micro chapter 10

Refer to Table 10-3. The market equilibrium quantity of output is -3 units. -4 units. -5 units. -6 units.

3 units

Refer to Table 10-3. The socially optimal quantity of output is -:3 units -.4 units. -5 units. -6 units.

5 units

In which of the following cases is the Coase theorem most likely to solve the externality? -Ed is allergic to his roommate's cat. -Chemicals from manufacturing plants in the Midwest are causing acid rain in Canada. -Polluted water runoff from farms is making residents of a nearby town sick. -Industrialization around the world is causing global warmin

Ed is allergic to his roommate's cat.

Refer to Figure 10-4. Which graph represents a market with a negative externality? -Graph (b) only -Graph (c) only -Graph (a) -Graphs (b) and (c)

Graph (b) only

Refer to Figure 10-2. If all external costs were internalized, then the market's output would be -:Q1. -Q2. -Q3. -Q4.

Q2

Which of the following is an example of a positive externality? -A college student buyers a new car when she graduates. -Your neighbor plants a nice garden in front of his house. -A person litters in a public park. -Your friend pays to get her hair cut and colored at the salon.

Your neighbor plants a nice garden in front of his house

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? -Hannah offers Zaria $20 not to smoke. Zaria accepts and does not smoke. -Zaria pays Hannah $16 so that Zaria can smoke. -Zaria pays Hannah $14 so that Zaria can smoke. -Hannah offers Zaria $15 not to smoke. Zaria accepts and does not smoke.

Zaria pays Hannah $16 so that Zaria can smoke

Refer to Figure 10-2. This market is characterized by -:government intervention. -a positive externality. -a negative externality. -a price control.

a negative externality

Employing a lawyer to draft and enforce a private contract between parties wishing to solve an externality problem is an example of -an opportunity cost. -an implicit cost. -a sunk cost. -a transaction cost.

a transaction cost.

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

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 -property rights are clearly defined. -the cost of bargaining is large. -the number of parties involved is sufficiently large. -the initial distribution of legal rights favors the person causing the negative externality.

property rights are clearly defined

When positive externalities are present in a market -private benefits will be greater than social benefits. -social benefits will be greater than private benefits. -only government regulation will solve the problem. -the market will not be able to generate an equilibrium.

social benefits will be greater than private benefits

Which of the following is NOT a way of internalizing technology spillovers? -Subsidies -Patent protection -Industrial policy -Taxes

taxes

Taking into account private and external benefits, the total surplus to society at the socially efficient quantity is -$18. -$38. -$43.5 -$62.5

$62.5

Which of the following statements is not correct? -A patent is a way for the government to encourage the production of a good with technology spillovers -.A tax is a way for the government to reduce the production of a good with a negative externality. -A tax that accurately reflects external costs produces the socially optimal outcome. -Government policies cannot improve upon private market outcomes.

Government policies cannot improve upon private market outcomes.

Refer to Figure 10-2. The socially optimal quantity would be -Q1. -Q2. -Q3. -Q4.

Q2

Refer to Figure 10-4, Graph (b) and Graph (c). The overuse of antibiotics leads to the development of antibiotic-resistant diseases. Therefore, the socially optimal quantity of antibiotics is represented by point -Q2 -.Q3. -Q4. -Q5.

Q2

Refer to Figure 10-4, Graph (b) and Graph (c). The overuse of antibiotics leads to the development of antibiotic-resistant diseases. Therefore, a government policy that internalized the externality would move the quantity of antibiotics used from point -Q2 to point Q3. -Q3 to point Q2. -Q4 to point Q5. -Q5 to point Q4

Q3 to point Q2.

Which of the following is not an advantage of corrective taxes? -They raise revenues for the government. -They enhance economic efficiency. -They subsidize the production of goods with positive externalities. -They move the allocation of resources closer to the social optimum.

They subsidize the production of goods with positive externalities.

Scenario 10-1The demand curve for gasoline slopes downward and the supply curve for gasoline slopes upward. The production of the 200th gallon of gasoline entails the following: a private cost of $3.03; a social cost of $3.23; a value to consumers of $3.39. Refer to Scenario 10-1. From the given information, it is apparent that -the production of gasoline involves a negative externality, so the market will produce a smaller quantity of gasoline than is socially desirable. -the production of gasoline involves a negative externality, so the market will produce a larger quantity of gasoline than is socially desirable. -the production of gasoline involves a positive externality, so the market will produce a smaller quantity of gasoline than is socially desirable. -the production of gasoline involves a positive externality, so the market will produce a larger quantity of gasoline than is socially desirable.

the production of gasoline involves a negative externality, so the market will produce a larger quantity of gasoline than is socially desirable.