Eco ch.10

c

A local manufacturing plant that emitted sulfur dioxide was forced to stop production because it did not comply with local clean air standards. This decision provides an example of a. a Coase theorem solution to an externality. b. corrective taxes. c. a direct regulation of an externality. d. the misuse of a subsidy.

b

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 allocation of resources. d. a market equilibrium tax.

c

Before the flu season begins, Jeremy gets a flu shot. As a result, Jeremy and several of his friends and relatives avoid the flu for the entire flu season. It would make sense to argue that a. if flu shots are not subsidized, then the number of people getting flu shots will be smaller than the socially optimal number. b. the externality generated by flu shots is more like the externality generated by education than the externality generated by pollution. c. All of the above are correct. d. flu shots provide a positive externality, and that flu shots should be subsidized.

a

Check My Work When a policy succeeds in giving buyers and sellers in a market an incentive to take into account the external effects of their actions, the policy is said to a. equalize private cost and external cost. b. externalize the actions of the buyers and sellers. c. equalize private value and private cost.

a

In markets, the invisible hand allocates resources efficiently a. when the buyers and sellers are the only interested parties. b. when there are negative externalities, but not when there are positive externalities. c. when there are positive externalities, but not when there are negative externalities.

a

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. Mary pays Cathy $16 so that Mary can smoke. b. Cathy offers Mary $20 not to smoke. Mary accepts and does not 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.

c

Refer to Figure 10-11. The socially optimal quantity of output is a. 240 units, since the value to the buyer of the 240th unit is equal to the cost incurred by the seller of the 240th unit. b. 240 units, since the value to society of the 240th unit is equal to the cost incurred by the seller of the 240th unit. c. 420 units, since the value to society of the 420th unit is equal to the cost incurred by the seller of the 420th unit. d. 420 units, since the value to the buyer of the 420th unit is equal to the cost incurred by the seller of the 420th unit.

d

Refer to Figure 10-20. The graph depicts the market for fertilizer. Without any government regulation, what is the equilibrium price of fertilizer? a. $​100 b. ​$300 c. $200 d. $250

d

Refer to Figure 10-5. Which price and quantity combination represents the social optimum? a. P1 and Q0. b. P2 and Q0. c. P0 and Q1. d. P2 and Q1.

d

Refer to Table 10-3. The social value of the 4th unit of output that is produced is a. $10. b. $30. c. $16. d. $26.Refer to

d

Which of the following illustrates the concept of a negative externality? a. A flood wipes out a farmer's corn crop. b. A janitor eats a hamburger during his lunch break. c. A college professor plays a vigorous game of racquet ball with the racquet he recently purchased. d. A college student plays loud music on his new stereo system at 2:00 a.m.

a

Suppose that beef producers create a negative externality. What is the relationship between the equilibrium quantity of beef and the socially optimal quantity of beef? a. The equilibrium quantity is greater than the socially optimal quantity. b. They are equal. c. The equilibrium quantity is less than the socially optimal quantity. d. There is not enough information to answer the question.

a

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 pollution has the potential for creating a health risk for water users in the region surrounding the pork production facility. b. The economic impact of a large-scale pork production facility is localized in a small geographic area. c. The groundwater pollution reduces the cost of large-scale pork production. d. Consumers will not reap the benefits of lower production cost from large-scale pork production.

d

The Coase theorem states that a. industrial policies encourage technology spillovers. b. taxes are an efficient way for governments to remedy negative externalities. c. subsidies are an efficient way for governments to remedy positive externalities. d. in the absence of transaction costs, private parties can solve the problem of externalities on their own.

b

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

c

Which of the following is an advantage of tradable pollution permits? a. Firms will engage in joint research efforts to reduce pollution. b. Revenue from the sale of permits is greater than revenue from a corrective tax. c. The initial allocation of permits to firms does not affect the efficiency of the market.

d

Tradable pollution permits a. have helped reduce sulfur dioxide emissions in the United States. b. have helped reduce carbon emissions in Canada. c. are widely viewed as a cost-effective way to reduce pollution. d. All of the above are correct.

d

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. eliminate subsidized student loans c. nothing d. offer grants to university researchers

a

When a negative externality exists in a market, the cost to producers a. will be less than the cost to society. b. will differ from the cost to society, regardless of whether an externality is present. c. will be the same as the cost to society. d. is greater than the cost to society.

d

Which of the following statements is correct? a. Government should tax goods with either positive or negative externalities. b. Government should subsidize goods with either positive or negative externalities. c. Government should tax goods with positive externalities and subsidize goods with negative externalities. d. Government should tax goods with negative externalities and subsidize goods with positive externalities.