictions on the emissions from a paper mill. True False

True

Because pollution permits and corrective taxes typically reduce the cost of environmental protection relative to command-and-control policies, the public's desire for a clean environment should increase when permits and taxes replace command-and-control policies. True False

True

If a beekeeper and the owner of an apple orchard enter into a contract, the two firms have internalized a positive externality. True False

True

Which of the following is typically an impediment to the Coase theorem?(i) taxes(ii) transaction costs(iii) the Golden Rule(iv) a large number of affected parties a.(ii) and (iv) only b.(i) and (ii) only c.(i), (ii), and (iii) only d.(i) and (iii) only

a.(ii) and (iv) only

https://cxp-cdn.cengage.info/protected/prod/assets/5c/a/5ca1bd2f-d3c9-47ff-913f-eac33f5b9dce.png?__gda__=st=1618870600~exp=1619475400~acl=%2fprotected%2fprod%2fassets%2f5c%2fa%2f5ca1bd2f-d3c9-47ff-913f-eac33f5b9dce.png*~hmac=7f55e2fb588a4f4c204c46bffc128f51f5c0c9e0ab470bfe2574b88ae42e1e3d Refer to the Figure. What is the socially-optimal quantity of output in this market? a.more than 10 units b.10 units c.between 6 and 10 units d.6 units

b.10 units

https://cxp-cdn.cengage.info/protected/prod/assets/c6/a/c6a5a45d-9ac9-459f-b94a-a08677c9782c.png?__gda__=st=1618870600~exp=1619475400~acl=%2fprotected%2fprod%2fassets%2fc6%2fa%2fc6a5a45d-9ac9-459f-b94a-a08677c9782c.png*~hmac=4f488d2fcb6c16107e35afeb2912bab1652f8394ebe5b42109e31477b82ceb68 Refer to the Figure. This graph represents the automobile industry. Without government intervention, the equilibrium quantity a.does not exist. b.is larger than the socially optimal quantity. c.is smaller than the socially optimal quantity. d.equals the socially optimal quantity.

b.is larger than the socially optimal quantity.

Suppose a hog farm creates a negative externality equal to $2 per hog. Further suppose that the government imposes a $2 per hog tax on hog farmers. Which of the following is correct? a.The current tax is less than the ideal corrective tax. b.The equilibrium quantity is less than the socially optimal quantity. c.The current tax is the ideal corrective tax. d.The equilibrium quantity is greater than the socially optimal quantity.

c.The current tax is the ideal corrective tax.

Which of the following is an example of a command-and-control policy? a.a technology spillover b.a pollution tax c.a restriction on pollution beyond a specific level d.a tax deduction for a contribution to the Sierra Club

c.a restriction on pollution beyond a specific level

Which of the following was used to help reduce sulfur dioxide emissions in the United States? a.patents b.corrective taxes c.tradable pollution permits d.corrective subsidies

c.tradable pollution permits

Which of the following is an example of a private solution to the problem of externalities?(i) charities(ii) taxes(iii) the Golden Rule(iv) subsidies a.(ii) and (iv) only b.(i) and (ii) only c.(i), (ii), and (iii) only d.(i) and (iii) only

d.(i) and (iii) only

https://cxp-cdn.cengage.info/protected/prod/assets/a1/6/a16fb2b9-d0f8-42e4-a3d3-b252ad834319.png?__gda__=st=1618870600~exp=1619475400~acl=%2fprotected%2fprod%2fassets%2fa1%2f6%2fa16fb2b9-d0f8-42e4-a3d3-b252ad834319.png*~hmac=1137ff7f53d662d6d97b8de22704e964d73b586d6752c3d639be7bc39bc48dbc Refer to the Figure. This graph represents the market for cigarettes. This market has a ________ and would benefit from a ________. a.positive externality; subsidy b.negative externality; subsidy c.positive externality; tax d.negative externality; tax

d.negative externality; tax

Which of the following is not an example of a private solution to the problem of externalities? a.the Coase theorem b.moral codes and social sanctions c.private contracts between parties with mutual interests d.taxes

d.taxes

A tax on a producer of a polluting product would shift the private cost curve a.downward by the size of the tax and cause the industry to increase the quantity it supplies to the market. b.downward by the size of the tax and cause the industry to decrease the quantity it supplies to the market. c.upward by the size of the tax and cause the industry to increase the quantity it supplies to the market. d.upward by the size of the tax and cause the industry to decrease the quantity it supplies to the market.

d.upward by the size of the tax and cause the industry to decrease the quantity it supplies to the market.

If the social cost of a good is greater than the private cost of the good, the market produces too much of the good. True False

True

In some cases, tradable pollution permits may be better than a corrective tax because the government can set a maximum level of pollution using permits. True False

True

Research into new technologies creates positive externalities. True False

True

The Coase theorem may not result in an efficient solution in the presence of transaction costs and/or when there are many affected parties. True False

True

When the private value is less than the social value, the market equilibrium quantity is less than the socially-optimal quantity. True False

True

Which of the following is not correct? a.A restriction on the units of pollution is an example of a corrective tax. b.A corrective tax is also called a Pigouvian tax. c.A corrective tax is designed to induce people to internalize the social costs that arise from a negative externality. d.A gasoline tax is an example of a corrective tax.

a.A restriction on the units of pollution is an example of a corrective tax.

Which of the following statements is an example of a transaction cost? a.An attorney charges a fee to draft a contract between the owner of an apple orchard and a beekeeper. b.The government levies an emissions tax on coal-burning power plants to reduce pollution. c.A bookkeeper calculates that she could earn $25 per hour teaching yoga classes. d.A firm determines that if it invests in a new production facility, it will incur both fixed costs and sunk costs.

a.An attorney charges a fee to draft a contract between the owner of an apple orchard and a beekeeper.

Which of the following statements is not correct? a.Corrective taxes allocate pollution to the producers who face the lowest cost of reducing pollution. b.Corrective taxes provide incentives for firms to develop cleaner technologies. c.Economists usually prefer corrective taxes to regulations as a way to deal with pollution. d.Corrective taxes place a price on the right to pollute.

a.Corrective taxes allocate pollution to the producers who face the lowest cost of reducing pollution.

Olivia owns a dog whose barking annoys her neighbor, Eric. Suppose that the benefit of owning a dog is worth $500 to Olivia and that Eric bears a cost of $400 from the barking. Assuming that Olivia has the legal right to keep a dog, a private market solution to this problem is that a.The current situation is efficient. b.Olivia pays Eric $400 for his inconvenience. c.Eric pays Olivia $450 to give the dog to her mother who lives on an isolated farm. d.Eric pays Olivia $500 to give the dog to her mother who lives on an isolated farm.

a.The current situation is efficient.

https://cxp-cdn.cengage.info/protected/prod/assets/c6/a/c6a5a45d-9ac9-459f-b94a-a08677c9782c.png?__gda__=st=1618870600~exp=1619475400~acl=%2fprotected%2fprod%2fassets%2fc6%2fa%2fc6a5a45d-9ac9-459f-b94a-a08677c9782c.png*~hmac=4f488d2fcb6c16107e35afeb2912bab1652f8394ebe5b42109e31477b82ceb68 Refer to the figure. Which of the following would internalize the externality shown in this graph? a.a tax of about $0.35 per unit b.a subsidy of about $0.35 per unit c.a subsidy of about $0.20 per unit d.a tax of about $1.80 per unit

a.a tax of about $0.35 per unit

A tax on a good with a negative externality can internalize the externality by a.adding the external cost to the private cost so the market accounts for the social cost. b.adding the social cost to the private cost so the market accounts for the external cost. c.subtracting the social cost from the private cost so the market accounts for the external cost. d.subtracting the external cost from the social cost so the market accounts for the private cost.

a.adding the external cost to the private cost so the market accounts for the social cost.

An ideal corrective subsidy equals the external ____________ from an activity with a _____________. a.benefit; positive externality b.cost; negative externality c.benefit; negative externality d.cost; positive externality

a.benefit; positive externality

In a market with no externalities, the height of the supply curve at any given quantity shows the a.cost to the producer of the last unit sold. b.benefit to consumers from the last unit sold. c.cost to bystanders of the last unit sold. d.public cost of the last unit sold.

a.cost to the producer of the last unit sold.

Doris bakes homemade bread and cookies in her bakery. Darren rents an apartment above Doris's bakery. The odor of the baking bread and cookies is a a.positive externality if Darren likes the odor yet pays market value for his monthly rent. b.positive externality if Darren pays $50 per month in rent less than market value because he enjoys the odor. c.negative externality if Darren pays $50 per month in rent less than market value because he enjoys the odor. d.negative externality if Darren pays an extra $50 per month in rent above market value to put up with the odor.

a.positive externality if Darren likes the odor yet pays market value for his monthly rent.

https://cxp-cdn.cengage.info/protected/prod/assets/93/2/93230f45-8128-4964-8713-82d344d0c67a.png?__gda__=st=1618870600~exp=1619475400~acl=%2fprotected%2fprod%2fassets%2f93%2f2%2f93230f45-8128-4964-8713-82d344d0c67a.png*~hmac=4dc0ff89291b027d07e61db5c8d4c022bcdb20f9b67d2877f5d59ed2cd91252a Refer to the figure. The ____________ externalities in this market are evident because the private value is ____________. a.positive; less than the social value of the good b.negative; less than the social value of the good c.negative; greater than the social value of the good d.positive; greater than the social value of the good

a.positive; less than the social value of the good

In a market with no externalities, supply is also called a.private cost and demand is also called private benefit. b.social cost and demand is also called public benefit. c.public cost and demand is also called public benefit. d.private benefit and demand is also called private cost.

a.private cost and demand is also called private benefit.

The Coase theorem suggests that __________ solve the problem of externalities in the absence of transaction costs. a.private markets may b.private markets cannot c.taxes or subsidies may d.government intervention may

a.private markets may

When the government intervenes in a market with negative externalities, it does so in order to a.protect the interests of bystanders. b.increase funding for research and development. c.lower the price below the private-market equilibrium. d.increase production.

a.protect the interests of bystanders.

Consider the market for vaccines. When one person is vaccinated, other people are protected from illness because the vaccinated person will not transmit the illness. We would expect that in this market, the a.social value curve lies above the private value curve. b.social cost curve lies above the private cost curve. c.external cost exceeds the external benefit. d.private value curve lies above the social value curve.

a.social value curve lies above the private value curve.

To economists, a good environmental policy begins by acknowledging a.that people face trade-offs. b.the distortion created by corrective taxes. c.that trade can make everyone better off. d.the value of the Coase theorem.

a.that people face trade-offs.

https://cxp-cdn.cengage.info/protected/prod/assets/8e/8/8e85740b-9687-4c1a-879c-7220009183e0.png?__gda__=st=1618870600~exp=1619475400~acl=%2fprotected%2fprod%2fassets%2f8e%2f8%2f8e85740b-9687-4c1a-879c-7220009183e0.png*~hmac=de7339d45e1e02017f4cb1c77be3a5b5a122150f356b8111a9f503b38fa6abc1 Refer to the Table. What is the socially-optimal level of output in this market? a.5 units b.4 units c.3 units d.2 units

b.4 units

Which of the following statements is correct? a.Only government policies can achieve efficient outcomes in the presence of positive externalities. b.Private markets tend to over-produce products with negative externalities. c.Private parties are usually more successful in achieving efficient outcomes than government policies. d.Private contracts between parties with mutual interests will necessarily reduce the well-being of society.

b.Private markets tend to over-produce products with negative externalities.

Suppose planting rose bushes creates a positive externality equal to $5 per bush. Further suppose that the government offers a $3 per bush subsidy to planters. Which of the following is correct? a.The current subsidy is greater than the ideal corrective subsidy. b.The equilibrium quantity is less than the socially optimal quantity. c.The current subsidy is the ideal corrective subsidy. d.The equilibrium quantity is greater than the socially optimal quantity.

b.The equilibrium quantity is less than the socially optimal quantity.

Suppose that Company A's railroad cars pass through Farmer B's wheat fields. The railroad causes an externality to the farmer because the railroad cars emit sparks that cause $2,000 in damage to the farmer's crops. There is a special soy-based grease that the railroad could purchase that would eliminate the damaging sparks. The grease costs $1,800. Suppose that the farmer has the right to compensation for any damage that her crops suffer. Assume that there are no transaction costs. Which of the following characterizes the efficient outcome? a.The farmer will incur $2,000 in damages to her crops. b.The railroad will spend $1,800 to purchase and apply the grease; the railroad will pay the farmer nothing because no crop damage will occur. c.The railroad will continue to operate but will pay the farmer $2,000 in damages. d.The farmer will pay the railroad $1,800 to purchase and apply the grease so that no crop damage will occur.

b.The railroad will spend $1,800 to purchase and apply the grease; the railroad will pay the farmer nothing because no crop damage will occur.

Which of the following is not an example of a command-and-control policy? a.a limit on carbon emissions b.a 50-cents per gallon gasoline tax c.a requirement that logging companies plant twice as many trees as they harvest d.a requirement that coal-burning power plants install scrubbers to reduce particulate emissions

b.a 50-cents per gallon gasoline tax

A fuel economy standard that would require all vehicles to achieve at least 20 miles per gallon is an example of a.the Golden Rule. b.a command-and-control policy. c.a market-based policy. d.the Coase Theorem.

b.a command-and-control policy.

A local factory is required to adopt a specific production technology to comply with local air quality standards. This requirement is an example of a.corrective taxes. b.a command-and-control policy. c.a market-based policy. d.the Coase Theorem.

b.a command-and-control policy.

Government regulation is also called a.a technology spillover. b.command-and-control policy. c.a positive externality. d.a negative externality.

b.command-and-control policy.

https://cxp-cdn.cengage.info/protected/prod/assets/84/f/84f433df-fb8d-49bb-a98e-48dc76cf63de.png?__gda__=st=1618870600~exp=1619475400~acl=%2fprotected%2fprod%2fassets%2f84%2ff%2f84f433df-fb8d-49bb-a98e-48dc76cf63de.png*~hmac=c68654e03ed795188aaf0571748530d2d9a552b9534c3f7966f4da718fac9db6 Refer to the Figure. The left graph illustrates a __________; the right graph illustrates a __________. a.technology spillover; market-based policy b.corrective tax; pollution permit system c.pollution permit system; corrective tax d.Pigouvian subsidy; corrective tax

b.corrective tax; pollution permit system

An ideal corrective tax equals the external ____________ from an activity with a _____________. a.benefit; positive externality b.cost; negative externality c.benefit; negative externality d.cost; positive externality

b.cost; negative externality

Markets are often __________ when negative externalities are present because __________. a.inefficient; private costs exceed social costs at the private market solution b.inefficient; social costs exceed private costs at the private market solution c.efficient; private costs exceed social costs at the private market solution d.efficient; social costs exceed private costs at the private market solution

b.inefficient; social costs exceed private costs at the private market solution

A barking dog creates a a.positive externality if the neighbors do not like loud noises. b.negative externality if the neighbors do not like loud noises. c.positive externality if the dog owner does not like loud noises. d.negative externality if the dog owner does not like loud noises.

b.negative externality if the neighbors do not like loud noises.

A corrective tax a.is an example of a command-and-control policy. b.places a price on the right to pollute. c.is less efficient than a regulation. d.affects market supply but not market demand.

b.places a price on the right to pollute.

At any given quantity, the __________ in the market for steel is reflected in the __________. a.externality; total quantity of steel exchanged in the market b.willingness to pay; height of the demand curve at that quantity c.willingness to pay; value to the producer of the last unit of steel sold d.externality; height of the demand curve at that quantity

b.willingness to pay; height of the demand curve at that quantity

https://cxp-cdn.cengage.info/protected/prod/assets/5c/a/5ca1bd2f-d3c9-47ff-913f-eac33f5b9dce.png?__gda__=st=1618870600~exp=1619475400~acl=%2fprotected%2fprod%2fassets%2f5c%2fa%2f5ca1bd2f-d3c9-47ff-913f-eac33f5b9dce.png*~hmac=7f55e2fb588a4f4c204c46bffc128f51f5c0c9e0ab470bfe2574b88ae42e1e3d Refer to the Figure. What is the equilibrium price in this market? a.$28 b.$20 c.$12 d.$6

c.$12

https://cxp-cdn.cengage.info/protected/prod/assets/a1/6/a16fb2b9-d0f8-42e4-a3d3-b252ad834319.png?__gda__=st=1618870600~exp=1619475400~acl=%2fprotected%2fprod%2fassets%2fa1%2f6%2fa16fb2b9-d0f8-42e4-a3d3-b252ad834319.png*~hmac=1137ff7f53d662d6d97b8de22704e964d73b586d6752c3d639be7bc39bc48dbc Refer to the Figure. This graph represents the oil industry. The socially optimal price and quantity are a.$10 and 500 units, respectively. b.$27 and 200 units, respectively. c.$16 and 500 units, respectively. d.$12 and 600 units, respectively.

c.$16 and 500 units, respectively.

https://cxp-cdn.cengage.info/protected/prod/assets/af/5/af59db3d-de70-43cb-bfdd-f3f780088d2e.png?__gda__=st=1618870600~exp=1619475400~acl=%2fprotected%2fprod%2fassets%2faf%2f5%2faf59db3d-de70-43cb-bfdd-f3f780088d2e.png*~hmac=9d0f4b99ff2ff2381773b63489bd81077c7b4fb172d50226ffded8b985a11624 Refer to the Figure. This graph shows the market for pollution permits. What corrective tax would achieve the same quantity of pollution as the pollution permit market? a.$400 b.$50 c.$200 d.$100

c.$200

https://cxp-cdn.cengage.info/protected/prod/assets/af/5/af59db3d-de70-43cb-bfdd-f3f780088d2e.png?__gda__=st=1618870600~exp=1619475400~acl=%2fprotected%2fprod%2fassets%2faf%2f5%2faf59db3d-de70-43cb-bfdd-f3f780088d2e.png*~hmac=9d0f4b99ff2ff2381773b63489bd81077c7b4fb172d50226ffded8b985a11624 Refer to the Figure. This graph shows the market for pollution permits. The equilibrium permit price is a.$400. b.$50. c.$200. d.$100.

c.$200.

https://cxp-cdn.cengage.info/protected/prod/assets/8e/8/8e85740b-9687-4c1a-879c-7220009183e0.png?__gda__=st=1618870600~exp=1619475400~acl=%2fprotected%2fprod%2fassets%2f8e%2f8%2f8e85740b-9687-4c1a-879c-7220009183e0.png*~hmac=de7339d45e1e02017f4cb1c77be3a5b5a122150f356b8111a9f503b38fa6abc1 Refer to the Table. What is the equilibrium quantity of output in this market? a.5 units b.4 units c.3 units d.2 units

c.3 units

https://cxp-cdn.cengage.info/protected/prod/assets/a1/6/a16fb2b9-d0f8-42e4-a3d3-b252ad834319.png?__gda__=st=1618870600~exp=1619475400~acl=%2fprotected%2fprod%2fassets%2fa1%2f6%2fa16fb2b9-d0f8-42e4-a3d3-b252ad834319.png*~hmac=1137ff7f53d662d6d97b8de22704e964d73b586d6752c3d639be7bc39bc48dbc Refer to the Figure. This graph represents the oil industry. A benevolent social planner would like to see a.less than 200 units of oil produced. b.600 units of oil produced. c.500 units of oil produced. d.200 units of oil produced.

c.500 units of oil produced.

Which of the following is an example of a positive externality? a.Harry does all the cooking for his family because his wife does all the cleaning. b.Diana dislikes the smell of cooking liver and onions that radiates from her neighbor's apartment. c.Charles enjoys listening to the music played by his neighbor. d.William pays a higher price for a used bicycle because it is in excellent condition.

c.Charles enjoys listening to the music played by his neighbor.

Olivia owns a dog whose barking annoys her neighbor, Eric. Suppose that the benefit of owning a dog is worth $400 to Olivia and that Eric bears a cost of $500 from the barking. Assuming that Olivia has the legal right to keep a dog, a private market solution to this problem is that a.The current situation is efficient. b.Olivia pays Eric $500 for his inconvenience. c.Eric pays Olivia $450 to give the dog to her mother who lives on an isolated farm. d.Eric pays Olivia $900 to give the dog to her mother who lives on an isolated farm.

c.Eric pays Olivia $450 to give the dog to her mother who lives on an isolated farm.

When the government __________ , it encourages a private solution to a __________. a.requires public ownership of firms that pollute; negative-externality problem b.imposes a command-and-control policy; positive-externality problem c.allows income-tax deductions for charitable contributions; positive-externality problem d.imposes taxes; positive-externality problem

c.allows income-tax deductions for charitable contributions; positive-externality problem

If the production of plastic clothing hangers creates a negative externality, then the a.social value to society is larger than the private value of consuming plastic clothing hangers. b.benefit to society is larger than the private cost to the hanger manufacturers. c.cost to society is larger than the cost to the hanger manufacturers. d.cost to the hanger manufacturers is larger than the cost to society.

c.cost to society is larger than the cost to the hanger manufacturers.

https://cxp-cdn.cengage.info/protected/prod/assets/c6/a/c6a5a45d-9ac9-459f-b94a-a08677c9782c.png?__gda__=st=1618870600~exp=1619475400~acl=%2fprotected%2fprod%2fassets%2fc6%2fa%2fc6a5a45d-9ac9-459f-b94a-a08677c9782c.png*~hmac=4f488d2fcb6c16107e35afeb2912bab1652f8394ebe5b42109e31477b82ceb68 Refer to the Figure. This graph represents the oil industry. The industry creates a.no equilibrium in the market. b.no externalities. c.negative externalities. d.positive externalities.

c.negative externalities.

When the government auctions off the right to emit a specific quantity of pollution, a market is created for a.patents. b.corrective taxes. c.tradable pollution permits. d.Coase's theorem.

c.tradable pollution permits.

https://cxp-cdn.cengage.info/protected/prod/assets/a1/6/a16fb2b9-d0f8-42e4-a3d3-b252ad834319.png?__gda__=st=1618870600~exp=1619475400~acl=%2fprotected%2fprod%2fassets%2fa1%2f6%2fa16fb2b9-d0f8-42e4-a3d3-b252ad834319.png*~hmac=1137ff7f53d662d6d97b8de22704e964d73b586d6752c3d639be7bc39bc48dbc Refer to the Figure. This graph represents the market for cigarettes. This market a.has no externalities. b.would benefit from a subsidy. c.would benefit from a tax. d.has no need for government intervention.

c.would benefit from a tax.

https://cxp-cdn.cengage.info/protected/prod/assets/a1/6/a16fb2b9-d0f8-42e4-a3d3-b252ad834319.png?__gda__=st=1618870600~exp=1619475400~acl=%2fprotected%2fprod%2fassets%2fa1%2f6%2fa16fb2b9-d0f8-42e4-a3d3-b252ad834319.png*~hmac=1137ff7f53d662d6d97b8de22704e964d73b586d6752c3d639be7bc39bc48dbc Refer to the Figure. This graph represents the oil industry. Without any government intervention, the equilibrium price and quantity are a.$10 and 500 units, respectively. b.$27 and 200 units, respectively. c.$16 and 500 units, respectively. d.$12 and 600 units, respectively.

d.$12 and 600 units, respectively.

https://cxp-cdn.cengage.info/protected/prod/assets/c6/a/c6a5a45d-9ac9-459f-b94a-a08677c9782c.png?__gda__=st=1618870600~exp=1619475400~acl=%2fprotected%2fprod%2fassets%2fc6%2fa%2fc6a5a45d-9ac9-459f-b94a-a08677c9782c.png*~hmac=4f488d2fcb6c16107e35afeb2912bab1652f8394ebe5b42109e31477b82ceb68 Refer to the Figure. This graph represents the automobile industry. Without government intervention, the equilibrium quantity is ______. The socially optimal quantity is ______. a.38 units; 35 units b.42 units; 38 units c.35 units; 42 units d.42 units; 35 units

d.42 units; 35 units

Which of the following statements is not correct? a.A corrective tax encourages firms to further reduce pollution whereas a regulation provides no incentive to reduce pollution below the target. b.Both regulation and corrective taxes can reduce pollution. c.An ideal corrective tax would equal the external cost from an activity with negative externalities. d.A corrective tax is less efficient than a regulation.

d.A corrective tax is less efficient than a regulation.

https://cxp-cdn.cengage.info/protected/prod/assets/5c/a/5ca1bd2f-d3c9-47ff-913f-eac33f5b9dce.png?__gda__=st=1618870600~exp=1619475400~acl=%2fprotected%2fprod%2fassets%2f5c%2fa%2f5ca1bd2f-d3c9-47ff-913f-eac33f5b9dce.png*~hmac=7f55e2fb588a4f4c204c46bffc128f51f5c0c9e0ab470bfe2574b88ae42e1e3d Refer to the Figure. Which policy would lead to the socially-optimal level of output? a.A tax of $8 per unit. b.A tax of $16 per unit. c.A subsidy of $8 per unit. d.A subsidy of $16 per unit.

d.A subsidy of $16 per unit.

Suppose that Company A's railroad cars pass through Farmer B's wheat fields. The railroad causes an externality to the farmer because the railroad cars emit sparks that cause $2,000 in damage to the farmer's crops. There is a special soy-based grease that the railroad could purchase that would eliminate the damaging sparks. The grease costs $1,800. Suppose that the railroad is not liable for any damages to the farmer's crops. Assume that there are no transaction costs. Which of the following characterizes the efficient outcome? a.The farmer will incur $2,000 in damages to her crops. b.The railroad will spend $1,800 to purchase and apply the grease; the railroad will pay the farmer nothing because no crop damage will occur. c.The railroad will continue to operate but will pay the farmer $2,000 in damages. d.The farmer will pay the railroad $1,800 to purchase and apply the grease so that no crop damage will occur.

d.The farmer will pay the railroad $1,800 to purchase and apply the grease so that no crop damage will occur.

Supply and demand curves contain important information about a.negative but not positive externalities. b.the uncompensated impact of one person's actions on the well-being of a bystander. c.interest rates and GDP. d.costs and benefits.

d.costs and benefits.

https://cxp-cdn.cengage.info/protected/prod/assets/8e/8/8e85740b-9687-4c1a-879c-7220009183e0.png?__gda__=st=1618870600~exp=1619475400~acl=%2fprotected%2fprod%2fassets%2f8e%2f8%2f8e85740b-9687-4c1a-879c-7220009183e0.png*~hmac=de7339d45e1e02017f4cb1c77be3a5b5a122150f356b8111a9f503b38fa6abc1 Refer to the Table. This market a.has no market equilibrium. b.creates no externalities. c.creates negative externalities. d.creates positive externalities.

d.creates positive externalities.

https://cxp-cdn.cengage.info/protected/prod/assets/5c/a/5ca1bd2f-d3c9-47ff-913f-eac33f5b9dce.png?__gda__=st=1618870600~exp=1619475400~acl=%2fprotected%2fprod%2fassets%2f5c%2fa%2f5ca1bd2f-d3c9-47ff-913f-eac33f5b9dce.png*~hmac=7f55e2fb588a4f4c204c46bffc128f51f5c0c9e0ab470bfe2574b88ae42e1e3d Refer to the Figure. This market a.has no market equilibrium. b.has no externalities. c.has negative externalities. d.has positive externalities.

d.has positive externalities.