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1、Chapter 10ExternalitiesTRUE/FALSE1.Markets sometimes fail to allocate resources efficiently.ANS:TDIF:2REF:10-0NAT:AnalyticLOC:Markets, market failure, and externalitiesTOP:Market failureMSC:Interpretive2.When a transaction between a buyer and seller directly affects a third party, the effect is call
2、ed an externality.ANS:TDIF:1REF:10-0NAT:AnalyticLOC:Markets, market failure, and externalitiesTOP:ExternalitiesMSC:Definitional3.Buyers and sellers neglect the external effects of their actions when deciding how much to demand or supply.ANS:TDIF:2REF:10-0NAT:AnalyticLOC:Markets, market failure, and
3、externalitiesTOP:ExternalitiesMSC:Interpretive4.In a market characterized by externalities, the market equilibrium fails to maximize the total benefit to society as a whole.ANS:TDIF:1REF:10-0NAT:AnalyticLOC:Markets, market failure, and externalitiesTOP:ExternalitiesMSC:Definitional5.In a market with
4、 positive externalities, the market equilibrium quantity maximizes the welfare of society as a whole.ANS:FDIF:1REF:10-0NAT:AnalyticLOC:Markets, market failure, and externalitiesTOP:ExternalitiesMSC:Interpretive6.Barking dogs cannot be considered an externality because externalities must be associate
5、d with some form of market exchange.ANS:FDIF:1REF:10-0NAT:AnalyticLOC:Markets, market failure, and externalitiesTOP:ExternalitiesMSC:Applicative7.The social cost of pollution includes the private costs of the producers plus the costs to those bystanders adversely affected by the pollution.ANS:TDIF:1
6、REF:10-1NAT:AnalyticLOC:Markets, market failure, and externalitiesTOP:ExternalitiesMSC:Definitional8.Organizers of an outdoor concert in a park surrounded by residential neighborhoods are likely to consider the noise and traffic cost to residential neighborhoods when they assess the financial viabil
7、ity of the concert venture.ANS:FDIF:1REF:10-1NAT:AnalyticLOC:Markets, market failure, and externalitiesTOP:Negative externalitiesMSC:Applicative9.When a driver enters a crowded highway he increases the travel times of all other drivers on the highway. This is an example of a negative externality.ANS
8、:TDIF:1REF:10-0NAT:AnalyticLOC:Markets, market failure, and externalitiesTOP:ExternalitiesMSC:Interpretive10.When firms internalize a negative externality, the market supply curve shifts to the left.ANS:TDIF:2REF:10-1NAT:AnalyticLOC:Markets, market failure, and externalitiesTOP:Negative externalitie
9、sMSC:Analytical11.Government subsidized scholarships are an example of a government policy aimed at correcting negative externalities associated with education.ANS:FDIF:1REF:10-1NAT:AnalyticLOC:Markets, market failure, and externalitiesTOP:Positive externalitiesMSC:Applicative12.A congestion toll im
10、posed on a highway driver to force the driver to take into account the increase in travel time she imposes on all other drivers is an example of internalizing the externality.ANS:TDIF:2REF:10-1NAT:AnalyticLOC:Markets, market failure, and externalitiesTOP:Corrective taxesMSC:Interpretive13.Negative e
11、xternalities lead markets to produce a smaller quantity of a good than is socially desirable, while positive externalities lead markets to produce a larger quantity of a good than is socially desirable.ANS:FDIF:2REF:10-1NAT:AnalyticLOC:Markets, market failure, and externalitiesTOP:Negative externali
12、ties | Positive externalitiesMSC:Interpretive14.The government can internalize externalities by taxing goods that have negative externalities and subsidizing goods that have positive externalities.ANS:TDIF:2REF:10-1NAT:AnalyticLOC:Markets, market failure, and externalitiesTOP:Negative externalities
13、| Positive externalitiesMSC:Applicative15.If the social value of producing robots is greater than the private value of producing robots, the private market produces too few robots.ANS:TDIF:2REF:10-1NAT:AnalyticLOC:Markets, market failure, and externalitiesTOP:Positive externalities | Technology spil
14、loversMSC:Analytical16.The patent system gives firms greater incentive to engage in research and other activities that advance technology.ANS:TDIF:2REF:10-1NAT:AnalyticLOC:Markets, market failure, and externalitiesTOP:Technology spilloversMSC:Applicative17.Government intervention in the economy with
15、 the goal of promoting technology-producing industries is known as patent policy.ANS:FDIF:1REF:10-1NAT:AnalyticLOC:Markets, market failure, and externalitiesTOP:Industrial policyMSC:Definitional18.A technology spillover is a type of negative externality.ANS:FDIF:2REF:10-1NAT:AnalyticLOC:Markets, mar
16、ket failure, and externalitiesTOP:Technology spilloversMSC:Interpretive19.Even if possible, it would be inefficient to prohibit all polluting activity.ANS:TDIF:2REF:10-2NAT:AnalyticLOC:Markets, market failure, and externalitiesTOP:ExternalitiesMSC:Applicative20.When correcting for an externality, co
17、mmand-and-control policies are always preferable to market-based policies.ANS:FDIF:2REF:10-2NAT:AnalyticLOC:Markets, market failure, and externalitiesTOP:Command-and-control policies | Corrective taxesMSC:Interpretive21.Corrective taxes enhance efficiency, but the cost to administer them exceeds the
18、 revenue they raise for the government.ANS:FDIF:1REF:10-2NAT:AnalyticLOC:Markets, market failure, and externalitiesTOP:Corrective taxesMSC:Interpretive22.Corrective taxes cause deadweight losses, reducing economic efficiency.ANS:FDIF:2REF:10-2NAT:AnalyticLOC:Markets, market failure, and externalitie
19、sTOP:Corrective taxesMSC:Interpretive23.Most economists prefer regulation to taxation because regulation corrects market inefficiencies at a lower cost than taxation does.ANS:FDIF:2REF:10-2NAT:AnalyticLOC:Markets, market failure, and externalitiesTOP:Corrective taxesMSC:Applicative24.A corrective ta
20、x places a price on the right to pollute.ANS:TDIF:2REF:10-2NAT:AnalyticLOC:Markets, market failure, and externalitiesTOP:Corrective taxesMSC:Interpretive25.According to recent research, the gas tax in the United States is lower than the optimal level.ANS:TDIF:2REF:10-2NAT:AnalyticLOC:Markets, market
21、 failure, and externalitiesKEY:Corrective taxesMSC:Applicative26.The least expensive way to clean up the environment is for all firms to reduce pollution by an equal percentage.ANS:FDIF:2REF:10-2NAT:AnalyticLOC:Markets, market failure, and externalitiesTOP:Corrective taxesMSC:Interpretive27.Correcti
22、ve taxes are more efficient than regulations for keeping the environment clean.ANS:TDIF:1REF:10-2NAT:AnalyticLOC:Markets, market failure, and externalitiesTOP:Corrective taxes | Tradable pollution permitsMSC:Applicative28.A market for pollution permits can efficiently allocate the right to pollute b
23、y using the forces of supply and demand.ANS:TDIF:1REF:10-2NAT:AnalyticLOC:Markets, market failure, and externalitiesTOP:Tradable pollution permitsMSC:Applicative29.Economists believe that the optimal level of pollution is zero.ANS:FDIF:2REF:10-2NAT:AnalyticLOC:Markets, market failure, and externalit
24、iesTOP:Tradable pollution permitsMSC:Interpretive30.The Environmental Protection Agency (EPA) cannot reach a target level of pollution through the use of pollution permits.ANS:FDIF:1REF:10-2NAT:AnalyticLOC:Markets, market failure, and externalitiesTOP:Tradable pollution permitsMSC:Applicative31.Soci
25、al welfare can be enhanced by allowing firms to trade their rights to pollute.ANS:TDIF:2REF:10-2NAT:AnalyticLOC:Markets, market failure, and externalitiesTOP:Tradable pollution permitsMSC:Applicative32.Firms that can reduce pollution easily would be willing to sell their pollution permits.ANS:TDIF:2
26、REF:10-2NAT:AnalyticLOC:Markets, market failure, and externalitiesTOP:Tradable pollution permitsMSC:Applicative33.One example of a real-world market for tradable pollution permits is the market for carbon permits in Europe.ANS:TDIF:1REF:10-2NAT:AnalyticLOC:Markets, market failure, and externalitiesT
27、OP:Tradable pollution permitsMSC:Applicative34.Government can be used to solve externality problems that are too costly for private parties to solve.ANS:TDIF:1REF:10-3NAT:AnalyticLOC:Markets, market failure, and externalitiesTOP:ExternalitiesMSC:Interpretive35.Government intervention is necessary to
28、 correct all externalities.ANS:FDIF:2REF:10-3NAT:AnalyticLOC:Markets, market failure, and externalitiesTOP:ExternalitiesMSC:Applicative36.According to the Coase theorem, if private parties can bargain without cost, then the private market will solve the problem of externalities.ANS:TDIF:1REF:10-3NAT
29、:AnalyticLOC:Markets, market failure, and externalitiesTOP:Coase theoremMSC:Definitional37.According to the Coase theorem, the private market will need government intervention in order to reach an efficient outcome.ANS:FDIF:1REF:10-3NAT:AnalyticLOC:Markets, market failure, and externalitiesTOP:Coase
30、 theoremMSC:Definitional38.Despite the appealing logic of the Coase theorem, private actors often fail to resolve on their own the problems caused by externalities.ANS:TDIF:1REF:10-3NAT:AnalyticLOC:Markets, market failure, and externalitiesTOP:Coase theoremMSC:Applicative39.According to the Coase Th
31、eorem, individuals can always work out a mutually beneficial agreement to solve the problems of externalities even when high transaction costs are involved.ANS:FDIF:2REF:10-3NAT:AnalyticLOC:Markets, market failure, and externalitiesTOP:Coase TheoremMSC:Interpretive40.According to the Coase theorem,
32、whatever the initial distribution of rights, the interested parties can bargain to an efficient outcome.ANS:TDIF:1REF:10-3NAT:AnalyticLOC:Markets, market failure, and externalitiesTOP:Coase theoremMSC:Definitional41.Private parties may choose not to solve an externality problem if the transaction co
33、sts are large enough.ANS:TDIF:2REF:10-3NAT:AnalyticLOC:Markets, market failure, and externalitiesTOP:Coase theoremMSC:Interpretive42.Many charities like the Sierra Club are established to deal with externalities.ANS:TDIF:2REF:10-3NAT:AnalyticLOC:Markets, market failure, and externalitiesTOP:Coase Th
34、eoremMSC:InterpretiveSHORT ANSWER1.Using a supply and demand diagram, demonstrate how a negative externality leads to market inefficiency. How might the government help to eliminate this inefficiency?ANS:When a negative externality exists, the private cost (or supply curve) is less than the social c
35、ost. The market equilibrium quantity of Q0 will be greater than the socially optimal quantity of Q1. The government could help eliminate this inefficiency by taxing the product. In this example, the size of the per-unit tax would be P3 - P1 (or P2 - P0).DIF:2REF:10-1NAT:AnalyticLOC:Markets, market f
36、ailure, and externalitiesTOP:Negative externalitiesMSC:Analytical2.Using a supply and demand diagram, demonstrate how a positive externality leads to market inefficiency. How might the government help to eliminate this inefficiency?ANS:When a positive externality exists, the private value (or demand
37、 curve) is less than the social value. The market equilibrium quantity will be less than the socially optimal quantity. The government could help eliminate this inefficiency by subsidizing the product. In this example, the size of the per-unit subsidy would be P3 - P1.DIF:2REF:10-1NAT:AnalyticLOC:Ma
38、rkets, market failure, and externalitiesTOP:Positive externalitiesMSC:Analytical3.Why are efficiency taxes preferred to regulatory policies as methods remedy externalities?ANS:Efficiency taxes allow markets to coordinate optimal resource allocation. In order for regulations to be efficient, the gove
39、rnment needs detailed information about specific industries, including information about the alternative technologies that those industries could adopt. Thus, taxes are likely to reduce pollution at a lower cost to society.DIF:2REF:10-2NAT:AnalyticLOC:Markets, market failure, and externalitiesTOP:Co
40、mmand-and-control policies | Corrective taxesMSC:Applicative4.Use a graph to illustrate the quantity of pollution that would be emitted (a) after a corrective tax has been imposed and (b) after tradable pollution permits have been imposed. Could these two quantities ever be equivalent?ANS:Yes, these
41、 two quantities could be equal. For example, PB could be equal to the amount of the corrective tax.DIF:2REF:10-2NAT:AnalyticLOC:Markets, market failure, and externalitiesTOP:Corrective taxes | Tradable pollution permitsMSC:Analytical5.To produce honey, beekeepers place hives of bees in the fields of
42、 farmers. As bees gather nectar, they pollinate the crops in the fields, which increases the yields of these fields at no additional cost to the farmer. What might be a reasonable private solution to this externality, and how might the solution be reached?ANS:One solution would be to have one person
43、 own both the farm fields and the beehives, in which case the externality is internalized. Another solution would be to have the farmer and beekeeper enter into a contract so that they can coordinate the number of bee hives and acres of crops to maintain an efficient outcome.DIF:1REF:10-3NAT:Analyti
44、cLOC:Markets, market failure, and externalitiesTOP:ExternalitiesMSC:Applicative6.The Coase theorem suggests that efficient solutions to externalities can be determined through bargaining. Under what circumstances will private bargaining fail to produce a solution?ANS:Private parties may fail to barg
45、ain to an efficient solution under a variety of circumstances. First, the transaction costs of bargaining may be so high that one or both of the parties decides not to bargain. Second, the bargaining may not take place if one or both of the parties believes that the agreement cannot be enforced. Thi
46、rd, one or both of the parties may try to hold out for a better deal, in which case the bargaining process breaks down. Fourth, if there are a large number of parties taking part in the negotiations, the costs of coordination may be so great that the bargaining is not successful.DIF:1REF:10-3NAT:AnalyticLOC:Markets, market failure, and externalitiesTOP:Coase theoremMSC:InterpretiveSec00MULTIPLE CHOICE1.In a market economy
