Question 1

Technology spillover occurs when

Accepted Answer

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.E) A) and C)
F) A) and B)

Question 2

Figure 10-1 
-Refer to Figure 10-1. This graph represents the tobacco industry. Without any government intervention, the equilibrium price and quantity are

Accepted Answer

A)   $1.90 and 38 units, respectively.
B)   $1.80 and 35 units, respectively.
C)   $1.60 and 42 units, respectively.
D)   $1.35 and 58 units, respectively.E) A) and C)
F) A) and B)

Question 3

Which of the following policies is not an example of a command-and-control policy?

Accepted Answer

A)   subsidies
B)   Pigovian taxes
C)   tradable pollution permits
D)   None of the above is an example of a command-and-control policy.E) A) and C)
F) B) and C)

Question 4

Figure 10-9
 
-Refer to Figure 10-9, Panel c) . The market equilibrium quantity is

Accepted Answer

A)   Q4, which is the socially optimal quantity.
B)   Q5, which is the socially optimal quantity.
C)   Q4, and the socially optimal quantity is Q5.
D)   Q5, and the socially optimal quantity is Q4.E) None of the above
F) All of the above

Question 5

Which of the following statements is not correct?

Accepted Answer

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)   Without government intervention, the market will tend to undersupply products that produce negative externalities.E) C) and D)
F) All of the above

Question 6

Figure 10-9
 
-Refer to Figure 10-9, Panel b)  and Panel c) . The overuse of antibiotics leads to the development of antibiotic- resistant diseases. Therefore, the external cost of antibiotic overuse is represented by

Accepted Answer

A)   Q3 - Q2.
B)   Q5 - Q4.
C)   P3a - P3b.
D)   P4a - P4b.E) A) and B)
F) None of the above

Question 7

A local manufacturing plant that emitted sulfur dioxide was forced to stop production because it did not comply with local clean air standards. This decision provides an example of

Accepted Answer

A)   a direct regulation of an externality.
B)   corrective taxes.
C)   a Coase theorem solution to an externality.
D)   the misuse of a subsidy.E) A) and C)
F) A) and D)

Question 8

Figure 10-4 
-Refer to Figure 10-4. This market is characterized by

Accepted Answer

A)   government intervention.
B)   a positive externality.
C)   a negative externality.
D)   None of the above is correct.E) B) and D)
F) B) and C)

Question 9

Figure 10-9
 
-Refer to Figure 10-9. Which graph represents a market with a negative externality?

Accepted Answer

A)   Panel a) 
B)   Panel b) 
C)   Panel c) 
D)   Both b)  and c)  are correct.E) A) and B)
F) None of the above

Question 10

Patent protection is one way to deal with technology spillovers.

Accepted Answer

A) True 
 B)False

Question 11

Figure 10-2. The graph depicts the market for plastic. 
-Refer to Figure 10-2. A benevolent social planner would like to see

Accepted Answer

A)   200 units of plastic produced.
B)   500 units of plastic produced.
C)   650 units of plastic produced.
D)   more than 650 units of plastic produced.E) A) and D)
F) A) and B)

Question 12

In a certain city, the local government regulates the destruction of historic buildings and provides tax breaks to owners of historic buildings who restore them. These government policies

Accepted Answer

A)   reflect the fact that restored historic buildings convey a positive externality.
B)   reflect the fact that the destruction of historic buildings conveys a positive externality.
C)   are likely to worsen the market failure that is associated with historic buildings and the restoration of such buildings.
D)   are likely to decrease the well-being of society as a whole.E) A) and B)
F) B) and D)

Question 13

Private markets fail to reach a socially optimal equilibrium when positive externalities are present because the

Accepted Answer

A)   private benefit equals the social benefit at the private market solution.
B)   private cost exceeds the private benefit at the private market solution.
C)   social value exceeds the private value at the private market solution.
D)   private cost exceeds the social benefit at the private market solution.E) A) and B)
F) B) and C)

Question 14

Table 10-1
The following table shows the private value, private cost, and external cost for various quantities of output in a market.
 
-Refer to Table 10-1. What is the socially-optimal quantity of output in this market?

Accepted Answer

A)   1 unit
B)   2 units
C)   3 units
D)   4 unitsE) A) and D)
F) C) and D)

Question 15

Table 10-1
The following table shows the private value, private cost, and external cost for various quantities of output in a market.
 
-Refer to Table 10-1. What is the equilibrium quantity of output in the market?

Accepted Answer

A)   2 units
B)   3 units
C)   4 units
D)   5 unitsE) A) and B)
F) B) and D)

Question 16

A paper plant produces water pollution during the production process. If the government forces the plant to internalize the negative externality, then the

Accepted Answer

A)   supply curve for paper would shift to the right.
B)   supply curve for paper would shift to the left.
C)   demand curve for paper would shift to the right.
D)   demand curve for paper would shift to the left.E) A) and B)
F) A) and C)

Question 17

Two firms, A and B, each currently emit 100 tons of chemicals into the air. The government has decided to reduce the pollution and from now on will require a pollution permit for each ton of pollution emitted into the air. The government gives each firm 40 pollution permits, which it can either use or sell to the other firm. It costs Firm A $200 for each ton of pollution that it eliminates before it is emitted into the air, and it costs Firm B $100 for each ton of pollution that it eliminates before it is emitted into the air. It is likely that

Accepted Answer

A)   Firm A will buy all of Firm B's pollution permits. Each one will cost between $100 and $200.
B)   Firm B will buy all of Firm A's pollution permits. Each one will cost between $100 and $200.
C)   Both firms will use their own pollution permits.
D)   Firm A will buy some of Firm B's pollution permits. Each one will cost less than $100.E) A) and B)
F) A) and C)

Question 18

When one firm sells its pollution permit to another firm,

Accepted Answer

A)   both firms benefit.
B)   the total amount of pollution remains the same.
C)   the total amount of pollution decreases.
D)   Both a and b are correct.E) B) and C)
F) A) and D)

Question 19

Figure 10-7 
-Refer to Figure 10-7. Which quantity represents the social optimum for this market?

Accepted Answer

A)   Q1.
B)   Q2.
C)   Q3.
D)   Q4.E) C) and D)
F) None of the above

Question 20

A technology spillover is a type of negative externality.

Accepted Answer

A) True 
 B)False

Exam 10: Externalities

Figure 10-9 -Refer to Figure 10-9. Which graph represents a market with a negative externality?

Correct Answer
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Figure 10-2. The graph depicts the market for plastic. -Refer to Figure 10-2. A benevolent social planner would like to see

Correct Answer
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Table 10-1 The following table shows the private value, private cost, and external cost for various quantities of output in a market. -Refer to Table 10-1. What is the socially-optimal quantity of output in this market?

Correct Answer
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Patent protection is one way to deal with technology spillovers.

Correct Answer
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A local manufacturing plant that emitted sulfur dioxide was forced to stop production because it did not comply with local clean air standards. This decision provides an example of

Correct Answer
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Technology spillover occurs when

Correct Answer
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Which of the following statements is not correct?

Correct Answer
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Figure 10-1 -Refer to Figure 10-1. This graph represents the tobacco industry. Without any government intervention, the equilibrium price and quantity are

Correct Answer
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Correct Answer
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Figure 10-4 -Refer to Figure 10-4. This market is characterized by

Correct Answer
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Figure 10-9 -Refer to Figure 10-9, Panel c) . The market equilibrium quantity is

Correct Answer
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Figure 10-9 -Refer to Figure 10-9, Panel b) and Panel c) . The overuse of antibiotics leads to the development of antibiotic- resistant diseases. Therefore, the external cost of antibiotic overuse is represented by

Correct Answer
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Private markets fail to reach a socially optimal equilibrium when positive externalities are present because the

Correct Answer
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When one firm sells its pollution permit to another firm,

Correct Answer
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A paper plant produces water pollution during the production process. If the government forces the plant to internalize the negative externality, then the

Correct Answer
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In a certain city, the local government regulates the destruction of historic buildings and provides tax breaks to owners of historic buildings who restore them. These government policies

Correct Answer
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Which of the following policies is not an example of a command-and-control policy?

Correct Answer
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Figure 10-7 -Refer to Figure 10-7. Which quantity represents the social optimum for this market?

Correct Answer
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A technology spillover is a type of negative externality.

Correct Answer
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Table 10-1 The following table shows the private value, private cost, and external cost for various quantities of output in a market. -Refer to Table 10-1. What is the equilibrium quantity of output in the market?

Correct Answer
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Exam 10: Externalities

Figure 10-9 -Refer to Figure 10-9. Which graph represents a market with a negative externality?

Correct AnswerverifiedShow Answer

Figure 10-2. The graph depicts the market for plastic. -Refer to Figure 10-2. A benevolent social planner would like to see

Correct AnswerverifiedShow Answer

Table 10-1 The following table shows the private value, private cost, and external cost for various quantities of output in a market. -Refer to Table 10-1. What is the socially-optimal quantity of output in this market?

Correct AnswerverifiedShow Answer

Patent protection is one way to deal with technology spillovers.

Correct AnswerverifiedShow Answer

A local manufacturing plant that emitted sulfur dioxide was forced to stop production because it did not comply with local clean air standards. This decision provides an example of

Correct AnswerverifiedShow Answer

Technology spillover occurs when

Correct AnswerverifiedShow Answer

Which of the following statements is not correct?

Correct AnswerverifiedShow Answer

Figure 10-1 -Refer to Figure 10-1. This graph represents the tobacco industry. Without any government intervention, the equilibrium price and quantity are

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Figure 10-4 -Refer to Figure 10-4. This market is characterized by

Correct AnswerverifiedShow Answer

Figure 10-9 -Refer to Figure 10-9, Panel c) . The market equilibrium quantity is

Correct AnswerverifiedShow Answer

Figure 10-9 -Refer to Figure 10-9, Panel b) and Panel c) . The overuse of antibiotics leads to the development of antibiotic- resistant diseases. Therefore, the external cost of antibiotic overuse is represented by

Correct AnswerverifiedShow Answer

Private markets fail to reach a socially optimal equilibrium when positive externalities are present because the

Correct AnswerverifiedShow Answer

When one firm sells its pollution permit to another firm,

Correct AnswerverifiedShow Answer

A paper plant produces water pollution during the production process. If the government forces the plant to internalize the negative externality, then the

Correct AnswerverifiedShow Answer

In a certain city, the local government regulates the destruction of historic buildings and provides tax breaks to owners of historic buildings who restore them. These government policies

Correct AnswerverifiedShow Answer

Which of the following policies is not an example of a command-and-control policy?

Correct AnswerverifiedShow Answer

Figure 10-7 -Refer to Figure 10-7. Which quantity represents the social optimum for this market?

Correct AnswerverifiedShow Answer

A technology spillover is a type of negative externality.

Correct AnswerverifiedShow Answer

Table 10-1 The following table shows the private value, private cost, and external cost for various quantities of output in a market. -Refer to Table 10-1. What is the equilibrium quantity of output in the market?

Correct AnswerverifiedShow Answer

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