Econ 2100: Chapter 10 Quiz

d. negative externality

A cost imposed on someone who is neither the consumer nor the producer is called a a. corrective tax. b. command and control policy. c. positive externality. d. negative externality. e. sunk cost.

b. Producers will internalize the cost of the pollution.

An optimal tax on pollution would result in which of the following? a. Producers will choose not to produce any pollution. b. Producers will internalize the cost of the pollution. c. Producers will maximize production. d. The value to consumers at market equilibrium will exceed the social cost of production. e. Producers will maximize profits.

c. less than $500

Ed is a writer who works from his home. Ed lives nextdoor to Ricky, the drummer for a local band. Ricky needs lots of practice to earn his share of the bands profits, $250. Ed gets distracted by Ricky's drumming but needs to get his writing done to earn $500 for his current article. If Ed needs to hire a lawyer to help him reach an agreement with Ricky, what price is Ed willing to pay the lawyer? a. less than $250 d. less than $750 b. less than $450 e. $750 c. less than $500

c. the orchard owner does not have to purchase bees to pollinate his flowers.

Honey producers provide a positive externality to orchards because a. the honey producers get more honey. b. the orchard owner frequently gets stung by the honey producer's bees. c. the orchard owner does not have to purchase bees to pollinate his flowers. d. the honey producers have to rent access to the orchard grounds. e. the honey producers keep the bees out of the orchard.

d. may improve market outcomes in the presence of externalities.

In a market economy, government interention a. will always improve market outcomes. b. will never improve market outcomes. c. reduces efficiency in the presence of externalities. d. may improve market outcomes in the presence of externalities. e. is necessary to control individual greed.

c. decisionmakers in the market fail to include the costs of their behavior to third parties.

Private markets fail to account for externalities because a. externalities don't occur in private markets. b. sellers include costs associated with externalities in the price of their product. c. decisionmakers in the market fail to include the costs of their behavior to third parties. d. the government cannot easily estimate the optimal quantity of pollution. e. they sometimes do not achieve equilibrium.

b. 50

Refer to Figure 10-11. This graph shows the market for pollution when permits are issued to firms and traded in the marketplace. The equilibrium number of permits is a. 0 b. 50 c. 100 d. 1,000 e. 2,000

c. $3.50

Refer to Figure 10-2. Suppose that the production of plastic creates a social cost which is depicted in the graph above. Without any government regulation, what price will the firm charge per unit of plastic? a. $2.50 b. $3.00 c. $3.50 d. $5.00 e. $8.00

a. there were a tax on the product.

Refer to Figure 10-4. Externalities in this market could be internalized if a. there were a tax on the product. b. there were a subsidy for the product. c. production was stopped. d. markets were allowed to work. e. the Coase theorm failed.

d. stayed at Q2.

Refer to Figure 10-4. If this market is currently producing at Q2, then total economic well-being would increase if output a. increased beyond Q4. b. decreased to Q1. c. increased to Q3. d. stayed at Q2. e. decreased to less than Q1.

c. a negative externality.

Refer to Figure 10-4. This market is characterized by a. government intervention. b. a positive externality. c. a negative externality. d. market efficiency. e. None of the above is correct.

b. P2andQ1.

Refer to Figure 10-5. Which price and quantity combination represents the social optimum? a. P0andQ1. b. P2andQ1. c. P1andQ0. d. P2andQ0. e. P3andQ0.

d. 10 units

Refer to Figure 10-8. What is the socially-optimal quantity of output in this market? a. Less than 8 units b. 8 units c. Between 8 and 10 units d. 10 units e. More than 10 units

a. 2

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? a. 2 b. 3 c. 5 d. 9 e. 10

b. 7

Refer to Table 10-3. If the government charged a fee of $69 per unit of pollution, how many units of pollution would the firms eliminate altogether? a. 4 b. 7 c. 8 d. 9 e. 10

d. $83

Refer to Table 10-3. If the government wanted to reduce pollution from 16 units to 6 units, which of the following fees per unit of pollution would achieve that goal? a. $67 b. $68 c. $81 d. $83 e. $90

d. Both a and b are correct.

Since restored historic buildings convey a positive externality, local governments may choose to a. regulate the demolition of them. b. provide tax breaks to owners who restore them. c. increase property taxes in historic areas. d. Both a and b are correct. e. Both a and c are correct.

c. the after-tax equilibrium quantity of cigarettes smoked will equal the socially optimal quantity of cigarettes smoked.

Suppose that smoking creates a negative externality. If the government imposes a per-cigarette tax equal to the per-cigarette externality, then a. the after-tax equilibrium quantity of cigarettes smoked will be less than the socially optimal quantity of cigarettes smoked. b. the after-tax equilibrium quantity of cigarettes smoked will be greater than the socially optimal quantity of cigarettes smoked. c. the after-tax equilibrium quantity of cigarettes smoked will equal the socially optimal quantity of cigarettes smoked. d. the before-tax equilibrium quantity of cigarettes smoked will equal the socially optimal quantity of cigarettes smoked. e. There is not enough information to answer the question.

c. cost to sellers of producing the product.

The supply curve for a product reflects the a. willingness to pay of the marginal buyer. b. quantity buyers will ultimately purchase of the product. c. cost to sellers of producing the product. d. seller's profit from producing the product. e. value to sellers of the product.

b. Mary not catching the flu from Sue because Sue got a flu vaccine.

Which of the following is an example of a positive externality? a. Sue not catching the flu because she got a flu vaccine. b. Mary not catching the flu from Sue because Sue got a flu vaccine. c. Sue catching the flu because she did not get a flu vaccine. d. Mary catching the flu from Sue because Sue did not get a flu vaccine. e. Mary catching the flu because she did not get a flu vaccine.

a. pay your roommate at least $50 but no more than $100 to clean up after herself.

Assume that your roommate is very messy. Suppose she gets a $50 benefit from being messy but imposes a $100 cost on you. The Coase theorem would suggest that an efficient solution would be for you to a. pay your roommate at least $50 but no more than $100 to clean up after herself. b. pay your roommate at least $101 to clean up after herself. c. charge your roommate at least $50 to have you clean up after her. d. charge your roommate at least $100 but no more than $200 to keep you from complaining about the mess. e. clean up the mess if it bothers you.

b. 3 units

Refer to Table 10-1. What is the equilibrium quantity of output in the market? a. 2 units b. 3 units c. 4 units d. 5 units e. 6 units

d. 5 units

Refer to Table 10-2. What is the socially-optimal level of output in this market? a. 2 units b. 3 units c. 4 units d. 5 units e. 6 units

b. Government should tax goods with negative externalities and subsidize goods with positive externalities.

Which of the following statements is correct? a. Government should tax goods with either positive or negative externalities. b. Government should tax goods with negative externalities and subsidize goods with positive externalities. c. Government should subsidize goods with either positive or negative externalities. d. Government should tax goods with positive externalities and subsidize goods with negative externalities. e. Government should not tax goods with positive or negative externalities.

e. Without government intervention, the market will tend to undersupply products that produce negative externalities.

Which of the following statements is not correct? a. Government policies may improve the market's allocation of resources when negative externalities are present. b. Government policies may improve the market's allocation of resources when positive externalities are present. c. A positive externality is an example of a market failure. d. A negative externality is an example of a market failure. e. Without government intervention, the market will tend to undersupply products that produce negative externalities.