Question 1

What does the term market failure refer to?

Accepted Answer

A)  a situation in which the market, on its own, fails to allocate resources efficiently
B)  an unsuccessful advertising campaign that reduces demand
C)  a situation in which competition among firms is insufficient
D)  a firm that is forced out of business because of lossesE) None of the above
F) A) and D)

Question 2

What would be an optimal tax on pollution

Accepted Answer

A)  one for which producers choose not to produce any pollution
B)  one for which producers internalize the cost of the pollution
C)  one for which a benevolent social planner is able to maximize production
D)  one for which the value to consumers at market equilibrium exceeds the cost of production (including tax) E) B) and C)
F) A) and D)

Question 3

What does technology spillover refer to

Accepted Answer

A)  the government's responsibility for subsidizing firms that 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)  when firms engaged in technology research are 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 productE) A) and B)
F) A) and C)

Question 4

Figure 10-1
This figure reflects the market for outdoor concerts in a public park surrounded by residential neighbourhoods.
 
-Refer to Figure 10-1.What is the total surplus derived from the most efficient outcome

Accepted Answer

A)  a + b
B)  a + b + c + d
C)  a + b + c + d + e + f
D)  a + b + c + e + gE) B) and C)
F) None of the above A

Question 5

If it is illegal for a biochemical manufacturer to release its waste into a nearby stream,what is this an example of

Accepted Answer

A)  a market-based policy
B)  a command-and-control policy
C)  a pollution permit
D)  a transaction costE) None of the above
F) A) and C)

Question 6

What is one reason private solutions to externalities do NOT always work

Accepted Answer

A)  Government participation in such solutions complicates the process.
B)  Some people benefit from externalities.
C)  Interested parties incur costs in the bargaining process.
D)  The actual costs and benefits of the problem are difficult to see.E) C) and D)
F) B) and D)

Question 7

What is one way to internalize a technology spillover

Accepted Answer

A)  with taxes
B)  with patents
C)  with government regulations
D)  with private bargainingE) All of the above
F) C) and D)

Question 8

Chad's maple tree hangs over Amy's fence and drops leaves into her yard each autumn.The benefit to Chad of lower utility bills is about $300.The cost to Amy of having her lawn cleaned and reseeded is $350.Based on the Coase theorem,what should result

Accepted Answer

A)  Amy should pay Chad $325 to cut down the tree.
B)  Chad should pay Amy $350 to have her lawn repaired and cleaned.
C)  Chad should pay Amy $400 to keep the tree.
D)  Amy should build a higher fence.E) All of the above
F) B) and C) A

Question 9

The government can internalize an externality by taxing goods that have negative externalities and subsidizing goods that have positive externalities.

Accepted Answer

A) True 
 B)False

Question 10

When does the Coase theorem suggest that private markets may NOT be able to solve the problem of externalities

Accepted Answer

A)  when the number of interested parties is large and bargaining costs are high
B)  when government does not actively become involved in the process
C)  when the firm in the market is a monopoly
D)  when some people benefit from the externalityE) C) and D)
F) None of the above

Question 11

Firms that can reduce pollution easily would be willing to sell their pollution permits.

Accepted Answer

A) True 
 B)False

Question 12

When might transaction costs arise

Accepted Answer

A)  They can arise when parties engage in the process of agreeing and following through on a bargain.
B)  They may be incurred during the production process.
C)  They may arise from transaction complications between buyers and sellers.
D)  They may arise in a market with externalities related to government assistance.E) C) and D)
F) A) and D)

Question 13

What term is used for a situation where one firm's research yields knowledge that is used by society as a whole

Accepted Answer

A)  social cost
B)  opportunity cost of technology
C)  internalization of an externality
D)  technology spilloverE) A) and D)
F) A) and C)

Question 14

When one firm sells its pollution permit to another firm,what will most likely occur

Accepted Answer

A)  Only one firm benefits.
B)  The total amount of pollution remains the same.
C)  Social welfare is unaffected.
D)  Over time, pollution will be eliminated.E) A) and B)
F) C) and D)

Question 15

According to the Coase theorem,when will private markets solve externality problems and allocate resources efficiently

Accepted Answer

A)  as long as private parties can bargain without cost
B)  as long as government assigns property rights to the harmed party
C)  as long as the externalities that are present are positive and not negative
D)  as long as businesses determine an appropriate level of productionE) A) and C)
F) B) and C)

Question 16

If education produces positive externalities,what would we expect

Accepted Answer

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)  universities to relax admission requirementsE) A) and B)
F) A) and C)

Question 17

What type of cost involved when employing a lawyer to draft and enforce a private contract between parties wishing to solve an externality problem

Accepted Answer

A)  an opportunity cost
B)  an implicit cost
C)  a sunk cost
D)  a transaction costE) B) and D)
F) A) and B) D

Question 18

What is social cost

Accepted Answer

A)  a measure of the cost of a negative externality
B)  a measure of the loss in profit to the seller as the result of a negative externality
C)  a measure of the cost reduction when the negative externality is eliminated
D)  a measure of the cost incurred by the government from market interventionE) A) and B)
F) B) and C)

Question 19

Two firms,A and B,each currently dump 50 tonnes of chemicals into the local river.From now on both firms will require a pollution permit for each tonne of pollution dumped.The government gives each firm 20 tonnes' worth of pollution permits,which it can either use or sell to the other firm.It costs Firm A $100 for each tonne of pollution that it eliminates before it reaches the river,and it costs Firm B $50 for each tonne of pollution that it eliminates before it reaches the river.After the two firms buy or sell pollution permits from each other,what would we expect that Firm A and Firm B will dump

Accepted Answer

A)  Firm A will dump 10 fewer tonnes of pollution into the river, and Firm B will dump 50 fewer tonnes of pollution into the river.
B)  Firm A will dump 50 fewer tonnes of pollution into the river, and Firm B will dump 10 fewer tonnes of pollution into the river.
C)  Firm A will dump 50 fewer tonnes of pollution into the river, and Firm B will dump 10 more tonnes of pollution into the river.
D)  Firm A will dump 10 more tonnes of pollution into the river, and Firm B will dump 50 fewer tonnes of pollution into the river.E) A) and D)
F) B) and C)

Question 20

What is a patent used for

Accepted Answer

A)  to disseminate information
B)  to restrict ownership
C)  to protect inventor's ideas for as long as the inventor is alive
D)  to assign property rightsE) A) and C)
F) B) and C)

Exam 10: Externalities

What does the term market failure refer to?

Correct Answer
verified

What would be an optimal tax on pollution

Correct Answer
verified

What does technology spillover refer to

Correct Answer
verified

Figure 10-1 This figure reflects the market for outdoor concerts in a public park surrounded by residential neighbourhoods. -Refer to Figure 10-1.What is the total surplus derived from the most efficient outcome

Correct Answer
verified
A

If it is illegal for a biochemical manufacturer to release its waste into a nearby stream,what is this an example of

Correct Answer
verified

What is one reason private solutions to externalities do NOT always work

Correct Answer
verified

What is one way to internalize a technology spillover

Correct Answer
verified

Chad's maple tree hangs over Amy's fence and drops leaves into her yard each autumn.The benefit to Chad of lower utility bills is about $300.The cost to Amy of having her lawn cleaned and reseeded is $350.Based on the Coase theorem,what should result

Correct Answer
verified
A

The government can internalize an externality by taxing goods that have negative externalities and subsidizing goods that have positive externalities.

Correct Answer
verified

When does the Coase theorem suggest that private markets may NOT be able to solve the problem of externalities

Correct Answer
verified

Firms that can reduce pollution easily would be willing to sell their pollution permits.

Correct Answer
verified

When might transaction costs arise

Correct Answer
verified

What term is used for a situation where one firm's research yields knowledge that is used by society as a whole

Correct Answer
verified

When one firm sells its pollution permit to another firm,what will most likely occur

Correct Answer
verified

According to the Coase theorem,when will private markets solve externality problems and allocate resources efficiently

Correct Answer
verified

If education produces positive externalities,what would we expect

Correct Answer
verified

What type of cost involved when employing a lawyer to draft and enforce a private contract between parties wishing to solve an externality problem

Correct Answer
verified
D

What is social cost

Correct Answer
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Correct Answer
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What is a patent used for

Correct Answer
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Exam 10: Externalities

What does the term market failure refer to?

Correct AnswerverifiedShow Answer

What would be an optimal tax on pollution

Correct AnswerverifiedShow Answer

What does technology spillover refer to

Correct AnswerverifiedShow Answer

Figure 10-1 This figure reflects the market for outdoor concerts in a public park surrounded by residential neighbourhoods. -Refer to Figure 10-1.What is the total surplus derived from the most efficient outcome

Correct AnswerverifiedA

If it is illegal for a biochemical manufacturer to release its waste into a nearby stream,what is this an example of

Correct AnswerverifiedShow Answer

What is one reason private solutions to externalities do NOT always work

Correct AnswerverifiedShow Answer

What is one way to internalize a technology spillover

Correct AnswerverifiedShow Answer

Chad's maple tree hangs over Amy's fence and drops leaves into her yard each autumn.The benefit to Chad of lower utility bills is about $300.The cost to Amy of having her lawn cleaned and reseeded is $350.Based on the Coase theorem,what should result

Correct AnswerverifiedA

The government can internalize an externality by taxing goods that have negative externalities and subsidizing goods that have positive externalities.

Correct AnswerverifiedShow Answer

When does the Coase theorem suggest that private markets may NOT be able to solve the problem of externalities

Correct AnswerverifiedShow Answer

Firms that can reduce pollution easily would be willing to sell their pollution permits.

Correct AnswerverifiedShow Answer

When might transaction costs arise

Correct AnswerverifiedShow Answer

What term is used for a situation where one firm's research yields knowledge that is used by society as a whole

Correct AnswerverifiedShow Answer

When one firm sells its pollution permit to another firm,what will most likely occur

Correct AnswerverifiedShow Answer

According to the Coase theorem,when will private markets solve externality problems and allocate resources efficiently

Correct AnswerverifiedShow Answer

If education produces positive externalities,what would we expect

Correct AnswerverifiedShow Answer

What type of cost involved when employing a lawyer to draft and enforce a private contract between parties wishing to solve an externality problem

Correct AnswerverifiedD

What is social cost

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

What is a patent used for

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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A

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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A

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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D

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Correct Answer
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