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Name: ________________________ Class: ___________________ Date: __________ ID: A 1 Practice Final Multiple Choice Identify the choice that best completes the statement or answers the question. ____ 1. Since restored historic buildings convey a positive externality, local governments may choose to a. regulate the demolition of them. b. provide tax breaks to owners who restore them. c. increase property taxes in historic areas. d. Both a and b are correct. Figure 10-4 ____ 2. 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 for the product. d. would maximize total well-being at Q 3 . ____ 3. Suppose that flower gardens create a positive externality equal to $1 per plant. What is the relationship between the equilibrium quantity and the socially optimal quantity of plants grown? 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. Name: ________________________ ID: A 2 ____ 4. The Coase theorem states that a. under certain circumstances government intervention is not needed to reach efficient outcomes when an externality is present. b. government intervention is always required to reach an efficient outcome when an externality is present. c. government intervention cannot lead to an efficient outcome when an externality is present. d. only negative externalities can be resolved using government intervention. ____ 5. Suppose that Bill wants to dine at a fancy restaurant, but the only available table is in the smoking section. Bill dislikes the smell of cigarette smoke. He notices that only one person, Peter, is smoking in the smoking section. Bill values the absence of smoke at $15. Peter values the ability to smoke in the restaurant at $10. In order for Bill to pay Peter not to smoke, he will need to tip the waiter $10 to facilitate the transaction. Which of the following represents an efficient solution? a. Peter continues to smoke because the cost to Bill to pay him not to smoke is between $20 and $25, which exceeds the benefit to him of no smoking ($15). b. Bill offers Peter between $10 and $15 not to smoke, and he pays the waiter $10. Peter accepts, and both parties are better off. c. Bill offers Peter between $10 and $15 not to smoke, and he pays the waiter $10. Peter declines because he has a right to smoke in the smoking section. d. Bill offers Peter $5 not to smoke, and he pays the waiter $10. Peter accepts, and both parties are better off. Table 11-1 Consider the town of Tritown with only three residents, Ed, Jim, and Tony. The three residents are trying to determine how large, in acres, they should build the public park. The table below shows each residents willingness to pay for each acre of the park.... View Full Document

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