Question 1

Which of the following could be associated with positive consumption externalities? (i)  child immunisations (ensuring that the general population is vaccinated against communicable diseases) 
(ii)  alcohol consumption
(iii)  maintaining the appearance of historic buildings

Accepted Answer

A)   (i) , (ii)  and (iii) 
B)   (ii)  and (iii)  only
C)   (i)  and (iii)  only
D)   (i)  and (ii)  onlyE) A) and B)
F) All of the above

Question 2

A Pigovian tax:

Accepted Answer

A)   allocates pollution to those factories that face the highest cost of reducing it
B)   is a form of regulation
C)   works well for all types of externalities
D)   is deemed inferior to regulatory policy by most economistsE) C) and D)
F) B) and C)

Question 3

In the absence of public policies, markets will ensure that:

Accepted Answer

A)   demand will always reflect all positive externalities in consumption
B)   demand will always reflect all negative externalities in consumption
C)   supply will always reflect all negative and/or positive externalities in production
D)   none of the above holds trueE) All of the above
F) B) and D)

Question 4

Technology spillover occurs when:

Accepted Answer

A)   the firm's innovations allow it to establish monopoly power
B)   new products by high-tech firms create harmful wastes
C)   research by a firm creates innovations that are easily applied and used by others
D)   patent laws are used to hinder other firms adopting new technologyE) B) and D)
F) A) and D)

Question 5

Graph 10-5
 
-Refer to Graph 10-5. Which of the graphs shown best depicts the case of a positive consumption externality?

Accepted Answer

A)   panel (a) 
B)   panel (b) 
C)   panel (c) 
D)   panel (d) E) B) and C)
F) A) and B)

Question 6

Graph 10-4
 
-Referring to Graph 10-4, which curve best represents a Pigovian tax?

Accepted Answer

A)   A
B)   B
C)   C
D)   DE) C) and D)
F) B) and C)

Question 7

Graph 10-1
 3 - P1 B)  cost of the negative production externality is measured by P3 - P2 C)  cost of the negative production externality is measured by P3 - P1 D)  cost of the negative production externality cannot be measured" class="answers-bank-image d-inline" rel="preload" >
-Refer to Graph 10-1. In the figure shown the marginal:

Accepted Answer

A)   benefit of the positive production externality is measured by P3 - P1
B)   cost of the negative production externality is measured by P3 - P2
C)   cost of the negative production externality is measured by P3 - P1
D)   cost of the negative production externality cannot be measuredE) B) and C)
F) A) and D)

Question 8

Nancy loves to landscape her yard, but her neighbour Tom places a low value on his landscaping. When Tom's grass is neglected and gets long, Nancy will mow it for Tom. This is an example of:

Accepted Answer

A)   a situation in which the Coase theorem fails to explain the law mowing arrangement
B)   improper allocation of resources
C)   a private solution to a negative externality problem
D)   an exploitation of a common resourceE) B) and D)
F) All of the above

Question 9

If the government were to limit the release of air pollution produced by a steel mill to 10 000 units, this policy would be considered a:

Accepted Answer

A)   regulation
B)   Pigovian tax
C)   subsidy
D)   market-based policyE) A) and B)
F) A) and C)

Question 10

Pigovian taxes are typically advocated to correct for the effects of:

Accepted Answer

A)   positive externalities
B)   negative externalities
C)   regulatory burden
D)   all of the aboveE) B) and C)
F) All of the above

Question 11

Suppose that water pollution creates a negative production externality on a local fishing firm. This means:

Accepted Answer

A)   the fishing firm will catch as less fish than before at the same cost
B)   it will be socially optimal for the water pollution to be eliminated
C)   it will be socially optimal to do nothing about the water pollution
D)   the fishing firm will catch more fish than before at the same costE) All of the above
F) A) and B)

Question 12

Negative consumption externalities will have a socially optimal quantity that is smaller than the quantity determined by the private market.

Accepted Answer

A) True 
 B)False

Question 13

Some economists believe that technology spillovers are pervasive and industries with the largest spillovers should be encouraged.

Accepted Answer

A) True 
 B)False

Question 14

Pollution:

Accepted Answer

A)   should be corrected by the subsidisation of polluting firms
B)   is not an economic problem because it is external to the market system
C)   is a common example of private production costs
D)   is a common example of a negative externalityE) A) and D)
F) A) and C)

Question 15

Which of the following is one problem that keeps people from privately solving externalities?

Accepted Answer

A)   each party involved holds out for a better deal
B)   an efficient bargain price is unattainable
C)   only problems with a sufficiently large number of parties can be solved
D)   there is a lack of government interventionE) A) and D)
F) B) and D)

Question 16

Children can be thought of as imposing negative externalities on aeroplane passengers because:

Accepted Answer

A)   when they cry, passengers bear a portion of the cost of this discomfort
B)   their tickets are free or obtained at reduced cost
C)   children (and their parents)  are typically isolated in the rear of the airplane
D)   all of the above are trueE) A) and D)
F) B) and C)

Question 17

Which of the following are characteristics of tradeable pollution permits? (i)  they are a scarce resource
(ii)  they can be traded in a market governed by supply and demand
(iii)  they eventually lead to an efficient elimination of all pollution

Accepted Answer

A)   (i) , (ii)  and (iii) 
B)   (iii)  only
C)   (i)  and (iii)  only
D)   (i)  and (ii)  onlyE) None of the above
F) A) and B)

Question 18

Greenhouse gas emissions are a classic example of a negative production externality.

Accepted Answer

A) True 
 B)False

Question 19

It is impossible to prohibit all polluting activity.

Accepted Answer

A) True 
 B)False

Question 20

Graph 10-1
 
-Refer to Graph 10-1. This graph reflects the presence of a:

Accepted Answer

A)   negative production externality
B)   positive production externality
C)   negative consumption externality
D)   positive consumption externalityE) B) and C)
F) A) and B)

Exam 10: Externalities

Greenhouse gas emissions are a classic example of a negative production externality.

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Graph 10-1 -Refer to Graph 10-1. In the figure shown the marginal:

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It is impossible to prohibit all polluting activity.

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Some economists believe that technology spillovers are pervasive and industries with the largest spillovers should be encouraged.

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Graph 10-4 -Referring to Graph 10-4, which curve best represents a Pigovian tax?

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Which of the following could be associated with positive consumption externalities? (i) child immunisations (ensuring that the general population is vaccinated against communicable diseases) (ii) alcohol consumption (iii) maintaining the appearance of historic buildings

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Graph 10-1 -Refer to Graph 10-1. This graph reflects the presence of a:

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In the absence of public policies, markets will ensure that:

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Pigovian taxes are typically advocated to correct for the effects of:

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Negative consumption externalities will have a socially optimal quantity that is smaller than the quantity determined by the private market.

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Suppose that water pollution creates a negative production externality on a local fishing firm. This means:

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Nancy loves to landscape her yard, but her neighbour Tom places a low value on his landscaping. When Tom's grass is neglected and gets long, Nancy will mow it for Tom. This is an example of:

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Which of the following is one problem that keeps people from privately solving externalities?

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Children can be thought of as imposing negative externalities on aeroplane passengers because:

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If the government were to limit the release of air pollution produced by a steel mill to 10 000 units, this policy would be considered a:

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A Pigovian tax:

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Which of the following are characteristics of tradeable pollution permits? (i) they are a scarce resource (ii) they can be traded in a market governed by supply and demand (iii) they eventually lead to an efficient elimination of all pollution

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Pollution:

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Technology spillover occurs when:

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Graph 10-5 -Refer to Graph 10-5. Which of the graphs shown best depicts the case of a positive consumption externality?

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