Question 1

The Centers for Disease Control and Prevention (CDC)  wants at least 90% of the population vaccinated against preventable diseases, since the chance of a disease outbreak decreases as vaccine coverage increases. We can conclude that:

Accepted Answer

A)   the external benefits of vaccination likely decrease as more and more people are vaccinated.
B)   the private benefits of vaccination increase with vaccine coverage.
C)   vaccines create a negative externality once the vaccine covers 90% of the population.
D)   vaccines create a positive externality once the vaccine covers 90% of the population.E) A) and B)
F) B) and C)

Question 2

Use the following to answer questions: Figure: Dishwashing Detergent 
-(Figure: Dishwashing Detergent)  Refer to the figure. Dishwashing detergent contains phosphates that harm marine life. In this figure, what is the external cost of using dishwashing detergent?

Accepted Answer

A)   $6
B)   $9
C)   $12
D)   $18E) A) and B)
F) A) and C)

Question 3

The price of antibiotics sends the wrong signal because it includes the:

Accepted Answer

A)   social cost but not the private cost.
B)   private cost but not the external cost.
C)   external cost but not the private cost.
D)   external cost but not the social cost.E) A) and B)
F) None of the above

Question 4

Government subsidies for goods that generate external benefits may increase economic efficiency.

Accepted Answer

A) True 
 B)False

Question 5

Which is an example of an external benefit?

Accepted Answer

A)   You get a raise that increases your pay 20%.
B)   Your neighbor's rooster wakes you up every morning before your alarm clock goes off, reducing the amount of sleep you get at night.
C)   Researchers at Johnson & Johnson are working on a cure for cancer.
D)   Your neighbors fix up their homes, which raises property values on the entire street.E) A) and C)
F) None of the above

Question 6

In the presence of significant externalities, a market equilibrium maximizes:

Accepted Answer

A)   social surplus.
B)   nothing.
C)   consumer surplus plus producer surplus plus everybody else's surplus.
D)   consumer surplus plus producer surplus.E) A) and B)
F) B) and C)

Question 7

The paper industry and brewery industry each emit 60 tons of particulates into the air. It costs the paper industry $1,000 to remove 1 ton of particulates, and it costs the brewery industry $1,400 to remove 1 ton of particulates. In an effort to reduce particulate pollution, the government gives each industry tradable allowances worth 50 tons of particulates. We would expect that:

Accepted Answer

A)   the paper industry will buy tradable allowances from the brewery industry at a cost between $1,000 and $1,400 per allowance.
B)   the paper industry will buy tradable allowances from the brewery industry at a cost greater than $1,400 per allowance.
C)   the brewery industry will buy tradable allowances from the paper industry at a cost between $1,000 and $1,400 per allowance.
D)   the brewery industry will buy tradable allowances from the paper industry at a cost greater than $1,400 per allowance.E) A) and B)
F) A) and C)

Question 8

Use the following to answer questions: Figure: Palm Oil 
-(Figure: Palm Oil)  Refer to the figure. Indonesian palm oil producers deforest tropical rainforests to grow the plants that excrete the oil. According to this diagram, what is the external cost (per ton)  of producing palm oil?

Accepted Answer

A)   $4
B)   $5
C)   $6
D)   $8E) B) and C)
F) A) and B)

Question 9

Because there are external benefits from higher education:

Accepted Answer

A)   private markets will oversupply college classes.
B)   government intervention cannot improve the market for college classes.
C)   the government should impose a tax on college students.
D)   private markets will undersupply college classes.E) A) and C)
F) B) and C)

Question 10

Which statement about taxes is INCORRECT?

Accepted Answer

A)   Taxes in markets always cause deadweight losses.
B)   If the good causes an external cost, taxes actually reduce deadweight loss.
C)   Both taxes and tradable allowances in a market that has external costs can lead to the efficient quantity.
D)   Taxes on producers cause the supply curve for the product to shift to the left.E) All of the above
F) B) and C)

Question 11

Two parties fail to solve an externality problem because reaching an agreement requires high-priced lawyers to negotiate and write up contracts. This illustrates the problem of:

Accepted Answer

A)   Pigouvian legal fees.
B)   transaction costs.
C)   legal inefficiency.
D)   punitive-cost agreements.E) A) and B)
F) A) and C)

Question 12

The social cost of antibiotic consumption equals the private cost of producing antibiotics plus the cost of increased bacterial resistance to antibiotics.

Accepted Answer

A) True 
 B)False

Question 13

When external benefits are present in a market:

Accepted Answer

A)   the market is more efficient than if the externalities were not present.
B)   the market outcome is inefficient.
C)   overall social surplus is maximized because others are gaining in addition to the market consumers.
D)   the external benefit must be offset by an external cost.E) A) and B)
F) C) and D)

Question 14

Government can be used to solve externality problems that are too costly for private parties to solve.

Accepted Answer

A) True 
 B)False

Question 15

If an external cost is present in a market, economic efficiency may be enhanced by:

Accepted Answer

A)   increased competition.
B)   weakening property rights.
C)   better informed market participants.
D)   government intervention.E) B) and D)
F) None of the above

Question 16

If in an attempt to correct an externality the government sets a Pigouvian subsidy too high the equilibrium quantity will be:

Accepted Answer

A)   higher than the efficient quantity.
B)   lower than the efficient quantity.
C)   equal to the efficient quantity.
D)   zero.E) C) and D)
F) None of the above

Question 17

Antibiotics tend to be overused, as the producers of antibiotics are required to bear all the costs of antibiotic use.

Accepted Answer

A) True 
 B)False

Question 18

Command and control refers to:

Accepted Answer

A)   military maneuvers that actually increase economic efficiency.
B)   government regulations that directly limit the production or use of a good.
C)   a market-based solution to the externality problem.
D)   government taxes and/or subsidies in markets that generate externalities.E) A) and C)
F) B) and C)

Question 19

The conditions under which the Coase theorem applies are common in cases of externality.

Accepted Answer

A) True 
 B)False

Question 20

An example of a transaction cost for a shirt is the price you pay for a shirt.

Accepted Answer

A) True 
 B)False

Exam 10: Externalities- When the Price Is Not Right

If in an attempt to correct an externality the government sets a Pigouvian subsidy too high the equilibrium quantity will be:

Correct Answer
verified

If an external cost is present in a market, economic efficiency may be enhanced by:

Correct Answer
verified

Two parties fail to solve an externality problem because reaching an agreement requires high-priced lawyers to negotiate and write up contracts. This illustrates the problem of:

Correct Answer
verified

Government can be used to solve externality problems that are too costly for private parties to solve.

Correct Answer
verified

The Centers for Disease Control and Prevention (CDC) wants at least 90% of the population vaccinated against preventable diseases, since the chance of a disease outbreak decreases as vaccine coverage increases. We can conclude that:

Correct Answer
verified

The price of antibiotics sends the wrong signal because it includes the:

Correct Answer
verified

Correct Answer
verified

Antibiotics tend to be overused, as the producers of antibiotics are required to bear all the costs of antibiotic use.

Correct Answer
verified

In the presence of significant externalities, a market equilibrium maximizes:

Correct Answer
verified

The conditions under which the Coase theorem applies are common in cases of externality.

Correct Answer
verified

Which is an example of an external benefit?

Correct Answer
verified

An example of a transaction cost for a shirt is the price you pay for a shirt.

Correct Answer
verified

Because there are external benefits from higher education:

Correct Answer
verified

Command and control refers to:

Correct Answer
verified

Government subsidies for goods that generate external benefits may increase economic efficiency.

Correct Answer
verified

Use the following to answer questions: Figure: Dishwashing Detergent -(Figure: Dishwashing Detergent) Refer to the figure. Dishwashing detergent contains phosphates that harm marine life. In this figure, what is the external cost of using dishwashing detergent?

Correct Answer
verified

When external benefits are present in a market:

Correct Answer
verified

The social cost of antibiotic consumption equals the private cost of producing antibiotics plus the cost of increased bacterial resistance to antibiotics.

Correct Answer
verified

Which statement about taxes is INCORRECT?

Correct Answer
verified

Use the following to answer questions: Figure: Palm Oil -(Figure: Palm Oil) Refer to the figure. Indonesian palm oil producers deforest tropical rainforests to grow the plants that excrete the oil. According to this diagram, what is the external cost (per ton) of producing palm oil?

Correct Answer
verified

Exam 10: Externalities- When the Price Is Not Right

If in an attempt to correct an externality the government sets a Pigouvian subsidy too high the equilibrium quantity will be:

Correct AnswerverifiedShow Answer

If an external cost is present in a market, economic efficiency may be enhanced by:

Correct AnswerverifiedShow Answer

Two parties fail to solve an externality problem because reaching an agreement requires high-priced lawyers to negotiate and write up contracts. This illustrates the problem of:

Correct AnswerverifiedShow Answer

Government can be used to solve externality problems that are too costly for private parties to solve.

Correct AnswerverifiedShow Answer

The Centers for Disease Control and Prevention (CDC) wants at least 90% of the population vaccinated against preventable diseases, since the chance of a disease outbreak decreases as vaccine coverage increases. We can conclude that:

Correct AnswerverifiedShow Answer

The price of antibiotics sends the wrong signal because it includes the:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Antibiotics tend to be overused, as the producers of antibiotics are required to bear all the costs of antibiotic use.

Correct AnswerverifiedShow Answer

In the presence of significant externalities, a market equilibrium maximizes:

Correct AnswerverifiedShow Answer

The conditions under which the Coase theorem applies are common in cases of externality.

Correct AnswerverifiedShow Answer

Which is an example of an external benefit?

Correct AnswerverifiedShow Answer

An example of a transaction cost for a shirt is the price you pay for a shirt.

Correct AnswerverifiedShow Answer

Because there are external benefits from higher education:

Correct AnswerverifiedShow Answer

Command and control refers to:

Correct AnswerverifiedShow Answer

Government subsidies for goods that generate external benefits may increase economic efficiency.

Correct AnswerverifiedShow Answer

Use the following to answer questions: Figure: Dishwashing Detergent -(Figure: Dishwashing Detergent) Refer to the figure. Dishwashing detergent contains phosphates that harm marine life. In this figure, what is the external cost of using dishwashing detergent?

Correct AnswerverifiedShow Answer

When external benefits are present in a market:

Correct AnswerverifiedShow Answer

The social cost of antibiotic consumption equals the private cost of producing antibiotics plus the cost of increased bacterial resistance to antibiotics.

Correct AnswerverifiedShow Answer

Which statement about taxes is INCORRECT?

Correct AnswerverifiedShow Answer

Use the following to answer questions: Figure: Palm Oil -(Figure: Palm Oil) Refer to the figure. Indonesian palm oil producers deforest tropical rainforests to grow the plants that excrete the oil. According to this diagram, what is the external cost (per ton) of producing palm oil?

Correct AnswerverifiedShow Answer

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