Question 1

The proposition that if private parties can bargain without cost over the allocation of resources, they can solve the problem of externalities on their own, is called

Accepted Answer

A)   the Pigovian theorem.
B)   a corrective tax.
C)   the externality theorem.
D)   the Coase theorem.E) A) and B)
F) A) and C)

Question 2

Scenario 10-1
The demand curve for gasoline slopes downward and the supply curve for gasoline slopes upward. The production of the 1,000th gallon of gasoline entails the following:
-a private cost of $3.10;
-a social cost of $3.55;
-a value to consumers of $3.70.
-Refer to Scenario 10-1. Suppose the dollar amount of the externality, per gallon of gasoline, is constant, regardless of how much gasoline is produced. Then the externality could be internalized if producers of gasoline were

Accepted Answer

A)   provided a subsidy of $0.30 per gallon of gasoline sold.
B)   provided a subsidy of $0.45 per gallon of gasoline sold.
C)   required to pay a tax of $0.45 per gallon of gasoline sold.
D)   required to pay a tax of $0.30 per gallon of gasoline sold.E) None of the above
F) A) and D)

Question 3

At any given quantity, the willingness to pay of the marginal buyer is the height of the .

Accepted Answer

The answer of At any given quantity, the willingness to...

Question 4

Suppose that cookie producers create a positive externality equal to $2 per dozen. What is the relationship between the equilibrium quantity and the socially optimal quantity of cookies to be produced?

Accepted Answer

A)   They are equal.
B)   The equilibrium quantity is greater than the socially optimal quantity.
C)   The equilibrium quantity is less than the socially optimal quantity.
D)   There is not enough information to answer the question.E) None of the above
F) A) and B)

Exam 10: Externalities

Correct Answer
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Suppose that cookie producers create a positive externality equal to $2 per dozen. What is the relationship between the equilibrium quantity and the socially optimal quantity of cookies to be produced?

Correct Answer
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The proposition that if private parties can bargain without cost over the allocation of resources, they can solve the problem of externalities on their own, is called

Correct Answer
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At any given quantity, the willingness to pay of the marginal buyer is the height of the .

Correct Answer
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Exam 10: Externalities

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Suppose that cookie producers create a positive externality equal to $2 per dozen. What is the relationship between the equilibrium quantity and the socially optimal quantity of cookies to be produced?

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The proposition that if private parties can bargain without cost over the allocation of resources, they can solve the problem of externalities on their own, is called

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At any given quantity, the willingness to pay of the marginal buyer is the height of the .

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Correct Answer
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Correct Answer
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Correct Answer
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