Economics Ch 10

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 well-being of one person in the society.

Private markets fail to account for externalities because A. externalities don't occur in private markets B. sellers include costs associated with externalities in the price of their product. C. decision makers in the market fail to take account of the external effects of their behavior D. the government can easily correct any adverse effect on the market that externalities may cause

Which of the following illustrates the concept of a negative externality? A. A college professor plays a vigorous game of racquet ball with the racquet he recently purchased. B. a flood wipes out a farmer's entire corn crop C. A college student plays his new stereo at 2:00am D. A janitor eats a Big Mac during his lunch break

If a sawmill creates too much noise for local residents A. it will be up to the residents to either adapt or move B. a sense of social responsibility will cause owners of the mill to reduce noise levels C. the government can raise economic well-being through noise control regulations D. the government can raise economic well-being by providing free hearing screening for residents who live closest to the sawmill.

Hikers frequently claim that livestock grazing in Wilderness Recreation Areas reduce the satisfaction of their recreational hiking experience. AN explanation would be that A. hikers don't eat beef B. grazing cows create negative externalities which make hiking less pleasant C. ranchers are insensitive to the recreational use of public lands D. cattle should not be allowed to graze on public property

The height of the demand curve shows A. how much each buyer in the market is willing to pay B. the willingness to pay of the marginal buyer C. the maximum price all buyers will pay for a product D. the lowest price buyers will pay for a product.

When a beekeeper places his hives of bees in an orchard so that the bees can gather nectar to produce honey, the bees pollinate the orchard, which increases the yield of fruit. This benefits A. only the beekeeper B. the beekeeper, but creates a negative externality because the bees are a hazard to the orchard owner C. only the owner of the orchard D. both the beekeeper and the orchard owner

The supply curve for a product reflects the A. value of the product to the suppliers B. quantity buyers will ultimately purchase of the product C. cost to sellers of producing the product D. seller's profit of producing the product

The difference between social cost and private cost is the measure of the A. cost of a negative externality B. loss in profit to the seller as the result of a negative externality C. cost reduction when the negative externality is eliminated D. cost incurred by the government from market intervention

Refer to Figure 10-4. The equilibrium quantity in this market would be A. Q1 B. Q2 C. Q3 D. Q4

Refer to Figure 10-4. This market A. has no need for government intervention B. would benefit from a tax on the product C. would benefit from a subsidy placed on the product D. would optimize total well-being at Q2

Internalizing a positive externality will cause the supply curve faced by an industry to A. shift to the right B. shift to the left C. become more elastic D. remain unchanged

To enhance the well-being of society, a social planner will encourage firms to increase production when A. the firms are producing basic goods B. there is a shortage in the market C. technology spillovers are associated with production D. any negative externalities associated with production are imposed only upon consumers

Government intervention that aims to promote technology-enhancing industries is called A. assisted technology B. intervention policy C. industrial technology assistance D. industrial policy

With industrial policy, the belief is that A. industries yielding the largest positive externalities should receive the biggest subsidies B. any industry which produces negative externalities should be heavily taxed. C. any production process which produces negative externalities must be shut down D. any industry which produces a positive externality should be encouraged with subsidies

Patents do NOT A. provide firms an incentive to research B. assign property rights to inventors C. protect the rights of inventors for their lifetime D. internalize externalities

Refer to Figure 10-7. To internalize the externality in this market the government should A. impose a tax on this product B. provide a subsidy on this product C. encourage firms to supply more of this product by taxing them D. produce the product itself

Many times the problems of externalities are solved by each of the following EXCEPT A. self-interest B. moral codes and social sanctions C. charity D. normal market adjustments

Private contracts between parties with mutual interests A. can only reduce the well-being of society B. will always lead to market outcomes in which the public interest is sacrificed for personal gain C. can solve some inefficiencies associated with positive externalities D. will always cause negative externalities to arise

Two ways that private markets can solve the problem of externalites is with A. integrating businesses and subsidies B. contracts and patents C. integrating businesses and contracts D. subsidies and patents

Dick owns a dog whose barking annoys Dick's neighbor Jane. Dick receives personal benefit from owning the dog, and Jane bears a cost of Dick's ownership of the dog. Assuming Dick has the legal right to keep the dog, which of the following choices are true? A. a private solution can always be arranged B. a private solution can be arranged only if the cost Jane bears exceeds the benefit Dick gets from dog C. A private solution can be arranged only if Jane's cost equals Dick's benefit from the dog D. a private solution can be arranged only if Dick's benefit from his god exceeds Jane's cost

Chad's maple tree hags 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 own lawn cleaned and reseeded is $350. Based on the Coase theorem A.Amy should pay Chat $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.

Which of the following is true of the Coase Theorem? A. interested parties can bargain to reach an efficient outcome B. the outcome reached will be inefficient C. interested parties will need an arbitrator in order to reach an agreement that is efficient D. None of the above is correct