Question 1

Figure: City with Two Polluters
(Figure: City with Two Polluters) Look at the figure City with Two Polluters.If the government does not intervene in the pollution market, equilibrium will occur where firm A produces ________ tons of pollution and firm B produces tons of
Pollution for a total of tons of pollution.
A)2,000; 2,000; 4,000
B)0; 1,000; 1,000
C)1,000; 0; 1,000
D)800; 1,400; 2,200

Accepted Answer

The correct answer is A because the equilibrium will occur where the marginal cost of pollution for each firm is equal to the marginal benefit of pollution for the city. For firm A, the marginal cost of pollution is $2 per ton, and the marginal benefit of pollution for the city is $1 per ton. Therefore, firm A will produce 2,000 tons of pollution. For firm B, the marginal cost of pollution is $3 per ton, and the marginal benefit of pollution for the city is $2 per ton. Therefore, firm B will produce 2,000 tons of pollution. The total amount of pollution produced will be 4,000 tons.

Question 2

When an activity like education generates a positive externality, the:
A)market demand curve is below the marginal social benefit curve.
B)market demand curve is above the marginal social benefit curve.
C)marginal cost of production is below the market demand curve.
D)market will produce more than the efficient level of output.

Accepted Answer

When education generates a positive externality, the social benefits exceed the private benefits, meaning the market demand curve (reflecting private benefits) is below the marginal social benefit curve (reflecting total benefits to society).

Question 3

Suppose the production of roses generates a positive externality in that travelers enjoy the scenic rural vistas.Then the market quantity of roses produced and consumed:
A)is less than the socially optimal quantity.
B)is more than the socially optimal quantity.
C)equals the socially optimal quantity.
D)may be more than, less than, or equal to the socially optimal quantity.

Accepted Answer

Positive externalities lead to an underallocation of resources in the free market. As a result, the market quantity of roses produced and consumed is less than the socially optimal quantity.

Question 4

There are external benefits associated with the production of batteries.Without government regulation, the market will:
A)produce too many batteries.
B)price batteries at less than the marginal social cost.
C)price batteries at less than the marginal social benefit.
D)price batteries at greater than the marginal cost.

Accepted Answer

External benefits mean that the social benefit is greater than the private benefit. Without regulation, the market will not account for these benefits, leading to a price lower than the marginal social benefit.

Question 5

One of the reasons community colleges receive government subsidies is that it is believed that education creates , and without subsidies the quantity produced would be the socially optimal quantity.
A)positive externalities; greater than .
B)positive externalities; less than .
C)negative externalities; greater .
D)than no externalities; less than

Accepted Answer

Education is believed to create positive externalities, meaning it benefits society beyond the individual receiving the education. Without subsidies, the quantity of education produced would be less than the socially optimal quantity, as individuals may not consider these external benefits in their decision to pursue education.

Question 6

Betsy loves to garden, and her rose garden is enjoyed by everyone in her neighborhood.Because her consumption of rosebushes provides a positive externality to the community, at the market equilibrium quantity, the marginal social:
A)cost of rosebushes exceeds the market price.
B)benefit of rosebushes exceeds the market price.
C)cost of rosebushes is lower than the market price.
D)benefit of rosebushes is lower than the market price.

Accepted Answer

Betsy's consumption of rosebushes provides a positive externality to the community because her rose garden is enjoyed by everyone in the neighborhood. At the market equilibrium quantity, the marginal private benefit of the rosebushes is equal to the market price, but the marginal social benefit is higher because of the positive externality. Therefore, the marginal social benefit of the rosebushes exceeds the market price. So, choice B is the correct answer.

Question 7

Which of the following is an example of a positive externality?
A)Sam dug a pond so he could go fishing, but the pond has contributed to an explosion of mosquitoes in your neighborhood.
B)Sam has dozens of cats, and they come into your yard to hunt the birds that come to your bird bath.
C)Sam buys a dilapidated house, renovates it, and increases the property values of all houses in the neighborhood.
D)Liquid waste from Sam's chicken farm flows into a neighbor's well water.

Accepted Answer

The renovation of Sam's house increases the value of neighboring houses, which is a positive externality. The other options all have negative effects on others (mosquitoes, birds, contaminated water) and are therefore negative externalities.

Question 8

Suppose the production of roses generates a positive externality in that travelers enjoy the scenic rural vistas.Then the market price of roses:
A)is less than the marginal social benefit of roses.
B)is more than the marginal social benefit of roses.
C)equals the marginal social benefit of roses.
D)may be more than, less than, or equal to the marginal social benefit of roses.

Accepted Answer

Since there is a positive externality, the marginal social benefit of roses includes the enjoyment that travelers get from the scenic rural vistas. However, the market price of roses only reflects the private benefit to the producers and consumers, which does not include the positive externality. Therefore, the market price is less than the marginal social benefit, and the best choice is A.

Question 9

Figure: City with Two Polluters   (Figure: City with Two Polluters) Look at the figure City with Two Polluters.If the government imposed an emissions tax of
$400, firm A would produce ________ tons of emissions and firm B would produce tons of emissions.
A)200; 400
B)400; 1,200
C)800; 1,400
D)1,200; 1,600

Accepted Answer

The answer of Figure: City with Two Polluters  ...

Question 10

Suppose the production of roses generates a positive externality in that travelers enjoy the scenic rural vistas.An appropriate government policy yielding the efficient outcome would be a:
A)Pigouvian tax.
B)Pigouvian subsidy.
C)system of rose production permits.
D)reduction in transaction costs.

Accepted Answer

A Pigouvian subsidy would increase the supply of roses, leading to more scenic rural vistas and a greater overall benefit to society. A Pigouvian tax, on the other hand, would decrease the supply of roses and reduce the external benefit. A system of rose production permits or reduction in transaction costs would not directly address the positive externality and may not lead to an efficient outcome.

Question 11

Betsy loves to garden, and her rose garden is enjoyed by everyone in her neighborhood.Because her consumption of rosebushes provides a positive externality to the community, the government should:
A)provide gardeners like Betsy a subsidy because the market quantity of rosebushes is greater than the socially optimal quantity.
B)impose a tax on gardeners like Betsy because the market quantity of rosebushes is lower than the socially optimal quantity.
C)provide gardeners like Betsy a subsidy because the market quantity of rosebushes is lower than the socially optimal quantity.
D)impose a tax on gardeners like Betsy because the market quantity of rosebushes is greater than the socially optimal quantity.

Accepted Answer

Providing a subsidy to gardeners like Betsy would encourage more production of rosebushes, aligning the market quantity closer to the socially optimal quantity due to the positive externality.

Question 12

When a vaccination program generates a positive externality, the:
A)market demand curve is above the marginal social benefit curve.
B)market demand curve is below the marginal social benefit curve.
C)marginal cost of production is below the market demand curve.
D)market will produce more than the efficient level of output.

Accepted Answer

A positive externality means the social benefit is greater than the private benefit, so the marginal social benefit curve is above the market demand curve.

Question 13

Which of the following is an example of an activity generating a positive externality?
A)You buy a new car and then find $5,000 in the door panel.
B)Your next-door neighbor mows the lawn at 6 A.M.
C)Your next-door neighbor installs a bat house and the bats eat mosquitoes.
D)Joe buys health insurance but decides not to take the time to get a flu shot.

Accepted Answer

Installing a bat house helps control the mosquito population, which benefits not only your neighbor but also the entire community by reducing the spread of mosquito-borne diseases. This is an example of a positive externality, where the benefits spill over to people who are not directly involved in the activity.

Question 14

Figure: City with Two Polluters   (Figure: City with Two Polluters) Look at the figure City with Two Polluters.If the government issued licenses to pollute a total of 1,600 tons of emissions, the market price to emit 1 ton of emissions would equal:
A)$100.
B)$200.
C)$300.
D)$400.

Accepted Answer

The answer of Figure: City with Two Polluters  ...

Question 15

Figure: City with Two Polluters  (Figure: City with Two Polluters) Look at the figure City with Two Polluters.If the government wants to limit total pollution to 2,200 tons, it could impose an emissions tax of on both firms.
A)$100
B)$200
C)$300
D)$400

Accepted Answer

The answer of Figure: City with Two Polluters  (Figure:...

Question 16

A Pigouvian subsidy is:
A)designed to discourage activities generating externalities.
B)designed to encourage activities generating external benefits.
C)appropriate when the marginal social cost curve is above the marginal cost of production curve.
D)appropriate when the marginal social cost curve and the marginal social benefit curve intersect at an inefficient level.

Accepted Answer

A Pigouvian subsidy is designed to encourage activities generating external benefits. It is a government intervention that provides a financial incentive to individuals or firms to engage in activities that have positive externalities. This is done to align private incentives with social benefits and encourage the production of goods or services that have beneficial effects for society as a whole. A Pigouvian subsidy is designed to encourage activities generating external benefits, which are positive externalities. This subsidy would help to offset the external costs and provide an incentive for individuals or firms to engage in activities that generate positive externalities. This is in contrast to a Pigouvian tax which is designed to discourage activities generating negative externalities. Option A is incorrect as it describes a Pigouvian tax, not a subsidy. Option C is not relevant to a Pigouvian subsidy. Option D describes the efficient level of output, but does not specifically relate to a Pigouvian subsidy.

Question 17

With use of to reduce emissions, the marginal benefit of an additional unit of pollution is the same for all polluters.
A)an environmental standard
B)an emissions tax
C)a tradable emissions permit
D)an emissions tax or a tradable emissions permit

Accepted Answer

The answer of With use of to reduce emissions, the...

Question 18

If a good produces a positive externality and the government does not correct it, the equilibrium market quantity is ________ than the socially optimal quantity and the equilibrium market price is than the socially optimal price.
A)higher; higher .
B)lower; lower .
C)lower; higher .
D)higher; lower

Accepted Answer

The answer of If a good produces a positive externality...

Question 19

With tradable emissions permits, the main problem is to determine the , while with emissions taxes the main problem is to determine the _.
A)optimal quantity of pollution; optimal tax rate
B)optimal price of the permits; optimal level of pollution
C)optimal quantity of pollution; marginal social benefit of pollution
D)marginal social cost of pollution; optimal tax rate

Accepted Answer

Tradable emissions permits aim to determine the optimal quantity of pollution by setting a limit on the total number of permits issued. The market then determines the price of the permits. On the other hand, emissions taxes aim to determine the optimal tax rate that will incentivize firms to reduce their emissions to the socially efficient level. Therefore, the main problem with tradable emissions permits is to determine the optimal quantity of pollution, while the main problem with emissions taxes is to determine the optimal tax rate. With tradable emissions permits, the main objective is to determine the optimal quantity of pollution that can be emitted. This is because permits are limited in number and their price is determined by the market. Therefore, the quantity of pollution that can be emitted is controlled. On the other hand, with emissions taxes, the main goal is to determine the optimal tax rate that can be set on each unit of pollution emitted. This tax would be set based on the marginal social cost of pollution to ensure that polluters pay the full cost of their actions.

Question 20

An external benefit is a(n):
A)example of a negative externality.
B)benefit that accrues to domestic firms due to the actions of foreign (external) firms.
C)benefit that accrues to foreign (external) firms due to the actions of domestic firms.
D)benefit that individuals or firms confer on others without receiving compensation.

Accepted Answer

An external benefit is a benefit that individuals or firms confer on others without receiving compensation. It is a type of positive externality where the benefits spill over onto third parties who are not directly involved in the transaction.

Quiz 16: Externalities

When an activity like education generates a positive externality, the:

Suppose the production of roses generates a positive externality in that travelers enjoy the scenic rural vistas.Then the market quantity of roses produced and consumed:

There are external benefits associated with the production of batteries.Without government regulation, the market will:

One of the reasons community colleges receive government subsidies is that it is believed that education creates , and without subsidies the quantity produced would be the socially optimal quantity.

Betsy loves to garden, and her rose garden is enjoyed by everyone in her neighborhood.Because her consumption of rosebushes provides a positive externality to the community, at the market equilibrium quantity, the marginal social:

Which of the following is an example of a positive externality?

Suppose the production of roses generates a positive externality in that travelers enjoy the scenic rural vistas.Then the market price of roses:

Figure: City with Two Polluters (Figure: City with Two Polluters) Look at the figure City with Two Polluters.If the government imposed an emissions tax of $400, firm A would produce ________ tons of emissions and firm B would produce tons of emissions.

Suppose the production of roses generates a positive externality in that travelers enjoy the scenic rural vistas.An appropriate government policy yielding the efficient outcome would be a:

Betsy loves to garden, and her rose garden is enjoyed by everyone in her neighborhood.Because her consumption of rosebushes provides a positive externality to the community, the government should:

When a vaccination program generates a positive externality, the:

Which of the following is an example of an activity generating a positive externality?

Figure: City with Two Polluters (Figure: City with Two Polluters) Look at the figure City with Two Polluters.If the government issued licenses to pollute a total of 1,600 tons of emissions, the market price to emit 1 ton of emissions would equal:

Figure: City with Two Polluters (Figure: City with Two Polluters) Look at the figure City with Two Polluters.If the government wants to limit total pollution to 2,200 tons, it could impose an emissions tax of on both firms.

A Pigouvian subsidy is:

With use of to reduce emissions, the marginal benefit of an additional unit of pollution is the same for all polluters.

If a good produces a positive externality and the government does not correct it, the equilibrium market quantity is ________ than the socially optimal quantity and the equilibrium market price is than the socially optimal price.

With tradable emissions permits, the main problem is to determine the , while with emissions taxes the main problem is to determine the _.

An external benefit is a(n) :