Chapter 10 - Externalities [Large]

Externalities cause markets to a. fail to allocate resources efficiently. b. cause price to be different than the equilibrium price. c. benefit producers at the expense of consumers. d. cause markets to operate more equitably.

a. fail to allocate resources efficiently.

Which of the following is true concerning government attempts to internalize externalities? a. Government should tax goods with negative externalities and subsidize goods with positive externalities. b. Government should tax goods with either positive or negative 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.

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

A positive externality occurs when a. Jack receives a benefit from John's consumption of a certain good. b. Jack receives personal benefits from his own consumption of a certain good. c. Jack's benefit exceeds John's benefit when they each consume the same good. d. Jack's consumption is not beneficial to John.

a. Jack receives a benefit from John's consumption of a certain good.

Which of the following is the best statement about markets? a. Markets are usually a good way to organize economic activity. b. Markets are generally inferior to central planning as a way to organize economic activity. c. Markets fail and are therefore not an acceptable way to organize economic activity. d. Markets are a good way to organize economic activity in developed nations, but not in less-developed nations.

a. Markets are usually a good way to organize economic activity.

The term market failure refers to a. a situation in which the market, on its own, fails to allocate resources efficiently. b. an unsuccessful advertising campaign which reduces demand. c. a situation in which competition among firms becomes ruthless. d. a firm which is forced out of business because of losses.

a. a situation in which the market, on its own, fails to allocate resources efficiently.

When externalities are present in a market, the well-being of market participants a. are directly affected and market bystanders are indirectly affected. b. and market bystanders are both directly affected. c. and market bystanders are both indirectly affected. d. are indirectly affected and market bystanders are directly affected.

a. are directly affected and market bystanders are indirectly affected.

Internalizing an externality refers to making a. buyers and sellers take into account the external effects of their actions. b. certain that all market transaction benefits go to only buyers and sellers. c. certain government does not disrupt the internal workings of the market. d. buyers pay the full price for the products they purchase.

a. buyers and sellers take into account the external effects of their actions.

The difference between social cost and private cost is a measure of the a. cost of a negative externality. b. loss in profit to the seller as the result of a negative externality. c. cost reduction when the negative externality is eliminated. d. cost incurred by the government from market intervention.

a. cost of a negative externality.

If making computer chips yields greater spillovers than making potato chips, some economists would argue that government should a. encourage the production of computer chips with subsidies. b. discourage the production of potato chips with taxes. c. encourage the production of potato chips with subsidies. d. discourage the production of computer chips with taxes.

a. encourage the production of computer chips with subsidies.

With industrial policy, the belief is that a. industries yielding the largest positive externalities should receive the biggest subsidies. b. any industry which produces negative externalities should be heavily taxed. c. any production process which produces negative externalities must be shut down. d. any industry which produces a positive externality should be encouraged with subsidies.

a. industries yielding the largest positive externalities should receive the biggest subsidies.

Externalities tend to cause markets to be a. inefficient. b. unequitable. c. unnecessary. d. overwhelmed.

a. inefficient.

A negative externality a. is an adverse impact on a bystander. b. causes the product in a market to be under-produced. c. is an adverse impact on market participants. d. is present in markets in which the good or service is undesirable for society.

a. is an adverse impact on a bystander.

An externality a. is characterized as a form of market failure. b. causes markets to allocate resources efficiently. c. strengthens the role of the invisible hand in the marketplace. d. requires the producer to compensate society.

a. is characterized as a form of market failure.

In the absence of externalities the invisible hand of the marketplace a. leads to a market outcome that maximizes total benefit to society. b. is unable to resolve inherent inefficiencies in the market system. c. induces people to act in a manner inconsistent with self interest. d. increases the transactions cost of contracting between parties to an exchange.

a. leads to a market outcome that maximizes total benefit to society.

A positive externality will cause a private market to produce a. less than is socially desirable. b. more than is socially desirable. c. more than market equilibrium. d. less than market equilibrium.

a. less than is socially desirable.

Dog owners do not bear the full cost of the noise their barking dogs create and, therefore, tend to take too few precautions to prevent their dogs from barking. Local governments address this problem by a. making it illegal to "disturb the peace." b. having a well-funded animal control department. c. subsidizing local animal shelters. d. encouraging people to buy cats.

a. making it illegal to "disturb the peace."

Without government intervention, the market equilibrium for oranges will a. maximize total surplus in the market. b. be both efficient and equitable. c. not adjust, even if demand or supply changes. d. not allocate resources efficiently.

a. maximize total surplus in the market.

Research into new technologies a. provides positive externalities because it creates knowledge others can use. b. results in negative externalities because government funding for research causes less government spending in other areas. c. causes too many resources to be used for the small benefits received by society. d. should only be funded by the corporations which will receive the profits from the research.

a. provides positive externalities because it creates knowledge others can use.

Internalizing a positive externality will cause the supply curve of an industry to a. shift to the right. b. shift to the left. c. become more elastic. d. remain unchanged.

a. shift to the right.

When dealing with externalities, the market equilibrium can be moved closer to the social equilibrium by a. taxing negative externalities and subsidizing positive externalities. b. taxing both positive and negative externalities. c. subsidizing both positive and negative externalities. d. None of the above are correct because government has no corrective policy with regards to externalities.

a. taxing negative externalities and subsidizing positive externalities.

When a market experiences a positive externality, a. the demand curve does not reflect the value to society of the good. b. too much of the good is being produced. c. the government can internalize the externality by imposing a tax on the product. d. the private value is greater than the social value.

a. the demand curve does not reflect the value to society of the good.

The demand curve for a product reflects the a. value of the product to consumers. b. cost of the product to consumers. c. quantity consumers are able to purchase. d. price the product will sell for in the market.

a. value of the product to consumers.

At any given quantity, the willingness to pay in the market for automobile fuel is reflected in the a. value to the consumer of the last unit of automobile fuel bought. b. height of the supply curve at each quantity. c. value to the producer of the last unit of automobile fuel sold. d. total quantity of automobile fuel exchanged in the market.

a. value to the consumer of the last unit of automobile fuel bought.

Since air pollution creates a negative externality, a. welfare will be enhanced when some, but not all air pollution is eliminated. b. social welfare is optimal when all air pollution is eliminated. c. governments should encourage all private firms to consider only private costs. d. the free market result maximizes social welfare.

a. welfare will be enhanced when some, but not all air pollution is eliminated.

Which of the following statements about internalizing a negative externality is most correct? a. Internalizing a negative externality will cause an industry to decrease the quantity it supplies to the market and decrease the price of the good produced. b. Internalizing a negative externality will cause an industry to decrease the quantity it supplies to the market and increase the price of the good produced. c. Internalizing a negative externality will cause an industry to increase the quantity it supplies to the market and decrease the price of the good produced. d. Internalizing a negative externality will cause an industry to increase the quantity it supplies to the market and increase the price of the good produced.

b. Internalizing a negative externality will cause an industry to decrease the quantity it supplies to the market and increase the price of the good produced.

Which of the following statements is most correct about a market which is characterized by a negative production externality? a. The equilibrium quantity of output is equal to the socially optimal quantity. b. The equilibrium quantity of output is greater than the socially optimal quantity. c. Government intervention is not required to achieve a socially optimal quantity of output. d. The cost to the producer exceeds the cost to society.

b. The equilibrium quantity of output is greater than the socially optimal quantity.

Which of the following is an example of a positive externality? a. A college student buys a new car when she graduates. b. The mayor of a small town plants flowers in the city park. c. Local high school teachers have pizza delivered every Friday for lunch. d. An avid fisherman buys new fishing gear for his next fishing trip.

b. The mayor of a small town plants flowers in the city park.

Which of the following statements about a market that is affected by a positive externality is correct? a. The optimum level of output is less than the free market level of output and the optimum price is greater than the free market price. b. The optimum level of output is greater than the free market level of output and the optimum price is less than the free market price. c. The optimum level of output is greater than the free market level of output and the optimum price is greater than the free market price. d. The optimum level of output is less than the free market level of output and the optimum price is less than the free market price.

b. The optimum level of output is greater than the free market level of output and the optimum price is less than the free market price.

Technology spillover occurs when a. a firm passes the high costs of technical research on to society through higher prices. b. a firm's research yields technical knowledge that is used by society as a whole. c. the government subsidizes firms engaged in high-tech research. d. copyright laws prohibit firms from profiting from the research of others.

b. a firm's research yields technical knowledge that is used by society as a whole.

Technology spillover means that a. it is the government's responsibility to subsidize firms which are engaged in high-tech research. b. a firm's research yields technological knowledge that can then be used by society as a whole. c. those firms engaged in technology research may be taxed by the government if that research causes negative externalities in the market. d. when firms invest in the latest production technology, the cost of that technology "spills over" to the prices consumers must pay for the product.

b. a firm's research yields technological knowledge that can then be used by society as a whole.

When the social cost curve is above a product's supply curve we know that a. government has intervened in the market. b. a negative externality exists in the market. c. a positive externality exists in the market. d. the market reached equilibrium on its own.

b. a negative externality exists in the market.

To ensure the market reaches the social optimum in presence of a technology spillover, the government should subsidize producers by a. use of a Pigovian tax b. an amount equal to the value of the technology spillover c. helping those companies that are adversely affected by the new technology. d. transferring income to the low-income portion of the population.

b. an amount equal to the value of the technology spillover

If a paper manufacturer does NOT bear the entire cost of the dioxin it emits it will a. emit lower levels of dioxin than is socially efficient. b. emit higher levels of dioxin than is socially efficient. c. emit an acceptable level of dioxin. d. not emit any dioxin in an attempt to avoid paying the entire cost.

b. emit higher levels of dioxin than is socially efficient.

Market failure can be caused by a. foreign competition. b. externalities. c. low consumer demand. d. scarcity.

b. externalities.

If education produces positive externalities we would expect a. government to tax education. b. government to subsidize education. c. people to realize the benefits and therefore cause demand for education to increase. d. colleges to relax admission requirements.

b. government to subsidize education.

Hikers frequently claim that livestock grazing in Wilderness Recreation Areas reduces the satisfaction of their recreational hiking experience. An explanation would be that a. hikers don't eat beef. b. grazing cows create negative externalities which make hiking less pleasant. c. ranchers are insensitive to the recreational use of public lands. d. cattle should not be allowed to graze on public property.

b. grazing cows create negative externalities which make hiking less pleasant.

Firms that are involved in more than one type of business could be evidence of an attempt to a. increase private profit at the expense of consumers. b. internalize some forms of positive externalities. c. reduce the impact of government regulation on their business. d. increase the marginal external cost of production.

b. internalize some forms of positive externalities.

Since externalities tend to keep markets from reaching a socially optimal equilibrium, government action a. is always needed, because private solutions can never be attained. b. is needed when private solutions fail to arise. c. will be needed only to correct for positive externalities. d. will be needed only to compensate consumers.

b. is needed when private solutions fail to arise.

One drawback to industrial policy is that a. technology spillovers often appear equivalent to policymakers. b. measuring the size of spillovers from different markets is difficult. c. spillovers often occur in industries that produce undesirable products for society. d. positive side effects are often outweighed by negative side effects.

b. measuring the size of spillovers from different markets is difficult.

A negative externality will cause a private market to produce a. less than is socially desirable. b. more than is socially desirable. c. more than market equilibrium. d. less than market equilibrium.

b. more than is socially desirable.

All remedies for externalities share the goal of a. moving the allocation of resources toward the market equilibrium. b. moving the allocation of resources toward the social optimum. c. increasing the allocation of resources. d. decreasing the allocation of resources.

b. moving the allocation of resources toward the social optimum.

When negative externalities are present in a market a. producers will be affected, but not consumers. b. overproduction will occur. c. demand will be too high. d. the market will still maximize total benefits.

b. overproduction will occur.

Technology spillover is one type of a. negative externality. b. positive externality. c. subsidy. d. producer surplus.

b. positive externality.

Suppose that a steel factory emits a certain amount of air pollution, which constitutes a negative externality. The social cost of producing the steel includes the a. private costs of the steel producers and the price consumers pay for the steel. b. private costs of the steel producers and the costs to the bystanders affected by the pollution. c. costs to the bystanders effected by the pollution only. d. price consumers pay for the steel.

b. private costs of the steel producers and the costs to the bystanders affected by the pollution.

An optimal tax on pollution (a negative externality) would be one in which a. producers choose not to produce any pollution. b. producers internalize the cost of the pollution. c. a benevolent social planner is able to maximize production. d. the value to consumers at market equilibrium exceeds the cost of production (including tax).

b. producers internalize the cost of the pollution.

When the government intervenes in markets with externalities it does so to a. increase production when negative externalities are present. b. protect interests of bystanders. c. make certain all benefits are received by market participants. d. better coordinate the action of buyers and sellers.

b. protect interests of bystanders.

Policymakers have chosen to solve the problem of too much car exhaust pollution by a. setting emission standards and limiting driving by commuters. b. setting emission standards and taxing gasoline. c. taxing car producers and limiting driving by commuters. d. taxing gasoline and taxing car producers.

b. setting emission standards and taxing gasoline.

Internalizing a negative externality will cause the supply curve of an industry to a. shift to the right. b. shift to the left. c. expand. d. remain unchanged.

b. shift to the left.

When negative externalities are present in a market a. private costs will be greater than social costs. b. social costs will be greater than private costs. c. government regulation to resolve the problem is always necessary. d. the market will not be able to reach any equilibrium situation.

b. social costs will be greater than private costs.

A fertilizer plant emits a very foul odor during the production process. If the government forces the plant to internalize this negative externality, then the a. supply curve for fertilizer would shift to the right (down). b. supply curve for fertilizer would shift to the left (up). c. demand curve for fertilizer would shift to the right (down). d. demand curve for fertilizer would shift to the left (up).

b. supply curve for fertilizer would shift to the left (up).

The height of the demand curve shows a. how much each buyer in the market is willing to pay. b. the willingness to pay of the marginal buyer. c. the maximum price all buyers will pay for a product. d. the lowest price buyers will pay for a product.

b. the willingness to pay of the marginal buyer.

If there are no externalities, the "invisible hand" leads a market to maximize a. producer profit from that market. b. total benefit to society from that market. c. both equity and efficiency in that market. d. output of goods or services in that market.

b. total benefit to society from that market.

One way to internalize a technology spillover is a. with taxes. b. with patents. c. with government regulations. d. allowing free markets to work.

b. with patents.

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

c. A college student plays his new stereo system at 2:00 a.m.

Which of the following is true of positive externalities? a. Social value exceeds private value and market quantity exceeds the socially optimal quantity. b. Social value is less than private value and market quantity exceeds the socially optimal quantity. c. Social value exceeds private value and market quantity is less than the socially optimal quantity. d. Social value seldom exceeds private value and therefore social quantity is less than private quantity.

c. Social value exceeds private value and market quantity is less than the socially optimal quantity.

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

c. The pollution has the potential for creating a health risk for water users in the region surrounding the pork production facility.

Which of the following would NOT be considered a negative externality? a. Smelter, Inc. creates steel and pollution in Anytown, U.S.A. b. Your friend buys a new puppy that barks every night. c. You have an adverse reaction to a medication your doctor prescribed for you. d. Your neighbor buys the most powerful stereo money can buy for his patio.

c. You have an adverse reaction to a medication your doctor prescribed for you.

When dealing with externalities, government a. can correct the market failure only in the case of positive externalities. b. can correct the market failure only in the case of negative externalities. c. can correct the market failure in both the positive and negative externalities by inducing market participants to internalize the externality. d. cannot correct for externalities due to consumer rights laws.

c. can correct the market failure in both the positive and negative externalities by inducing market participants to internalize the externality.

The supply curve for a product reflects the a. value of the product to suppliers. b. quantity buyers will ultimately purchase of the product. c. cost to sellers of producing the product. d. seller's profit of producing the product.

c. cost to sellers of producing the product.

The height of the supply curve at any given quantity of coal shows the a. value to the consumer of the last unit of coal bought. b. consumer's willingness to pay for coal at each quantity. c. cost to the producer of the last unit of coal sold. d. total quantity of coal exchanged in the market.

c. cost to the producer of the last unit of coal sold.

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 take account of the external effects of their behavior. d. the government can easily correct any adverse effect on the market that externalities may cause.

c. decisionmakers in the market fail to take account of the external effects of their behavior.

Local governments address the problem of barking dogs by imposing a. leash laws. b. dog registration. c. disturbing the peace laws. d. All of the above are correct.

c. disturbing the peace laws.

A positive externality will cause a market to produce a. more than is socially desirable. b. more than is market optimal. c. less than is socially desirable. d. less than is market optimal.

c. less than is socially desirable.

When externalities exist, buyers and sellers a. neglect the external effects of their actions but the market equilibrium is still efficient. b. do not neglect the external effects of their actions and the market equilibrium is efficient. c. neglect the external effects of their actions and the market equilibrium is not efficient. d. do not neglect the external effects of their actions and the market equilibrium is not efficient.

c. neglect the external effects of their actions and the market equilibrium is not efficient.

Because decisions in a market economy are guided by individual self-interest, there is a. a strong need for government intervention in the market. b. less efficiency in market economies than in command economies. c. nevertheless the ability to achieve desirable economic well-being for society as a whole. d. more need for a strong legal system to control individual greed.

c. nevertheless the ability to achieve desirable economic well-being for society as a whole.

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

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

Patents do NOT a. provide firms an incentive to research. b. assign property rights to inventors. c. protect the rights of inventors for their lifetime. d. internalize externalities.

c. protect the rights of inventors for their lifetime.

With technology spillover, to ensure that the market equilibrium equals the social optimum, government should a. impose a tax greater than the value of the technology spillover. b. not allow production of any product that causes a technology spillover. c. provide a subsidy equal to the value of the technology spillover. d. require producers to "clean up" any spillover that results from their production process.

c. provide a subsidy equal to the value of the technology spillover.

Dioxin emission that results from the production of paper is a good example of a negative externality because a. self-interested paper firms are generally unaware of environmental regulations. b. there are fines for producing too much dioxin. c. self-interested paper producers will not consider the full cost of the dioxin pollution they create. d. toxic emissions are the only form of an externality.

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

Internalizing a positive externality through a government subsidy will cause the industry's supply curve to a. remain unchanged. b. shift down by an amount less than the subsidy. c. shift down by an amount equal to the subsidy. d. shift down by an amount greater than the subsidy

c. shift down by an amount equal to the subsidy.

Markets are often inefficient when negative externalities are present because a. private costs exceed social costs at the private market solution. b. externalities can never be corrected without government regulation. c. social costs exceed private costs at the private market solution. d. production externalities lead to consumption externalities.

c. social costs exceed private costs at the private market solution.

Private markets fail to reach a socially optimal level when negative externalities are present because a. social costs equal private costs at the private market solution. b. private costs exceed social costs at the private market solution. c. social costs exceed private costs at the private market solution. d. they internalize externalities.

c. social costs exceed private costs at the private market solution.

Private markets fail to reach a socially optimal level when positive externalities are present because. a. private benefit equals social benefit at the private market solution. b. private costs exceed private benefits at the private market solution. c. social value exceeds private value at the private market solution. d. private costs exceed social benefit at the private market solution.

c. social value exceeds private value at the private market solution.

If the government wanted to ensure that the market reaches the social optimum in the presence of a technology spillover, it should a. impose a Pigovian tax on any firm producing a technology spillover. b. offer tax credits to consumers who are adversely affected by the new technology. c. subsidize producers by an amount equal to the value of the technology spillover. d. provide research grants to those firms not currently engaging in research to increase competition in the industry.

c. subsidize producers by an amount equal to the value of the technology spillover.

To enhance the well-being of society, a social planner will encourage firms to increase production when a. the firms are producing basic goods. b. there is a shortage in the market. c. technology spillovers are associated with production. d. any negative externalities associated with production are imposed only upon consumers.

c. technology spillovers are associated with production.

If a sawmill creates too much noise for local residents a. it will be up to the residents to either adapt or move. b. a sense of social responsibility will cause owners of the mill to reduce noise levels. c. the government can raise economic well-being through noise-control regulations. d. the government can raise economic well-being by providing free hearing screening for residents who live closest to the sawmill.

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

Suppose that a steel factory emits a certain amount of air pollution, which constitutes a negative externality. If this market is not required to internalize this externality, a. the supply curve would adequately reflect the marginal social cost of production. b. consumers will be required to pay a higher price for steel than they would have if the externality were internalized. c. the market equilibrium would not be the socially optimal quantity. d. producers will produce less steel than they otherwise would have if the externality were internalized.

c. the market equilibrium would not be the socially optimal quantity.

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

c. will be less than the cost to society

One advantage market economies have over other types of economies is that market economies a. provide an equal distribution of goods and services to consumers. b. establish government economic control. c. solve the problem of scarcity. d. are more efficient.

d. are more efficient.

A patent is used to a. disseminate information. b. restrict ownership. c. protect inventors for as long as they live. d. assign property rights.

d. assign property rights.

Which of the following statements about a well-maintained yard best conveys the general nature of the externalities? a. A maintained yard conveys a positive externality because it increases the home's market value. b. A maintained yard conveys a negative externality because it increases the property tax liability of the owner. c. A maintained yard conveys a negative externality because it makes other property owners in the neighborhood feel like their homes are less valuable. d. A maintained yard conveys a positive externality because it increases the value of adjacent properties in the neighborhood.

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

An externality exists when a. the government intercedes in the operation of private markets by forcing the market to adjust to the balance of supply and demand. b. markets are not able to reach equilibrium. c. a firm sells its product in a foreign market. d. a person engages in an activity that influences the well-being of a bystander and yet neither pays nor receives payment for that effect.

d. a person engages in an activity that influences the well-being of a bystander and yet neither pays nor receives payment for that effect.

Negative externalities occur when one person's actions a. cause another person to lose money in a stock market transaction. b. cause his or her employer to lose business. c. reveal his or her preference for foreign-produced goods. d. adversely affect the well-being of a bystander who is not party to the action.

d. adversely affect the well-being of a bystander who is not party to the action.

The impact of one person's actions on the well-being of a bystander is called a. an economic dilemma. b. deadweight loss. c. the third-party problem. d. an externality.

d. an externality.

When a beekeeper places his hives of bees in an orchard so that the bees can gather nectar to produce honey, the bees pollinate the orchard, which increases the yield of fruit. This benefits a. only the beekeeper. b. the beekeeper, but creates a negative externality because the bees are a hazard to the orchard owner. c. only the owner of the orchard. d. both the beekeeper and the orchard owner.

d. both the beekeeper and the orchard owner.

At any given quantity, the height of the supply curve for pliers shows the a. willingness to pay of the marginal supplier. b. willingness to pay of the marginal buyer. c. cost of the marginal buyer. d. cost of the marginal seller.

d. cost of the marginal seller.

The height of the supply curve shows the a. maximum cost a seller will pay to produce a product. b. price a seller can expect to receive for a certain quantity of a product. c. maximum amount buyers are willing to pay for a product. d. cost to the producer of the last unit sold.

d. cost to the producer of the last unit sold.

If an externality is present in a market, economic efficiency may be enhanced by a. increased competition. b. weakening property rights. c. better informed market participants. d. government intervention.

d. government intervention.

Government intervention that aims to promote technology-enhancing industries is called a. assisted technology. b. intervention policy. c. industrial technology assistance. d. industrial policy.

d. industrial policy.

Too few resources are generally devoted to research in new technologies in developing countries because a. new technologies cannot be patented. b. government research grants are not easily obtainable. c. negative externalities are created from some research. d. inventors cannot capture the full benefits of their inventions.

d. inventors cannot capture the full benefits of their inventions.

A positive externality a. causes the product to be overproduced. b. provides an additional benefit to market participants. c. benefits consumers because it results in a lower equilibrium price. d. is a benefit to a market bystander.

d. is a benefit to a market bystander.

Many times the problems of externalities are solved by each of the following EXCEPT a. self-interest. b. moral codes and social sanctions. c. charity. d. normal market adjustments.

d. normal market adjustments.

One of the Ten Principles of Economics is that "markets are usually a good way to organize market behavior." Use of the word "usually" does NOT reflect the fact that a. some markets produce negative externalities. b. the invisible hand of the marketplace does not always lead buyers and sellers to maximize total benefit to society. c. some markets are characterized by market failure. d. other types of economies are more efficient than market economies.

d. other types of economies are more efficient than market economies.

In a market economy, economic activity is guided by a. the government. b. businesses. c. central planners. d. prices.

d. prices.

A market that experiences a positive externality will also experience a a. smaller market output and a higher market price than is optimal. b. greater market output and lower market price than is optimal. c. greater market output and higher market price than is optimal. d. smaller market output and lower market price than is optimal.

d. smaller market output and lower market price than is optimal.

The government can internalize a positive externality by a. taxing production which would decrease supply. b. taxing production which would increase supply. c. subsidizing production which would decrease supply. d. subsidizing production which would increase supply.

d. subsidizing production which would increase supply.

Which of the following best defines the situation where one firm's research yields knowledge that is used by society as a whole? a. social cost b. opportunity cost of technology c. internalization of an externality d. technology spillover

d. technology spillover

When externalities are present in a market a. the established equilibrium maximizes the total benefit to society as a whole. b. market participants lose some market benefits to bystanders. c. both equity and efficiency are maximized. d. the market fails to allocate resources efficiently.

d. the market fails to allocate resources efficiently.

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

e. Both a and b are correct.

When a market is in equilibrium and the marginal consumer values a commodity at less than the social cost of producing it, then a. at market equilibrium the demand curve lies below the social cost curve. b. reducing production to a level below the equilibrium level could possibly raise total economic well-being. c. the equilibrium price is higher than necessary to insure maximum economic well-being. d. All of the above are correct. e. Both a and b are correct.

e. Both a and b are correct.