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Technology spillover occurs when


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) None of the above
F) All of the above

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Table 10-5 The following table shows the marginal costs for each of four firms (A, B, C, and D) to eliminate units of pollution from their production processes. For example, for Firm A to eliminate one unit of pollution, it would cost $54, and for Firm A to eliminate a second unit of pollution it would cost an additional $67. Table 10-5 The following table shows the marginal costs for each of four firms (A, B, C, and D) to eliminate units of pollution from their production processes. For example, for Firm A to eliminate one unit of pollution, it would cost $54, and for Firm A to eliminate a second unit of pollution it would cost an additional $67. -Refer to Table 10-5. If the government charged a fee of $69 per unit of pollution, how many units of pollution would the firms eliminate altogether? A) 7 B) 8 C) 9 D) 10 -Refer to Table 10-5. If the government charged a fee of $69 per unit of pollution, how many units of pollution would the firms eliminate altogether?


A) 7
B) 8
C) 9
D) 10

E) A) and D)
F) A) and B)

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An externality is the impact of


A) society's decisions on the well-being of society.
B) a person's actions on that person's well-being.
C) one person's actions on the well-being of a bystander.
D) society's decisions on the poorest person in the society.

E) C) and D)
F) B) and D)

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Figure 10-18. The graph represents a corrective tax to reduce pollution. On the axes, Q denotes the quantity of pollution and P represents the price of pollution. Figure 10-18. The graph represents a corrective tax to reduce pollution. On the axes, Q denotes the quantity of pollution and P represents the price of pollution. -Refer to Figure 10-18. The tax depicted on the graph A) gives polluting firms an incentive to develop cleaner technologies. B) is viewed by most economists as less effective than a command-and-control policy as a means of reducing pollution. C) has the effect of moving the allocation of resources further from the social optimum than it would be in the absence of the tax. D) All of the above are correct. -Refer to Figure 10-18. The tax depicted on the graph


A) gives polluting firms an incentive to develop cleaner technologies.
B) is viewed by most economists as less effective than a command-and-control policy as a means of reducing pollution.
C) has the effect of moving the allocation of resources further from the social optimum than it would be in the absence of the tax.
D) All of the above are correct.

E) A) and B)
F) None of the above

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According to the Coase theorem, whatever the initial distribution of rights, the interested parties can bargain to an efficient outcome.

A) True
B) False

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Figure 10-10 Figure 10-10 -Refer to Figure 10-10. Taking into account private and external costs, the maximum total surplus that can be achieved in this market is A) $760. B) $1,080. C) $1,440. D) $1,920. -Refer to Figure 10-10. Taking into account private and external costs, the maximum total surplus that can be achieved in this market is


A) $760.
B) $1,080.
C) $1,440.
D) $1,920.

E) None of the above
F) B) and C)

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If a market is characterized by a positive externality that is not the result of a technology spillover,


A) the socially optimal level of output is less than the equilibrium level of output, and the optimal price is greater than the equilibrium price.
B) the socially optimal level of output is greater than the equilibrium level of output, and the socially optimal price is less than the equilibrium price.
C) the socially optimal level of output is greater than the equilibrium level of output, and the socially optimal price is greater than the equilibrium price.
D) the socially optimal level of output is less than the equilibrium level of output, and the socially optimal price is less than the equilibrium price.

E) B) and D)
F) C) and D)

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Suppose that elementary education creates a positive externality. If the government subsidizes education by an amount equal to the per-unit externality it creates, then


A) the equilibrium quantity of education will equal the socially optimal quantity of education.
B) the equilibrium quantity of education will be greater than the socially optimal quantity of education.
C) the equilibrium quantity of education will be less than the socially optimal quantity of education.
D) There is not enough information to answer the question.

E) All of the above
F) C) and D)

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At any given quantity, the willingness to pay in the market for gasoline is reflected in the


A) height of the demand curve at that quantity.
B) height of the supply curve at that quantity.
C) value to the producer of the last unit of gasoline sold.
D) total quantity of gasoline exchanged in the market.

E) None of the above
F) All of the above

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Table 10-4 Table 10-4 -Refer to Table 10-4. The last unit of output for which private value exceeds social cost is the A) 2<sup>nd</sup> unit. B) 3<sup>rd</sup> unit. C) 4<sup>th</sup> unit. D) 5<sup>th</sup> unit. -Refer to Table 10-4. The last unit of output for which private value exceeds social cost is the


A) 2nd unit.
B) 3rd unit.
C) 4th unit.
D) 5th unit.

E) A) and B)
F) None of the above

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An externality is an example of


A) a corrective tax.
B) a tradable pollution permit.
C) a market failure.
D) Both a and b are correct.

E) A) and D)
F) None of the above

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Which of the following statements is not correct?


A) Corrective taxes can be used to place a price on the right to pollute.
B) Corrective taxes allocate pollution to those producers who face the highest cost of reducing pollution.
C) Corrective taxes provide incentives to develop cleaner technologies.
D) Corrective taxes require the government to set a target level of pollution.

E) A) and D)
F) A) and C)

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Most economists prefer corrective taxes to regulation as a way to correct the problem of pollution because


A) the market-based solution is less costly to society.
B) the market-based solution can result in a greater reduction in pollution.
C) the market-based solution raises revenue for the government.
D) All of the above are correct.

E) B) and D)
F) A) and C)

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Because there are positive externalities from higher education,


A) private markets will under-supply college classes.
B) private markets will over-supply college classes.
C) the government should impose a tax on college students.
D) government intervention cannot improve the market for college classes.

E) C) and D)
F) A) and B)

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The least expensive way to clean up the environment is for all firms to reduce pollution by an equal percentage.

A) True
B) False

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With pollution permits, the supply curve for pollution rights is


A) perfectly elastic.
B) perfectly inelastic.
C) upward sloping.
D) downward sloping.

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

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Internalizing a positive externality will cause the demand curve to


A) shift to the right.
B) shift to the left.
C) become more elastic.
D) remain unchanged.

E) All of the above
F) B) and D)

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Externalities can be corrected by each of the following except


A) self-interest.
B) moral codes and social sanctions.
C) charity.
D) normal market adjustments.

E) A) and B)
F) A) and D)

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The tax on cigarettes is an example of


A) a consumption tax.
B) a corrective tax.
C) an income tax.
D) a command-and-control policy.

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

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Figure 10-10 Figure 10-10 -Refer to Figure 10-10. The socially optimal quantity of output is A) 120 units, since the value to the buyer of the 120<sup>th</sup> unit is equal to the cost incurred by the seller of the 120<sup>th</sup> unit. B) 120 units, since the value to the buyer of the 120<sup>th</sup> unit is equal to the cost incurred by society of the 120<sup>th</sup> unit. C) 160 units, since the value to the buyer of the 160<sup>th</sup> unit is equal to the cost incurred by the seller of the 160th unit. D) 160 units, since the value to the buyer of the 160<sup>th</sup> unit is equal to the cost incurred by society of the 160<sup>th</sup> unit. -Refer to Figure 10-10. The socially optimal quantity of output is


A) 120 units, since the value to the buyer of the 120th unit is equal to the cost incurred by the seller of the 120th unit.
B) 120 units, since the value to the buyer of the 120th unit is equal to the cost incurred by society of the 120th unit.
C) 160 units, since the value to the buyer of the 160th unit is equal to the cost incurred by the seller of the 160th unit.
D) 160 units, since the value to the buyer of the 160th unit is equal to the cost incurred by society of the 160th unit.

E) None of the above
F) All of the above

Correct Answer

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