Ch. 10

Refer to Figure 10-1. This graph represents the tobacco industry. Without any government intervention, the equilibrium price and quantity are $2.80 and 48 units, respectively. $3.00 and 60 units, respectively. $2.07 and 76 units, respectively. $1.50 and 100 units, respectively.

$2.07 and 76 units, respectively.

Refer to Scenario 10-1. Let QMARKET represent the equilibrium quantity of gasoline, and let QOPTIMUM represent the socially optimal quantity of gasoline. Which of the following inequalities is correct? 200 < QOPTIMUM < QMARKET QOPTIMUM < 200 < QMARKET QMARKET < 200 < QOPTIMUM QOPTIMUM < QMARKET < 200

200 < QOPTIMUM < QMARKET

Refer to Table 10-1. What is the equilibrium quantity of output in the market? 2 units 4 units 5 units 3 units

4 units

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

5 units

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

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

Which of the following is not a characteristic of pollution permits? Prices are set by supply and demand. Allowing firms to trade their permits reduces the total quantity of pollution beyond the initial allocation. Real-world markets for pollution permits include sulfur dioxide and carbon. Firms for whom pollution reduction is very expensive are willing to pay more for permits than firms for whom pollution reduction is less expensive.

Allowing firms to trade their permits reduces the total quantity of pollution beyond the initial allocation.

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 warming.

Ed is allergic to his roommate's cat.

Refer to Figure 10-4. The installation of a scrubber in a smokestack reduces the emission of harmful chemicals from the smokestack. Therefore, the market for smokestack scrubbers is shown in Graph (a). Graph (b) only. Graph (c) only. Graphs (b) and (c).

Graph (c) only.

Refer to Scenario 10-1. Let Q represent the number of gallons of gasoline and let Prepresent the price of a gallon of gasoline. Which of the following statements is correct? One point on the social-cost curve is (Q = 200, P = $0.20). One point on the supply curve is (Q = 200, P = $3.03). One point on the demand curve is (Q = 200, P = $3.23). The socially optimal quantity of gasoline is less than 200 gallons.

One point on the supply curve is (Q = 200, P = $3.03).

Refer to Figure 10-4, Graph (b) and Graph (c). The overuse of antibiotics leads to the development of antibiotic-resistant diseases. Therefore, the external cost of antibiotic overuse is represented by Q3 − Q2. Q5 − Q4. P3a − P3b. P4a − P4b.

P3a − P3b.

Refer to Figure 10-4, Graph (b) and Graph (c). The installation of a scrubber in a smokestack reduces the emission of harmful chemicals from the smokestack. Therefore, the external benefit of smokestack scrubber installation is represented by Q3 − Q2. Q5 − Q4. P3a − P3b. P4a − P4b.

P4a − P4b.

Refer to Figure 10-4, Graph (b) and Graph (c). The installation of a scrubber in a smokestack reduces the emission of harmful chemicals from the smokestack. Therefore, a government policy that internalized the externality would move the quantity of smokestack scrubbers installed from point Q2 to point Q3. Q3 to point Q2. Q4 to point Q5. Q5 to point Q4.

Q4 to point Q5.

Suppose that cookie producers create a positive externality equal to $2 per dozen. What is the relationship between the equilibrium quantity and the socially optimal quantity of cookies to be produced? They are equal. The equilibrium quantity is greater than the socially optimal quantity. The equilibrium quantity is less than the socially optimal quantity. There is not enough information to answer the question

The equilibrium quantity is less than the socially optimal quantity.

Suppose that cookie producers create a positive externality equal to $2 per dozen. What is the relationship between the equilibrium quantity and the socially optimal quantity of cookies to be produced? They are equal. The equilibrium quantity is greater than the socially optimal quantity. The equilibrium quantity is less than the socially optimal quantity. There is not enough information to answer the question.

The equilibrium quantity is less than the socially optimal quantity.

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.

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.

Education yields positive externalities. For example, colleges and universities have benefited, in recent years, from increases in tuition paid by students. as a result of earning a college degree, a person becomes a more productive worker and benefits by earning higher wages. a more educated population tends to result in lower crime rates. when students go to school, they reinforce the demand for teachers.

a more educated population tends to result in lower crime rates.

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

a negative externality.

Refer to Figure 10-2. If this market is currently producing at Q4, then total economic well-being would be maximized if output decreased to Q1. decreased to Q2. decreased to Q3. stayed at Q4

decreased to Q2.

Ashlyn installed a wooden sculpture in her front yard. A positive externality arises if the sculpture increases the value of other properties in the neighborhood. increases the value of Ashlyn's home. is visually unappealing to Ashlyn's neighbors. creates a safety hazard for neighborhood children

increases the value of other properties in the neighborhood.

Refer to Figure 10-3. If the government wanted to tax or subsidize this good to achieve the socially optimal level of output, it would introduce a subsidy of $32 per unit. impose a tax of $16 per unit. introduce a subsidy of $16 per unit. impose a tax of $32 per unit.

introduce a subsidy of $16 per unit.

Most economists prefer corrective taxes to regulation as a way to correct the problem of pollution because the market-based solution is less efficient. can result in a greater increase in pollution. lowers revenue for the government. is less costly to society.

is less costly to society.

Refer to Figure 10-1. The social cost curve is above the supply curve because it takes into account the effect no smoking policies at local restaurants. it takes into account the external costs imposed on society by tobacco consumption. tobacco costs more to consumers than it does for firms to make it. people who stand next to smokers can inhale second-hand smoke for free.

it takes into account the external costs imposed on society by tobacco consumption.

Dioxin emission that results from the production of paper is a good example of a negative externality because self-interested paper firms are generally unaware of environmental regulations. there are fines for producing too much dioxin. self-interested paper producers will not consider the full cost of the dioxin pollution they create. toxic emissions cause firms to produce less than the socially optimal amount of paper.

self-interested paper producers will not consider the full cost of the dioxin pollution they create.

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.

Refer to Figure 10-6. If 250 units of plastics are produced and consumed, then the social optimum has been reached. market equilibrium has been reached. negative externality associated with plastics has been eliminated. positive externality associated with plastics has been eliminated.

social optimum has been reached.

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

taxes

In some cases, tradable pollution permits may be better than a corrective tax because selling pollution permits creates a net increase in pollution. corrective taxes distort incentives. corrective taxes provide greater flexibility to firms that can reduce pollution at a low cost. the government can set a maximum level of pollution using permits

the government can set a maximum level of pollution using permits

In some cases, tradable pollution permits may be better than a corrective tax because selling pollution permits creates a net increase in pollution. corrective taxes distort incentives. corrective taxes provide greater flexibility to firms that can reduce pollution at a low cost. the government can set a maximum level of pollution using permits.

the government can set a maximum level of pollution using permits.

Refer to Table 10-4. The table represents a market in which there is no externality. there is a positive externality. there is a negative externality. The answer cannot be determined from inspection of the table.

there is a negative externality