Chapter 10

An externality is the uncompensated impact of a. society's decisions on the well-being of society. b. society's decisions on the poorest person in the society. c. one person's actions on the well-being of a bystander. d. a person's actions on that person's well-being.

one person's actions on the well-being of a bystander.

According to the Coase theorem, private parties can solve the problem of externalities if

the cost of bargaining is small.

Which of the following statements about a well-maintained yard best conveys the general nature of the externality? a. A well-maintained yard cannot provide any type of externality. b. A well-maintained yard conveys a negative externality because it increases the property tax liability of the owner. c. A well-maintained yard conveys a positive externality because it increases the value of adjacent properties in the neighborhood. d. A well-maintained yard conveys a positive externality because it increases the home's market value.

A well-maintained yard conveys a positive externality because it increases the value of adjacent properties in the neighborhood.

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?

At the current output level, the marginal social benefit exceeds the marginal private benefit

Which of the following statements is not correct? a. Corrective taxes provide incentives to develop cleaner technologies. b. Corrective taxes allocate pollution to those producers who face the highest cost of reducing pollution. c. Corrective taxes require the government to set a target level of pollution. d. Corrective taxes can be used to place a price on the right to pollute.

Corrective taxes require the government to set a target level of pollution.

Zaria and Hannah are roommates. Zaria assigns a $30 value to smoking cigarettes. Hannah values smoke-free air at $15. Which of the following scenarios is a successful example of the Coase theorem?

Zaria pays Hannah $16 so that Zaria can smoke

Two types of private solutions to the problem of externalities are

charities and the Golden Rule

Which of the following is NOT a way of internalizing technology spillovers? a. Patent protection b. Industrial policy c. Subsidies d. Taxes

d. Taxes

Most economists prefer corrective taxes to regulation as a way to correct the problem of pollution because the market-based solution

is less costly to society.

If a sawmill creates too much noise for local residents,

the government can raise economic well-being through noise-control regulations.