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1182 Which of the following is TRUE?
 private cost + average cost = social cost Incorrect

 social cost = private cost + external cost (True Answer
)Correct
 external cost = private cost Incorrect
 private cost + social cost = external cost Incorrect
1183 Which of the following illustrates the concept of external cost?
 Margaret purchases all her food and clothing in the big city
outside her residence. Incorrect
 A small business owner frequently buys raw materials by
using her bank's line of credit. Incorrect
 Raymond cannot open his windows at times because he lives
downwind from a mushroom farm. (True Answer )Correct
 Felicia, an economics major, asks the most insightful
questions in class. Incorrect
1184 Antibiotics may be ________, since people consider only the

________.
 underused; private and not the social costs of
consumption Incorrect
 overused; private and not the social costs of
consumption (True Answer )Correct
 underused; external and not the private costs of
 overused; external and not the private costs of
1185 An external cost:
 causes markets to allocate resources efficiently. Incorrect

 affects producers but not consumers. Incorrect
 is a cost paid by people other than the producer or
consumer trading in the market. (True Answer )Correct
 leads to economic efficiency only when private costs are
greater than external costs. Incorrect
1186 A chemical bathroom cleaner has an ingredient X that allows

the cleaner to lather well and remove stains. The cost of
producing a bottle of this bathroom cleaner is $3.60, but the
bottle retails for $5.50. When consumers use the bathroom
cleaner, the lather that gets washed down the drain escapes
into the environment and releases allergens that cause
respiratory problems for people. What is the social cost of a
bottle of this cleaner?
 $5.50 less the external cost of such a bottle of bathroom
cleaner Incorrect
 the cost paid by other people as a result of the use of such a
bottle of bathroom cleaner Incorrect
 $5.50 plus the external cost of such a bottle of bathroom
cleaner (True Answer )Correct
 $3.60 Incorrect
1187 Which of the following answers correctly identifies social cost?
 market price + external cost = social cost (True Answer

)Correct
 external cost – market price = social cost Incorrect
 market price + cost of production = social cost Incorrect
 negative externality + positive externality = social
cost Incorrect
1188 An external cost is a cost paid by:
 the consumers trading in the market. Incorrect

 the producers trading in the market. Incorrect
 the government regulating the market. Incorrect
 people other than the consumer and the producer trading in
the market. (True Answer )Correct
1189 When patients or farmers choose whether to use more

antibiotics, they compare:
 their private benefits with the social cost. Incorrect
 their private benefits with the market price. (True Answer
)Correct
 the social benefits with the social cost. Incorrect
 the social benefits with the market price. Incorrect
1190 Since the price of antibiotics does not include all the costs of
using antibiotics, the price is too:
 high, and so antibiotics are overused. Incorrect
 high, and so antibiotics are underused. Incorrect
 low, and so antibiotics are overused. (True Answer )Correct
 low, and so antibiotics are underused. Incorrect
1191 Suppose that the private cost of using antibiotics is less than its
social cost—we would then expect people to ________
antibiotics, leading to an ________ market outcome.
 overuse; inefficient (True Answer )Correct
 underuse; inefficient Incorrect
 overuse; efficient Incorrect
 make efficient use of; equilibrium Incorrect
1192 Table: Costs of Antibiotics

Quantity of Marginal Benefit Marginal Cost External Marginal Social
Antibiotics to Buyers to sellers Cost Cost
1 $25 $5 $10 ?
2 $20 $10 $10 ?
3 $15 $15 $10 ?
4 $10 $20 $10 ?
5 $5 $25 $10 ?
Reference: Ref 10-1
(Table: Costs of Antibiotics) Refer to the table. The marginal social cost of the
fifth unit is:
 $15. Incorrect
 $5. Incorrect
 $35. (True Answer )Correct
 $30. Incorrect

1 $25 $5 $10 ?
2 $20 $10 $10 ?
3 $15 $15 $10 ?
4 $10 $20 $10 ?
5 $5 $25 $10 ?
Reference: Ref 10-1
(Table: Costs of Antibiotics) Refer to the table. The market equilibrium

quantity is ________ and the efficient equilibrium quantity is ________.
 5; 1 Incorrect
 3; 4 Incorrect
 3; 2 (True Answer )Correct
 2; 5 Incorrect

1 $25 $5 $10 ?
2 $20 $10 $10 ?
3 $15 $15 $10 ?
4 $10 $20 $10 ?
5 $5 $25 $10 ?
Reference: Ref 10-1
(Table: Costs of Antibiotics) Refer to the table. The deadweight loss in the
market could be eliminated if the government:
 outlawed the production of the good. Incorrect
 added a $10 tax per unit. (True Answer )Correct
 equated marginal benefit with external cost. Incorrect
 subsidized consumption by $5 per unit. Incorrect
1195 Which of the following statements is TRUE?

I. If an activity creates an external cost of $15, the government
should subsidize the activity by $15.
II. Social surplus is maximized when the private marginal
benefit equals the social cost.
III. External costs result in markets producing too much
output.
IV. Someone pays external costs other than the producer or
consumer.
 I and III only Incorrect
 II, III, and IV only (True Answer )Correct
 III only Incorrect
 II and IV only Incorrect
1196 Figure: Market with External Cost

Reference: Ref 10-2
(Figure: Market with External Cost) The figure displays a

market with external costs. The efficient level of output of
________ units would eliminate the deadweight loss area of
________.
 Q1; ce Incorrect
 Q0; ce Incorrect
 Q0; gh (True Answer )Correct
 Q1; de Incorrect
1197 Figure: Market with External Cost
Reference: Ref 10-2
(Figure: Market with External Cost) Suppose that the figure

displays the demand and supply curves for dry cleaning, a
service that creates pollution. The external cost of dry cleaning
is:
 P2. Incorrect
 P1 – P0. Incorrect
 P0. Incorrect
 P2 – P0. (True Answer )Correct
1198 If a steel manufacturer does NOT bear the entire cost of the
sulfur dioxide it emits, it will:
 emit a lower level of sulfur dioxide than is socially
efficient. Incorrect
 emit a higher level of sulfur dioxide than is socially
efficient. (True Answer )Correct
 emit an acceptable level of sulfur dioxide Incorrect
 not emit any sulfur dioxide in an attempt to avoid paying
the entire cost. Incorrect
1199 If an external cost is present in a market, economic efficiency

may be enhanced by:
 increased competition. Incorrect
 weakening property rights. Incorrect
 better informed market participants. Incorrect
 government intervention. (True Answer )Correct
1200 When the government intervenes in markets with external

costs, it does so in order to:
 protect the interests of bystanders. (True Answer )Correct
 ensure all the costs are born by producers. Incorrect
 ensure all the costs are born by consumers. Incorrect
 increase the welfare losses of producers. Incorrect
1201 Markets are often inefficient when external costs are present
because:
 externalities cannot be corrected without government
regulation. Incorrect
 social costs exceed private costs at the private market
solution. (True Answer )Correct
 private costs exceed social costs at the private market
solution. Incorrect
 production externalities lead to consumption
externalities. Incorrect
1202 Ideally, a market should maximize:
 consumer surplus. Incorrect

 producer surplus. Incorrect
 consumer surplus plus producer surplus. Incorrect
 social surplus. (True Answer )Correct
1203 Which of these statements is TRUE in the case of
externalities?
I. In the case of externalities, prices do not reflect the true cost
or benefit of the product.
II. In the case of externalities, prices sometimes send the
wrong signals about a market.
III. Externalities discourage new producers from entering the
industry since the price always remains about the efficient
price.
 I and II only (True Answer )Correct
 II and III only Incorrect
 I, II, and III Incorrect
1204 Social surplus is consumer surplus:
 minus producer surplus. Incorrect

 plus producer surplus. Incorrect
 plus producer surplus minus everyone else's
surplus. Incorrect
 plus producer surplus plus everyone else's surplus. (True
Answer )Correct
1205 Which of the following statements is correct under a market

with externalities?
 Social surplus is maximized as long as consumer surplus is
maximized. Incorrect
 Social surplus is maximized as long as producer surplus is
maximized. Incorrect
 Social surplus is maximized as long as both consumer
surplus and producer surplus are maximized. Incorrect
 None of these statements is correct. (True Answer )Correct
1206 External costs caused by the use of antibiotics are the costs to
people who are:
 buying antibiotics. Incorrect
 selling antibiotics. Incorrect
 either buying or selling antibiotics. Incorrect
 neither buying nor selling antibiotics. (True Answer
)Correct
1207 Figure: Efficient Market Outcome

Reference: Ref 10-3
(Figure: Efficient Market Outcome) Refer to the figure. The

efficient price and quantity are, respectively:
 P1 and Q1. Incorrect
 P2 and Q1. (True Answer )Correct
1208 Figure: Efficient Market Outcome
Reference: Ref 10-3
(Figure: Efficient Market Outcome) Refer to the figure.

Which point represents the efficient equilibrium?
 A Incorrect
 B Incorrect
 C (True Answer )Correct
 None of the answers is correct. Incorrect
1209 The market equilibrium is not efficient when the consumption

of a good creates external costs, which cause social costs to be:
 less than the private cost. Incorrect
 greater than the private cost. (True Answer )Correct
 less than the total cost. Incorrect
 greater than the total cost. Incorrect
1210 If antibiotic users get all the benefits of antibiotics but do not
bear all of the costs, the social marginal cost of antibiotic use
at the market equilibrium will be:
 higher than the marginal cost to antibiotic sellers. (True
Answer )Correct
 less than the marginal cost to antibiotic sellers. Incorrect
 higher than the marginal benefit to the antibiotic
buyers. Incorrect
 less than the marginal benefit to the antibiotic
buyers. Incorrect
1211 If antibiotic users are required to bear all the costs of

antibiotic use, the supply curve would:
 shift left and would be above the social cost curve. Incorrect
 shift left and would be the same as the social cost
curve. (True Answer )Correct
 shift left but would still be under the social cost
curve. Incorrect
 remain unchanged. Incorrect
1212 Figure: Market for Bathroom Cleaner
Reference: Ref 10-4
(Figure: Market for Bathroom Cleaner) The figure shows a

market for cans of bathroom cleaner that causes
environmental damage, imposing costs on people other than
the consumers and producers of the cleaner. What is the
efficient quantity in this market?
 100 Incorrect
 85 (True Answer )Correct
 15 Incorrect
 9 Incorrect
Reference: Ref 10-4

the consumers and producers of the cleaner. What is the
external cost of the bathroom cleaner?
 $6 (True Answer )Correct
 $9 Incorrect
 $12 Incorrect
 $3 Incorrect
Reference: Ref 10-4

the consumers and producers of the cleaner. If consumers
were taxed such that they only purchased the efficient
quantity of the product, how much deadweight loss would be
removed from this market?
 $90 Incorrect
 $180 Incorrect
 $255 Incorrect
1215 Which of the following is an example involving an external

benefit?
 the pollution of a stream Incorrect
 a person littering a public highway Incorrect
 air pollution Incorrect
 a nice garden in front of someone's house (True Answer
)Correct
1216 An external benefit in a market will cause the market to

produce:
 more than the same market would produce in the presence
of a negative externality. Incorrect
 more than is socially desirable. Incorrect
 less than is socially desirable. (True Answer )Correct
 the socially optimal equilibrium amount. Incorrect
1217 Private markets fail to reach a socially optimal equilibrium

when external benefits are present because the:
 social value exceeds the private value at the private market
solution. (True Answer )Correct
 private cost exceeds the social benefit at the private market
solution. Incorrect
 private benefit equals the social benefit at the private
market solution. Incorrect
 None of the answers is correct. Private markets DO achieve
a socially optimal equilibrium when external benefits are
present. Incorrect
1218 Because there are external benefits from higher education:
 private markets will over-supply college classes. Incorrect

 government intervention cannot improve the market for
college classes. Incorrect
 the government should impose a tax on college
students. Incorrect
 private markets will under-supply college classes. (True
Answer )Correct
1219 The Centers for Disease Control and Prevention (CDC) wants
at least 90 percent of the population vaccinated against
preventable diseases, since the chance of a disease outbreak
decreases as vaccine coverage increases. We can conclude
that:
 the external benefits of vaccination likely decrease as more
and more people are vaccinated. (True Answer )Correct
 the private benefits of vaccination increase with vaccine
coverage. Incorrect
 vaccines create a negative externality once the vaccine
covers 90 percent of the population. Incorrect
 vaccines create a positive externality once the vaccine covers
90 percent of the population. Incorrect
1220 The market price for Good X is $10.75, and every time Good
X is consumed it creates an external benefit of $3.00.
Therefore, which of the following is correct?
 The social benefit of Good X is $13.75, a justification for the
government to give buyers a $3.00 subsidy. (True Answer
)Correct
government to give buyers a $3.00 subsidy. Incorrect
government to tax sellers $13.75 per unit. Incorrect
government to tax sellers $3.00 per unit. Incorrect
1221 Edgar's expected private benefit from the flu shot is $15, and
it would cost him $20 to get vaccinated. Therefore, which of
the following is correct?
 It is socially optimal for Edgar to get the flu shot if the social
benefits of the shot exceed $20. (True Answer )Correct
 The external benefits of the flu shot equal $5 ($20 –
$15). Incorrect
 Even without a government subsidy, Edgar is certain to be
vaccinated. Incorrect
 The deadweight loss is eliminated if Edgar is vaccinated and
the external benefits are $4. Incorrect
1222 Figure: Market for Vaccines

Reference: Ref 10-5
(Figure: Market for Vaccines) The figure represents the

market for vaccines with external benefits. The external
________ of vaccination is ________.
 cost; $15 Incorrect
 cost; $10 Incorrect
 benefit; $20 Incorrect
 benefit; $5 (True Answer )Correct
Reference: Ref 10-5

market for vaccines with external benefits. The efficient level
of output is ________ vaccines, which is ________ than the
market's output.
 1,200; greater Incorrect
 1,800; less Incorrect
 2,400; greater Incorrect
 1,800; greater (True Answer )Correct

Reference: Ref 10-5

market for vaccines with external benefits. The market's
outcome generates a(n):
 deadweight loss of approximately $750. (True Answer
)Correct
 shortage of 1,800 vaccines. Incorrect
 equilibrium price of $20. Incorrect
 All of the answers are correct. Incorrect
1225 In Market X, the external benefit of consumption is $5. In

Market Y, the external cost of consumption is $10. Efficiency
in both markets could be achieved by:
 a tax of $5 in Market X and a subsidy of $10 in Market
Y. Incorrect
 subsidizing both markets. Incorrect
 taxing Market Y and subsidizing Market X. (True Answer
)Correct
 taxing both markets. Incorrect
1226 Figure: ABC Company
Reference: Ref 10-6
(Figure: ABC Company) The figure depicts the market for a

water cleaner for home aquariums. After use it gets washed
down drains and enters into streams where it improves the
mineral content of the water and thus leads to better water
quality and better fish growth. What is the efficient quantity
in this market?
 1,600 Incorrect
 400 Incorrect
 2,000 (True Answer )Correct
 3,600 Incorrect
Reference: Ref 10-6

quality and better fish growth. If the users of the cleaner were
given a subsidy to compensate them for the benefit they are
creating for the ecological system, how much deadweight loss
is removed from this market?
 $2,400 Incorrect
 $1,200 (True Answer )Correct

Reference: Ref 10-6

quality and better fish growth. What is the dollar amount of
the external benefit created per can of the cleaner?
 $12 Incorrect
 $3 Incorrect
 $15 Incorrect
1229 Figure: Softella
Reference: Ref 10-7
(Figure: Softella) The figure shows a market for medicated

tissues. Assume that the only use for these tissues is to wipe
and clean one's hands thus preventing germs from spreading
to other people. What is the dollar amount of the external
benefit (per box) that is created by the use of this product?
 $24 Incorrect
 $12 Incorrect
 $16 Incorrect
Reference: Ref 10-7

to other people. If the government were to subsidize the users
of these tissues, what would the efficient quantity in this
market be?
 500 Incorrect
 1,200 Incorrect
 200 Incorrect
Reference: Ref 10-7

to other people. If the government were to subsidize the users
of these tissues, what is the dollar amount of deadweight loss
that would be removed from this market?
1232 Which of the following statements is INCORRECT?
 When external benefits exist in a market, Qmarket <

Qefficient. Incorrect
 When external benefits exist in a market, social surplus is
maximized when social benefits equal the marginal costs of
production. (True Answer )Correct
 When external costs exist in a market, Qmarket >
 Through taxation, government action can result in Qmarket =
1233 Which of the following correctly describes what a Pigouvian

subsidy is?
 Subsidies received by the producers are called Pigouvian
subsidies. Incorrect
 Pigouvian subsidies are awarded to producers whose goods
have external benefits. (True Answer )Correct
 Taxes on producers creating negative externalities are called
Pigouvian subsidies. Incorrect
 Lower corporate tax rates are also known as Pigouvian
subsidies. Incorrect
1234 Which of the following statements about vaccines is correct?
 Vaccines benefit only people who are vaccinated. Incorrect

 Everyone should be vaccinated in order to prevent the
spreading of disease-causing viruses. Incorrect
 Vaccines benefit people who are vaccinated but cannot
prevent disease on those people who are not
 Vaccines not only benefit people who are vaccinated but also
inhibit spreading disease-causing viruses. (True Answer
)Correct
1235 An external benefit is a benefit received by:
 the consumers trading in the market. Incorrect

 the producers trading in the market. Incorrect
 both the consumers and producers trading in the
market. Incorrect
 people other than the consumers or producers trading in the
market. (True Answer )Correct
1236 Fewer people get flu shots than is efficient because:
 people usually perceive that the private cost of getting flu

shots is higher than their private benefit. (True Answer
)Correct
 people usually perceive that the private benefit of getting flu
shots is higher than their private cost. Incorrect
 the cost of producing flu shots is too high in relation to
profits. Incorrect
 there are always more people taking take flu shots than the
amount of flu shots available. Incorrect
1237 (Figure: Social Benefit) Refer to the figure. Which price and
quantity combination represents the efficient equilibrium?
Figure: Social Benefit
 P1 and Q1
Incorrect
 P2 and Q1
Incorrect
 P3 and Q1
Incorrect
 P2 and Q2
(True Answer )Correct
1238 When external benefits are significant:
 market output is too low. (True Answer )Correct

 market output is too high. Incorrect
 market output is at the efficient level. Incorrect
 social surplus is maximized. Incorrect
1239 If only people who get a flu shot receive all the benefits of the
vaccination, then the:
 demand curve would shift downward. Incorrect
 supply curve would shift upward. Incorrect
 market outcome will be efficient. (True Answer )Correct
 deadweight loss will be higher than if the vaccinations
benefited others as well. Incorrect
1240 If the government wanted to maximize the number of people

receiving a flu vaccination, it should:
 impose a mandatory vaccination program. Incorrect
 provide research grants to those firms engaging in
increasing the supply of vaccine. Incorrect
 give a subsidy to people who are vaccinated. (True Answer
)Correct
 impose a tax on people who are unwilling to be
1241 When external benefits are present in a market:
 the market is more efficient than if the externalities were

not present. Incorrect
 the market outcome is inefficient. (True Answer )Correct
 overall social surplus is maximized because others are
gaining in addition to the market consumers. Incorrect
 the external benefit must be offset by an external
cost. Incorrect
1242 Externalities are:
 benefits received by people other than the producers and

consumers exchanging in the market. Incorrect
 costs paid by people other than the producers and
consumers exchanging in the market. Incorrect
 found either in the form of external benefits or external
costs. Incorrect
 All of these statements are correct. (True Answer )Correct
1243 When significant externalities exist:

I. the market equilibrium is no longer efficient.
II. the market equilibrium is only efficient if the externality is
an external benefit.
III. social surplus is not maximized.
IV. the government may increase efficiency by imposing a tax
on the market.
 I only Incorrect
 I and III only (True Answer )Correct
 II, III, and IV only Incorrect
1244 The market for honey is:
 inefficient since beekeepers do not receive compensation for

their bees pollinating fruits and vegetables. Incorrect
 efficient since farmers pay beekeepers to pollinate their
crops, which internalizes the externality. (True Answer
)Correct
 a public goods market. Incorrect
 in disequilibrium since the market quantity of honey is less
than the socially optimal quantity of honey. Incorrect
1245 Private solutions to externalities are most likely to occur when

there are:
 well-defined property rights and low transaction
costs. (True Answer )Correct
 communal property rights and large numbers of
sellers. Incorrect
 private property rights and high transaction
costs. Incorrect
 communal property rights and large numbers of buyers and
sellers with equal bargaining power. Incorrect
1246 Two parties fail to solve an externality problem because

reaching an agreement requires high-priced lawyers to
negotiate and write up contracts. This illustrates the problem
of:
 Pigouvian legal fees. Incorrect
 transaction costs. (True Answer )Correct
 legal inefficiency. Incorrect
 punitive-cost agreements. Incorrect
 The Coase theorem suggests that the efficient equilibrium

quantity of flu shots will maximize the sum of producer and
consumer surplus. Incorrect
 It is easy to internalize the benefits of getting a flu shot
because only two companies produce flu vaccines. Incorrect
 The market for flu shots could be efficient if the
beneficiaries of the external benefits sufficiently compensated
those receiving the shot. (True Answer )Correct
 To internalize the costs of getting a flu shot, people who
receive the vaccine should pay other people to be
1248 A beekeeper's hives are located in an orchard where the bees

gather nectar to produce honey and simultaneously pollinate
the orchard, which increases the yield of fruit. This benefits:
 only the owner of the orchard. Incorrect
 only the beekeeper. Incorrect
 the beekeeper, but it creates a negative externality because
the bees are a hazard to the orchard owner. Incorrect
 both the beekeeper and the orchard owner. (True Answer
)Correct
1249 The proposition that, private parties with clearly defined

property rights and low transaction costs can resolve
externalities problems on their own is called the:
 voluntary tax theorem. Incorrect
 Bee theorem. Incorrect
 Coase theorem. (True Answer )Correct
 transaction cost theorem. Incorrect
1250 Which of the following suggests that private markets can be

effective in dealing with external costs and benefits?
 external technology policy Incorrect
 the Coase theorem (True Answer )Correct
 the law of diminishing returns Incorrect
 the ―invisible hand‖ Incorrect
1251 Transaction costs:
 are incurred in the production process due to

 are eliminated when the government intervenes in a market
with externalities. Incorrect
 can keep private parties from solving externality
problems. (True Answer )Correct
 increase when taxes are imposed to correct negative
1252 Market solutions to externality problems work when:

I. property rights are easily identifiable.
II. transaction costs are relatively low.
III. the market quantity is above the efficient quantity.
 I and II only (True Answer )Correct
1253 The Coase theorem posits that externality problems can be

solved without government intervention
 when transaction costs are low and property rights are
clearly defined. (True Answer )Correct
 when trading in tradeable allowances occurs. Incorrect
 if markets can reach the efficient quantity and if transaction
costs exceed the deadweight loss caused in the
market. Incorrect
 only rarely, that in general markets cannot maximize social
surplus. Incorrect
1254 The text discusses private solutions for resolving externalities

using the honey market. Among the reasons why the market
solution works well in the honey market is the fact that:
 bees don't fly far and thus it is easy to identify which
farmers are getting the benefits of their pollination
activities. (True Answer )Correct
 the owners of the bee-hives can clearly be
identified. Incorrect
 the market limits the beneficial activities of the bees to those
farmers who have very small farms. Incorrect
1255 Nobel Prize–winning economist James Meade argued that the

market for honey was inefficient because pollination is a(n):
 external benefit of honey production. (True Answer
)Correct
 external cost of honey production. Incorrect
 private benefit of honey production. Incorrect
 private cost of honey production. Incorrect
1256 The external benefit of honey production is internalized when:

 farmers receive tax breaks from the government. Incorrect
 beekeepers receive tax breaks from the
government. Incorrect
 farmers pay beekeepers to pollinate their crops. (True
Answer )Correct
 beekeepers pay farmers to pollinate farmers'
crops. Incorrect
1257 The Coase theorem says that private bargains can ensure an
efficient market equilibrium even when externalities exist if:
 the government does not involve itself in the
process. Incorrect
 the market is sufficiently competitive. Incorrect
 the number of market participants is large. Incorrect
 transaction costs are low and property rights are clearly
defined. (True Answer )Correct
1258 All of the following would be government solutions to

externality problems EXCEPT:
 public sector charities. (True Answer )Correct
 taxes and subsidies. Incorrect
 command and control. Incorrect
 tradeable allowances Incorrect
1259 Which of the following statements about taxes is incorrect?
 Taxes in markets always cause deadweight losses. (True

Answer )Correct
 If the good causes an external cost, taxes actually reduce
deadweight loss. Incorrect
 Both taxes and tradeable allowances in a market that has
external costs can lead to the efficient quantity. Incorrect
 Taxes on producers cause the supply curve for the product
to shift to the left. Incorrect
1260 Government solutions to externality problems include:
 taxing the consumption of goods that cause

 subsidies. Incorrect
 allowing firms to trade the rights to create
pollutants. Incorrect
 All of the answers are correct. (True Answer )Correct
1261 Government solutions to externality problems include:
I. Pigouvian taxes.
II. tradeable allowances.
III. command and control.
 I, II, and III (True Answer )Correct
1262 If the government were to limit the release of air-pollution

produced by a steel mill to 50 parts per million, the policy
would be considered a:
 corrective tax. Incorrect
 subsidy. Incorrect
 regulation. (True Answer )Correct
 market-based policy. Incorrect
1263 When the government uses a command-and-control policy to

solve an externality, it:
 usually involves taxing the consumption of a
commodity. Incorrect
 relies on the Coase theorem to structure the
policy. Incorrect
 creates policies that directly regulate behavior. (True
Answer )Correct
 is usually the most effective policy option
available. Incorrect
1264 ______ make(s) it is illegal for a manufacturer to release its

waste into a nearby stream.
 Legislative transaction costs Incorrect
 Tradable pollution permits Incorrect
 A command-and-control policy (True Answer )Correct
 A market-based policy Incorrect
1265 Which method achieves the lowest per-gallon cost of reducing

water consumption?
 low-flow toilets as mandated by the government Incorrect
 lawn watering restrictions for odd or even days
only Incorrect
 shower heads with restricted water flow Incorrect
 a tax on water consumption (True Answer )Correct
1266 Command and control policies are best suited for:
 reducing electricity consumption. Incorrect

 addressing the problem of acid rain. Incorrect
 the suppression of deadly infectious diseases. (True Answer
)Correct
1267 The command-and-control method to solving an external cost

problem usually involves:
 the imposition of taxes on the consumption of the item that
is causing the external cost. Incorrect
 the institution of a subsidy on the consumption of the item
that is causing the external cost. Incorrect
 the issuance of a regulation on the production, operation, or
use of the item that is causing an external cost. (True Answer
)Correct
 a price ceiling on the item that is causing an external
cost. Incorrect
1268 If you are a government official, under which of the following

situations would you opt for a command-and-control solution
to an externality problem?
I. Lack of running water in part of the country is exacerbating
the spread of cholera in the population.
II. Foreign ships are dumping toxic wastes in the waters off
your country's shores.
III. A large number of banks fail due to excessive risk taking.
 I only (True Answer )Correct
 I and II only Incorrect
1269 The problem with using command-and-control policies to

eliminate external costs is that there are typically many
methods to achieve a goal and:
 consumers may be reluctant to follow. Incorrect
 the situation may be difficult for the government to
control. Incorrect
 the goal itself may not necessarily be the socially optimal
outcome. Incorrect
 the government may not have enough information to choose
the least costly methods. (True Answer )Correct
1270 Which of the following best creates incentives to reduce the
pollution generated by washing machines?
 regulating the capacity of washing machines Incorrect
 requiring appropriate filtering mechanisms on washing
machines Incorrect
 taxing the pollutants directly caused by washing
machines (True Answer )Correct
 allowing the Coase theorem to effectively reach an efficient
market equilibrium. Incorrect

I. Taxes may reduce consumption by exactly the same amount
as government regulations.
II. Taxes typically cost more than government regulations
because taxes raise prices whereas regulations simply limit
quantity.
III. Command-and-control policies effectively reduce
consumption; but may not be the lowest cost method for doing
so.
 I and II only Incorrect
 II only Incorrect
1272 Command and control may be the best approach to handling

externalities if:
 flexibility is desired. Incorrect
 the marginal social cost of the externality is greater than the
social benefit. Incorrect
 taxes and/or subsidies fail to reach the efficient
outcome. Incorrect
 success requires strong compliance. (True Answer )Correct
127 (Table: Costs of Reducing Sulfur Dioxide) Refer to the table. Which of the
3 following statements is FALSE?
Table: Costs of Reducing Sulfur Dioxide
Industry Sulfur Dioxide Emissions (tons) Cost of Reducing 1 Ton of Sulfur Dioxide
Industry X 20 $300
Industry Y 20 $400
 Social costs increase if Industry Y emits 40 tons of sulfur dioxide and Industry
X emits zero tons. Incorrect
 Industry Y would agree to reduce its emissions by 1 ton if Industry X paid it
$301. (True Answer )Correct
 If Industry X decreases emissions by 1 ton and Industry Y increases emissions
by 1 ton, the cost of reducing pollution rises by $100. Incorrect
 Industry X would be willing to reduce its emissions by 5 tons if Industry Y paid
it at least $1,500. Incorrect
1274 The paper industry and brewery industry each emit 60 tons of
particulates into the air. It costs the paper industry $1,000 to
remove 1 ton of particulates and it costs the brewery industry
$1,400 to remove 1 ton of particulates. In an effort to reduce
particulate pollution, the government gives each industry
tradeable allowances worth 50 tons of particulates. We would
expect that:
 the paper industry will buy tradeable allowances from the
brewery industry at a cost between $1,000 and $1,400 per
allowance. Incorrect
 the paper industry will buy tradeable allowances from the
brewery industry at a cost greater than $1,400 per
 the brewery industry will buy tradeable allowances from the
paper industry at a cost between $1,000 and $1,400 per
allowance. (True Answer )Correct
 the brewery industry will buy tradeable allowances from the
paper industry at a cost greater than $1,400 per
 Mandating that every firm emit no more than X amount of

pollutants is the most efficient method of reducing
pollution. Incorrect
 A system of tradeable allowances increases pollution
because firms can pay for the right to pollute. Incorrect
 To maximize social surplus, the burden of reducing
pollution should be allowed to vary by industry. (True Answer
)Correct
 If the EPA cares about the sum of consumer and producer
surplus, they should ignore the impact of pollution reduction
on the profitability of firms. Incorrect
1276 Tradable pollution permits:
 have helped reduce sulfur dioxide emissions but not carbon

emissions. Incorrect
 have helped reduce sulfur dioxide and carbon
emissions. (True Answer )Correct
 have not helped reduce any pollution emissions. Incorrect
 are widely viewed as an ineffective way to reduce
1277 Which of the following answers best explains how the market
for tradeable allowances in pollution works?
 Firms are given a particular dollar subsidy value to clean up
pollution, and they can trade these subsidies between
themselves if they fall below or surpass the limits. Incorrect
 Firms are taxed a particular percentage rate according to
how much they pollute, and they can trade the pollutants to
reduce the effective tax rates they pay. Incorrect
 Firms are required to stick to particular production levels,
and if they go beyond these production levels, they are
charged a percentage of their profits. Incorrect
 Firms are given a particular allowance amount of pollutants
and if they fall below or surpass these targets they can trade
their available allowances with other firms. (True Answer
)Correct
1278 If a market for tradeable allowances exists, a company that

has used up its own allowances can:
 buy allowances from another firm that has surpassed its
limit of pollution. Incorrect
 purchase additional allowances from the EPA on a
temporary basis. Incorrect
 pay a fine to the EPA and purchase additional allowances
from other firms. Incorrect
 buy allowances from another firm that will not reach its
limit of pollution. (True Answer )Correct
1279 Suppose that the EPA limits the pollution level of two firms,
firm High with high cost of reducing pollution and firm Low
with low cost of reducing pollution. Which of the following
statements is correct?
 The EPA should limit both firms' pollution to the same
level. Incorrect
 The EPA should limit High's pollution level to a lower level
than Low's in an attempt to entice High to find more efficient
ways to lower its costs. Incorrect
 The EPA should allow Low to increase its pollution level
and trade with High who would cut its pollution to lower than
the required level. Incorrect
 The EPA should allow High to increase its pollution level
and trade with Low who would cut its pollution to lower than
the required level. (True Answer )Correct
1280 Which of the following explains the difference between

command and control policies and tradeable allowances?
 Command-and-control policies are a government solution to
externalities, whereas tradeable allowances are a type of
private market solution. Incorrect
 Tradeable allowances allow for less flexibility than
command and control policies. Incorrect
 Command-and-control policies require all firms to reduce
pollutants by a specific quantity, whereas tradeable allowances
allow some firms to pollute more than others by trading for
pollution rights. (True Answer )Correct
 Tradeable allowances sometimes result in higher overall
levels of pollutants because firms can simply purchase the
rights to pollute more, whereas the quantity of pollution is
fixed under command and control. Incorrect
1281 Tradeable allowances:
 are typically hard to pass through the Environmental

Protection Agency (EPA) since they allow firms to legally
pollute. Incorrect
 are an efficient way to reduce pollution at lower costs. (True
Answer )Correct
 decrease the profitability of firms since now they have to
pay for the rights to pollute. Incorrect
 are equal to the social surplus in the market. Incorrect
1282 What is the importance of the Clean Air Act of 1990?
 Under this act, the EPA distributes pollution allowances to

electricity producers. (True Answer )Correct
 Under this act, the EPA sets the maximum amount of
pollution that each firm may emit. Incorrect
 The act lists the pollutants that are deemed harmful to the
environment. Incorrect
 The act delineates which firms are allowed to emit more
than 1 ton of sulfur dioxide. Incorrect
I. The EPA's tradeable allowances program for sulfur dioxide
establishes property rights to pollute and helps reduce
transaction costs by distributing allowances, maintaining
databases, and monitoring emissions.
II. One criticism of tradeable allowances is that they prohibit
non-businesses and environmental groups from purchasing
the allowances.
III. The tradeable allowances for sulfur dioxide have
performed poorly because electricity output has increased,
causing a rise in sulfur dioxide levels.
 I only (True Answer )Correct
 III only Incorrect
1284 The Clean Air Act of 1990:
 established a tradeable allowances program for sulfur

dioxide. Incorrect
 is an application of the Coase theorem. Incorrect
 allows firms to profit by selling their unused pollution
allowances. Incorrect
 All of the answers are correct. (True Answer )Correct
1285 Exhibit: EPA Regulations

There are two firms: Company A and Company B. The EPA
enforces regulations saying that neither firm can release more
than 10 units of pollutants. Company A currently releases 10
units and Company B releases 11 units. The EPA requires B to
reduce its pollution by 1 unit—the company can do this, but at a
cost of $1,000. Company A, however, can reduce pollution by 1
unit for a cost of $400. Company B wants to save money by
trading allowances with Company A. After negotiations,
Company A agrees to sell one unit of pollutant to Company B for
$650.
Reference: Ref 10-8
(Exhibit: EPA Regulations) Refer to the exhibit. What is the

total amount of pollutants released into the environment after
the two firms have traded allowances?
 11 Incorrect
 9 Incorrect
 10 Incorrect
1286 Exhibit: EPA Regulations
There are two firms: Company A and Company B. The EPA
enforces regulations saying that neither firm can release more
than 10 units of pollutants. Company A currently releases 10
units and Company B releases 11 units. The EPA requires B to
reduce its pollution by 1 unit—the company can do this, but at a
cost of $1,000. Company A, however, can reduce pollution by 1
unit for a cost of $400. Company B wants to save money by
trading allowances with Company A. After negotiations,
Company A agrees to sell one unit of pollutant to Company B for
$650.
Reference: Ref 10-8
(Exhibit: EPA Regulations) Refer to the exhibit. How do both

firms profit from trading allowances?
 A gains $650, and B saves $550. Incorrect
 A gains $250, and B saves $350. (True Answer )Correct
 A gains $650, and B saves $1,100. Incorrect
 A gains $1,050, and B saves $550. Incorrect
1287 Under the Clean Air Act of 1990, the EPA distributes
pollution allowances to generators of electricity, and firms
trade allowances as they see fit. The EPA's tradeable
allowances program has resulted in:
 air quality that is neither improved nor
worsened. Incorrect
 an improved air quality. (True Answer )Correct
 a worsening in air quality. Incorrect
 a less efficient market outcome. Incorrect
1288 In a market with external costs, suppose the efficient level of

output is 1,000 units. Which of the following statements is
TRUE?
 To achieve the efficient level of output, the government
should set a subsidy equal to the external cost. Incorrect
 To achieve the efficient level of output the government could
set a tax equal to the external cost or issue enough tradeable
allowances to restrict the output to the efficient level. (True
Answer )Correct
 With external costs, the government can use only taxes to
achieve the efficient level of output. Incorrect
 With external costs, the government can use only tradeable
allowances to achieve the efficient level of output. Incorrect
1289 Why are taxes on pollutants and tradeable allowances
considered to have similar effects in solving externality
problems?
 The companies who are taxed are also simultaneously
subject to the allowances of pollutants. Incorrect
 They both reduce pollution of exactly the same types of
pollutants. Incorrect
 They both bring markets closer to the efficient
quantity. (True Answer )Correct
 Companies can trade the taxes on pollutants just as they
trade the allowances on pollutant amounts. Incorrect
1290 Assume an EPA official observes the following situation in a

small town on the banks of a river. The town depends heavily
on fish for its food and is heavily dependent on coal for its
power. A coal factory on the banks of the river empties
pollutants into the river causing health problems among the
residents and the fish to develop toxic residues in their livers
and other organs. Which of the following solutions should the
EPA choose to mitigate this negative externality problem (at
least in the short run)?
I. levy taxes on the coal factory's production of pollutants
II. levy taxes on the consumers' consumption of fish
III. create a market for tradeable allowances
IV. subsidize firms that produce clean fish
 III and IV only Incorrect
 I, III, and IV only Incorrect
1291 The main difference between tradable allowances and taxes is:
 only large firms may trade pollution allowances. Incorrect

 tradeable allowances result in a more efficient
outcome. Incorrect
 taxes decrease firms' profits. Incorrect
 purely political. (True Answer )Correct
1292 When the number of tradeable allowances is set equal to the

efficient market quantity:
 it is equivalent to a tax set equal to the level of the external
cost. (True Answer )Correct
 the outcome will be more efficient than a tax on
 it is equivalent to a government regulation set equal to the
efficient market quantity. Incorrect
 the price of the allowances will equal the social cost of
1293 Which of the following statements are TRUE?

I. Market prices do not correctly signal the true costs and
benefits to society when external costs are present.
II. Market prices do not correctly signal the true costs and
benefits to society when external benefits are present.
III. Taxes and subsidies can adjust prices so that they do send
the correct signals.
 I, II, and III (True Answer )Correct
1294 When external benefits are present, the market price is

________, however when external costs are present, the
market price is ________.
 too low; too high Incorrect
 equal to the efficient price; too low Incorrect
 too high; too low (True Answer )Correct
 equal to the efficient price; too high Incorrect
1295 The social cost of antibiotic consumption equals the private

cost of producing antibiotics plus the cost of increased
bacterial resistance to antibiotics.
 True (True Answer )
 False
1296 An external cost is built into the market price of a good and
thus paid by the consumers.
 True
 False (True Answer )
1297 In a market, the presence of an external cost causes the

market equilibrium output to exceed the efficient level of
output.
 False
1298 In an efficient market, the supply curve will decrease by the

amount of the external cost.
 False
1299 When a transaction between a buyer and seller directly affects

a third party, the effect is called an externality.
 False
1300 The social cost of pollution includes the private producer costs
plus the costs to bystanders adversely affected by the
pollution.
 False
1301 Barking dogs cannot be considered an externality because

externalities must be associated with some form of market
exchange.
 True
1302 External costs lead markets to produce a smaller quantity of a

good than is socially desirable, while external benefits lead
markets to produce a larger quantity of a good than is socially
desirable.
 True
1303 Antibiotics tend to be overused, as the producers of antibiotics

are required to bear all the costs of antibiotic use.
 True
1304 External costs cause deadweight losses, whereas external

benefits do not.
 True
1305 If the government subsidizes activities with external benefits,

the market price falls and people consume more.
 False
1306 Vaccines benefit the person who is vaccinated but they also
create an external cost for others.
 True
1307 If the private benefit of getting a flu shot for a person is less
than the social benefit, the market quantity will be greater
than the efficient quantity.
 True
1308 External benefits lead to inefficient market outcomes.

 False
1309 According to the Coase theorem, the private market will need
government intervention in order to reach an efficient
outcome when externalities are present.
 True
1310 While the Coase theorem is appealing, private actors often fail
to resolve the problems caused by external costs and benefits.
 False
1311 If transaction costs are low and property rights are clearly
identifiable, an efficient market equilibrium can be achieved
even when externalities exist.
 False
1312 Markets are always able to find solutions to externality

problems, and thus maximize social surplus.
 True
1313 The Coase theorem says that if transaction costs are high and
property rights are clearly defined, the private bargains will
ensure that the market equilibrium is efficient even when
there are externalities.
 True
1314 Government intervention is necessary to correct all

externalities.
 True
1315 One advantage of regulation as a method for reducing

pollution is that the government can determine the maximum
quantity of pollution that is legally allowed.
 False
1316 Government can be used to solve externality problems that are

too costly for private parties to solve.
 False
1317 The prime motivation for low-pollutant firms to enter into the
market for tradeable allowances is profit.
 False
1318 Explain in your own words: 1) What is an externality? and 2)

What is the difference between a negative and positive
externalities. Provide examples.

Externalities are side effects of a production process or its use.
They are some sort of additional impact from a good or service
that is not captured by the price of the product. This spillover or
additional impact may be positive or negative. A positive
externality is one where the consumption of the good or service
by the purchaser causes additional benefits that are felt by
others. Thus the price of the product that is equal to the private
marginal benefit does not reflect the social benefit experienced
by other parties. An example of a positive externality is reduced
exposure to flu viruses for people who are not part of the flu
vaccine market. A negative externality is one where the
production or the consumption of the good or service causes
additional costs that are not captured by the price of the product.
For example, a negative externality derives from a product that
causes environmental damage or health problems for people
who are not part of the market transaction.
1319 Make an argument that gun ownership creates external costs.
How might the government address the external costs? Now
make an argument that gun ownership creates external
benefits. How might the government address the external
benefits?

Gun ownership may lead to external costs if guns are misused
and innocent people are injured—e.g., a gun stolen from a law-
abiding citizen's home may be the weapon responsible for
harming someone in an armed robbery. One government
solution is to tax the purchase of guns to reduce their availability
to their efficient level. Command-and-control methods may also
be appropriate in putting limits on the lethality of guns, such as
rate of fire. Gun ownership may create external benefits if the
presence of guns in a community deters criminals from
committing crimes. For instance, law-abiding citizens who carry
concealed weapons may create external benefits. Since criminals
cannot determine who is carrying a concealed weapon, all
people, even those without guns, are less likely to be robbed. In
this case, the government could subsidize the purchase of guns
to increase gun ownership to its efficient level.
1320 Using a demand and supply diagram demonstrate how the

market equilibrium would differ from the efficient
equilibrium when external costs are present. Shade in the area
of deadweight loss, and be sure to label all axes and curves.

1321 (Figure: Negative Externality) The figure shows the market

for a good that causes a negative externality when consumed.
The government decides to begin taxing its producers. Using
the information provided in the figure, answer the following
questions.
Figure: Negative Externality
a. What is the market quantity in this market?
b. What is the social cost of the product?
c. When the product is taxed, what is the dollar amount of the
deadweight loss that is removed from the market?
d. What is the new efficient quantity in this market after the
tax has been imposed?

a. 1,500
b. $4
c. $1,200
d. 900
1322 The market for bathroom cleaners can be defined by this set
of equations:
Qd = 24 – 2P
Qs = –4 + 2P
where P is the price of bathroom cleaners in dollars, and Q is
quantity in thousands. When bathroom cleaners are washed
down the drain, they cause environmental poisoning. The
government estimates that the external cost related to the use
of each container of bathroom cleaner is $3 and is considering
imposing a tax of $3 on the producers of the bathroom cleaner.
Using this information answer the following questions.
a. What are the market price and market quantity in the
bathroom cleaner market?
b. What is the social cost of this quantity of bathroom cleaner?
c. If producers are charged a tax of $3, that would cause the
supply curve to the shift to the left, and the new equation for
the supply curve would be Qs = –4 + 2(P – 3). What is the
efficient quantity traded in this market as a result of the tax?
d. Draw a graph to illustrate the old and new equilibriums in
this market (before and after the tax).
e. What is the dollar amount of the deadweight loss that would
be removed from this market as a result of the tax?

a. 24 – 2P = –4 + 2P
28 = 4P
P = 7 or the Market price = $7 and market quantity = 10 units.
b. $7 + $3 = $10
c. 24 – 2P = –4 + 2(P – 3)
34 = 4P
P = 8.5 or the Efficient market price = $8.50 and Efficient
quantity = 7
d. See the following figure.
e. (3 × 3)/2 = $4.50
1323 (Figure: Positive Externality) The figure shows the market for
a good that, when consumed, causes an external benefit.
Suppose the government decides to begin issuing a subsidy to
the consumers of the good. Using the information provided in
the figure, answer the following questions.
Figure: Positive Externality
a. What is the initial market quantity in this market?

b. What is the social benefit of the product?
c. When the consumers of the product are subsidized, what is
the dollar amount of deadweight loss that is removed from the
market?
d. What is the new efficient quantity in this market after the
subsidy has been allocated?

a. 1,200
b. $3
c. $375
d. 1,450
1324 The market for aquarium cleaners can be defined by the

following set of equations:
Qd = 40 – 3P
Qs = –20 + 3P
P is the price of aquarium cleaners in dollars, and Q is
quantity in thousands. After their use, aquarium cleaners get
washed down the drain and increase the mineral content in
streams and rivers increasing the fish population. The
government estimates that the external benefit related to the
use of each container of aquarium cleaner is $3 and is
considering a subsidy of $3 per container of the aquarium
cleaner. Using this information answer the following
questions.
a. What are the market price and market quantity in the
aquarium cleaner market?
b. What is the social benefit of each container of aquarium
cleaner?
c. If consumers are offered a subsidy of $3, that would cause
the demand curve to shift to the right, and the new equation
for the demand curve would be Qd = 40 – 3(P – 3). What is the
efficient quantity traded in this market as a result of this
subsidy?
d. Draw a graph to illustrate the old and new equilibriums in
this market (before and after the subsidy).
e. What is the dollar amount of the deadweight loss that has
been removed from this market as a result of the subsidy?

a. 40 – 3P = –20 + 3P
60 = 6P
P = 10 for a market price = $10 and a market quantity = 10
units.
b. $10 + $3 = $13
c. 40 – 3P = –20 + 3(P– 3)
69 = 6P
P = 11.5 for a market price = $11.50 and an efficient market
quantity = 14.5 units.
d. See the following figure.
e. (3 × 4.5)/2 = $6.75
1325 Explain and graphically illustrate why underuse of vaccines is

not efficient, and how the inefficiency may be improved.

Fewer people get flu shots than is efficient since the private cost
of getting a flu shot is less than the private benefit. When one
person gets a flu shot the expected number of people who get the
flu falls by more than one, so getting a flu shot generates a
social benefit that is greater than the private benefit.
If people who got a flu shot did receive all the benefits of
vaccination then their demand curve would shift upwards by the
amount of external benefit, and therefore the market
equilibrium will be consistent with the efficient equilibrium.
Thus subsidizing flu shots should result in more vaccinations
and greater social benefit. Subsidies should occur until the
marginal social benefit equals the private marginal cost of
production.
1326 The Coase theorem suggests that efficient solutions to external

costs and benefits can be determined through bargaining.
Under what circumstances will private bargaining fail to
produce a solution?

Private parties may fail to bargain to an efficient solution under
varied circumstances. For example, 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. Third, 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.
1327 As bees make honey, they pollinate fruits and vegetables,

which is an important benefit to farmers. Since pollination is
an external benefit of honey production, what are the
incentives for beekeepers to maintain efficient production of
honey?

As farmers pay beekeepers to pollinate their crops the external
benefits become internalized—the beekeepers earn money from
the pollination of fruits and vegetables as well as from the
production of honey and so expand production towards the
efficient quantity that takes into account the benefits of bees for
honey production and for fruit and vegetable production.
1328 Briefly list some private and public solutions to the existence
of externalities (negative or positive) in markets.

Private solutions include trade in externalities, or a market for
tradeable allowances (where it exists without government
mandate). Government solutions include the command-and-
control-technique (used when external costs are severe and very
significant; this technique is not always efficient), and taxes and
subsidies. Markets for tradeable allowances can also be
government mandated as is, for example, the market for carbon
emissions.
132 (Table: Sulfur Dioxide) The table sets forth the sulfur dioxide emissions along
9 with the costs of reducing sulfur dioxide emissions for two industries. Suppose the
government gives each industry 100 tradeable allowances; each allowance allows
for 1 ton of sulfur dioxide emissions. Explain how the industries will trade the
allowances and the range of prices that the allowances will trade for. What is the
final allocation of allowances between the industries? How many tons of sulfur
dioxide are removed from the air and at what cost?
Table: Sulfur Dioxide
Industry Sulfur Dioxide Emissions (tons) Cost of Reducing 1 Ton of Sulfur Dioxide
Industry X 100 $100
Industry Y 120 $300

Industry Y will pay between $100 and $300 for 20 allowances from Industry X.
Industry Y will now have 120 allowances and emit 120 tons of sulfur dioxide.
Industry X traded away 20 allowances, leaving it with 80 allowances and emitting 80
tons of sulfur dioxide. Twenty tons of sulfur dioxide are removed (220 – total
allowances). Since Industry X removed all the pollution, the total cost is 20 × 100 =
$200. (Note: in calculating the cost, we ignore what Industry Y paid Industry X for
the allowances, since this merely represents a transfer from one industry to another.)
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The Project Gutenberg eBook of Harper's indoor
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Title: Harper's indoor book for boys
Author: Joseph H. Adams
Release date: July 30, 2022 [eBook #68650]
Language: English
Original publication: United States: Harper & Brothers Publishers,

1908
Credits: Richard Hulse and the Online Distributed Proofreading

Team at https://www.pgdp.net (This file was produced from
images generously made available by The Internet
Archive/American Libraries.)
*** START OF THE PROJECT GUTENBERG EBOOK HARPER'S

INDOOR BOOK FOR BOYS ***
HARPER’S INDOOR BOOK FOR
BOYS
WOOD-WORKING
HARPER’S
INDOOR BOOK
FOR BOYS
BY
JOSEPH H. ADAMS
AUTHOR OF
“HARPER’S ELECTRICITY BOOK FOR BOYS”
AND JOINT AUTHOR OF
“HARPER’S OUTDOOR BOOK FOR BOYS”
WITH MANY ILLUSTRATIONS

HARPER & BROTHERS PUBLISHERS
NEW YORK AND LONDON
MCMVIII
Copyright, 1908, by Harper & Brothers.

All rights reserved.
Published April, 1908.
CONTENTS
PAGE
INTRODUCTION xi
Part I
WOOD-WORKING
CHAPTER I—CARPENTRY 3
Tools: How to use them—The Work-bench—A Tool-rack—
A Tool-chest—Joints—A Low Bench—A High Bench—A
Step-bench—A Shoe-box—A Shoe-blacking-box—A Shoe-
blacking-ledge—An Easel—A Clothes-tree—Hanging
Book-shelves—A Corner Cabinet—A Chair—A Table—A
Settle—A Suspended Settle—A Coal and Wood Box—A
Flat-iron Holder—An Umbrella-stand—A Plant-box—A
Final Word
CHAPTER II—WOOD-CARVING 38
Method and Material—Tools—A Carver’s Bench—Chip-
carving—A Frame for a Small Clock—Other Designs—
Relief-carving—Mouldings
CHAPTER III.—FRETWORK AND WOOD-TURNING 56
The Tools—The Practice of the Art—The Preparation of
the Work—A Match-safe—A Wall-bracket—A Fretwork-
box—Other Designs—Wood-turning
CHAPTER IV—PICTURE MOUNTING AND FRAMING 71
A Dutch Head Mounting—A Dark Card Mounting—A Triple
Mounting—Plain Framing—A Sporting Mount—A Round-
robin Mounting
Part II
METAL-WORKING
CHAPTER V.—VENETIAN AND FLORENTINE METAL- 81
WORK
Tools and Material—A Lamp-screen—Pattern-making—A
Standard Screen—A Candlestick—A Candelabra—A Fairy
Lamp—A Burned-match Holder—A Photograph-frame—A
Handkerchief-box—A Sign-board—Double Doorway Grille
—A Moorish Lantern
CHAPTER VI.—METAL-BOUND WORK 103
A Metal-bound Box—A Wood-holder—A Plant-box—A
Coal-box—A Table-lamp—A Hanging-lamp—A Hanging-
plant Box
CHAPTER VII.—DECORATIVE HARDWARE 115
Materials and Tools—Escutcheons—Short Hinge-straps
—Long Hinge-straps—Drawer-pulls and Handle-plates—
Door-plates—Large Lock-plates—Door-knockers and
Miscellaneous Ornaments
CHAPTER VIII.—WIRE-WORK 125
A Bird-cage Bracket—A Photograph Easel—A Match-box
—A Fairy Lamp—A Picture-frame—A Glove-box—A
Window-grille
CHAPTER IX.—GAS AND ELECTRIC SHADES 133
A Simple Gas-shade—Another Gas-shade—A Metal Shade
—An Electric-light Screen—A Bell-shaped Shade—A
Pear-shaped Shade—A Dome-shaped Shade—Another
Dining-room Shade—A Canopy—A Panel Shade
CHAPTER X.—RELIEF ETCHING 139
Equipment—The Technique of the Process—The Acid
Solution—Some Typical Designs
Part III
HOUSEHOLD ARTS
CHAPTER XI.—CLAY-MODELLING AND PLASTER-
CASTING 151
Tools and Methods—The Technique of the Art—Glue and
Gelatine Moulds—Hollow Casting—Modelling a Foot—
Bas-relief Modelling—A Medallion Head—Coin and Metal
Casts—Plaster-casting in General—How to Find and
Mount Signets
CHAPTER XII.—PYROGRAPHY 170
Fire-etching on Wood and Leather—Explanation of
Methods—A Platinum-point Outfit—A Variety of Work on
Wood—Suggestive Designs—Leather-work
CHAPTER XIII.—BOOKBINDING AND EXTRA-
ILLUSTRATION 186
Sheets and Signatures—The Tools—The Practice of the
Art—Rebinding Books—How to Extra-illustrate a Book—
A Circulating Library
CHAPTER XIV.—MAGIC LANTERNS AND
STEREOPTICONS 203
A Home-made Magic Lantern—A Stereopticon—Lantern
Slides by Contact-printing—Lantern Slides by Reduction
CHAPTER XV.—PRINTING, STAMPING, AND EMBOSSING 222
A Simple Flat-bed Press—An Upright Press—A Lever-
press—Stamping—Embossing
Part IV
ROUND ABOUT THE HOUSE
CHAPTER XVI.—A HOUSE GYMNASIUM 237
Indoor Physical Development—Dumb-bells—Indian Clubs
—Calisthenic Wands and Ball-bars—Swinging-rings—
Trapeze Bars—Parallel Bars—A Floor Horizontal Bar—
Striking-bags—A Medicine-ball—Pulley-weights and
Exercisers—An Attic Gymnasium
CHAPTER XVII.—A MINIATURE THEATRE 259
Arrangement and Lighting—Scenery and Equipment—The
Puppets
CHAPTER XVIII.—FITTING UP A BOY’S ROOM 267
Simple Methods and Materials—A Plain Chair—An Odd
Chair—A Morris Chair—A Settle—A Box-desk—A Writing-
table—A Whatnot—A Treasure-chest—Studying-table and
Stool
CHAPTER XIX.—PAINTING, DECORATING, AND
STENCILLING 283
How to Mix and Use Paints—Schemes of Decoration—
Decorating a Bedroom—A Boy’s Room—Another Plan for
a Room—A Nursery—Stencilling
CHAPTER XX.—NOOKS FOR BOOKS 302
A Variety of Practical Designs—A Wall-rack—A Book-
nest—Another Book-rack—A Corner-nook—A Book-
tower—Hanging-shelves—A Book-castle—A Book-chair—
A Book-table—A Magazine-rack—A Box Book-case—A
Nursery Book-rack—Another Book-rack—A Handy Piece
of Furniture—A Book-ledge and Stool
CHAPTER XXI.—CLOCKS AND TIMEPIECES 321
Designs and Materials—A Bracket-clock—A Mantel-clock
—A Wall-clock—A High Wall-clock—An Odd Mantel-
clock—A Shelf-clock—An Old-style Timepiece
CHAPTER XXII.—SCREENS, SHOE-BOXES, AND
WINDOW SEATS 331
A Light-screen—A Fire-screen—A Shoe-screen—A
Bedroom-door Screen—A Heavy Fire-screen—A Window-
seat with Under Ledge—A Shoe-box Seat—A Dressing-
room Settle—A Short Settle—A Foot-rest—A
Combination Shoe-box and Seat—A Double Shoe-box and
Seat—A Curved-back Window-seat—A Window-seat and
Shoe-box
CHAPTER XXIII.—HOUSEHOLD CONVENIENCES 347
A Plate-rail—A Cup and Plate Rack—A Cup and Plate
Pyramid—A Butler’s Tray—Cup-pins and Brush-rack—
Lock-shelves—A Vegetable-bin—A Spoon-bar and
Saucepan-rack—A Medicine-chest—A Convenient Plant-
tray—An Indispensable Clothes-press—A Divan—A
Corner Dressing-table
INTRODUCTION
The success of Harper’s Outdoor Book for Boys seems to insure a
welcome for an indoor handy book, equally practical and
comprehensive, which shall show how leisure time indoors can be
spent most pleasantly and profitably. When stress of weather, or the
coming of long winter evenings, or any other reason gives the indoor
part of life a larger importance, this indoor handy book will be found
an invaluable companion. Good books and good games have their
value always, but there is also a large place for the joy of actual
accomplishment. It is good to do things. It is worth while to learn to
use hands and eyes in the production of working results. And when,
as in the case of the explanation of this book, achievement goes
hand in hand with amusement, it is clear that Mr. Adams and his
associates are the best of companions for an indoor day or evening.
Expensive tools and apparatus are not called for. A boy should
have good but not necessarily costly tools, and he should take
proper care of them. Furthermore, whether his working-place is in his
room or elsewhere, he should feel that he is put upon his honor to
remove any rubbish and to avoid injury to floor or walls. Let us
understand at the outset that the explanation in these pages can be
followed at very little expense, but in this work, as in everything else,
common-sense is necessary. To use one tool for work to which
another is adapted, or to neglect one’s implements, or allow them to
get wet and to rust or to become hopelessly dulled or nicked, is a
sign of shiftlessness. A good workman always takes care of his
tools, and he also keeps his work-bench in order. The very mention
of work in a boy’s room, or even indoors, may excite fears of
disorder on the part of the mother; but experience has shown that
with care on the part of the boy, and some concessions from the
mother, these fears are groundless.
It is desirable that a boy should have a place, whether it be in the
cellar or attic, or a corner of his room, definitely devoted to his own
work. It is also a useful training for him to feel that he is put upon
honor both to confine his work to his own bounds, and also to “tidy
up” whenever he leaves his task. With a little patience and oversight
all this can be adjusted to the mutual satisfaction of the household
and the boy.
In addition to the training in various directions which we have
indicated, the suggestions in these pages will help the boy to make
things which are useful—to become a contributor to his home. A
glance at the Table of Contents shows, under “Wood-working,” an
introduction to the use of carpenters’ tools, and instructions in
making picture-frames and ornamented wood-carving. Of late years
ornamental work for lamps, sconces, hinges, and a variety of
purposes has steadily grown in favor, and the second division of the
book tells how a great variety of decorative and useful objects in
metal may be made. When so much experience has been gained,
the boy can readily take up more advanced work, such as modelling
in clay, and plaster casting; bookbinding, and the kindred craft of
extra-illustration; pyrography, or decorative work in burnt wood;
printing, stamping, and embossing; and the construction and use of
the stereopticon. In Part IV. the young craftsman is shown how he
may employ the technical knowledge he has acquired in the fitting up
and decoration of his room; in the building and operating of a
miniature theatre; in the installation of a home gymnasium; and in
the making of various objects of ornament and utility for the
household. Amateur photography has been purposely omitted, since
there are many excellent and practical manuals on the subject that
have been published by the various camera manufacturers for
gratuitous distribution. It is easy to see the possibilities for
usefulness, for beauty, and for amusement in the home, which are
brought within reach in these pages; and these instructions also
represent possibilities for earning money. In, schools where manual
training receives attention, and, indeed, in any school library, this
book will prove peculiarly useful.
Here, as in the Outdoor Handy Book, it has been kept in mind that
there will be neither fun nor profit in doing these things unless the
way is made clear, and it is certain that the desired results will follow
if the directions are carried out. Everything, therefore, has been
tested, and all the instructions are put in simple, practical form. It is a
friendly, well-tried, and reliable household companion that comes to
young Americans in Harper’s Indoor Book for Boys.
Part I
WOOD-WORKING
Chapter I
CARPENTRY
Carpentry, or the science of making things out of wood, is the

oldest and comes the closest to us of any of the applied arts and
crafts. The earliest men made clubs at least. Later they began to
build, to construct, and it is interesting to remember that this ability to
construct is a faculty shared with man by the animals. There are
many species of birds that build well-designed nests; the spider is a
weaver; the bee is a geometrician; the ant is a tunnel builder; the
beaver, in the construction of his dams and breakwaters, displays
engineering ability of a high order. The vital difference between the
animal and the human intelligence lies in the fact that the latter is
progressive. The spider weaves just the same pattern to-day that he
did when the Pyramids were young; the mathematical section of the
bee cell is invariable; the mud-swallows build the same kind of
houses as their remotest ancestors. The common explanation is that
instinct and not reason guides the animal in his work, and instinct is
a reproductive faculty, not an inventive one. It is for man alone to
progress from the crude beginnings of an art to its highest and most
perfect development.
Perhaps the first and most urgent need of all living creatures is for
shelter. The oriole weaves his hanging nest; the beaver constructs
his wonderfully domed house; primitive man builds his hut of
interlaced boughs. But it is man alone who is not content with the
first crude efforts; he is constantly aiming after something more
substantial and better adapted to his increasing needs. So man
becomes the true builder, and as wood is the simple and almost
universally obtainable material, carpentry, or the art of working in
wood, stands at the head of the applied sciences upon which the
civilization of the race depends.
The average boy takes to carpentry as naturally as ducks take to
water, and beginning with the tacks a baby boy will hammer in a
board, the young builder goes on from the simple to the more
complex forms until he attains the full mastery of his material and his
tools. He has now obtained the dignity of manhood; he is a maker of
things.
Once proficient in the art of cutting, joining, and fastening wood-
work, and in the use and care of tools, a boy may begin to call
himself a carpenter. But he must learn to work systematically and
accurately if he is ever to become a genuine craftsman. In the first
place, he should understand the possibilities and limitations of his
tools. He should never use a chisel for a screw-driver, nor drive nails
with the butt end of a plane. Good tools should have good care.
Inanimate things that they are, they yet resent ill-usage, and
retaliate, in their own way, by becoming dull and otherwise unfit for
their work. Indeed, a good carpenter may be known by the condition
of his tool-chest and work-bench. Carpentry, when properly carried
on, is a most fascinating occupation for out-of-school hours,
especially in the winter season, when bad weather keeps one
indoors. Needless to say, it may be made a profitable way of passing
time as well as an amusing one.
Tools
The tools that a boy will need in order to do good joiner-work

should be the same as carpenters use, but they may be smaller and
not so cumbersome to handle. The set of tools in a chest, put up for
the use of children and sold at toyshops, are not the sort that can be
relied upon for good carpentry work, since they are usually dull and
made of soft steel that will not hold an edge. Possibly the
manufacturer thinks that he is justified in turning out this kind of
rubbish, bearing in mind the old saying, “Children should not play
with edged tools.” But the boy who is old enough to take up
carpentry in earnest is entitled to the use of good and serviceable
implements, and without them it is hardly worth while starting at the
business.
Competition has brought down the cost of good tools to a point
where they are not beyond the means of the average boy who is
prepared to save his pocket-money. It is better to purchase only a
small kit at first, and then to add to it from time to time, until the
complete outfit is obtained.
Good tools may be purchased at nearly every hardware shop or
general store throughout the country. For ordinary work you will
require a good rip and cross-cut saw, with twenty and twenty-four
inch blades, respectively; a claw-hammer, and a smaller one; a
wooden mallet for chisels, and to knock together the lap joints of
wood; a jack and a smoothing plane; a compass-saw; a brace and
several sizes of bitts, ranging from a quarter to one inch in diameter;
a draw-knife; a square; awls; pliers; a rule; several firmer-chisels,
and a screw-driver. There are many other useful tools, but they may
be added as they are required.
It is a difficult matter to instruct a boy, by written description, how
to handle tools; and rather than attempt it, I should advise the young
workman to watch a carpenter at his work. Most carpenters are quite
willing to have you follow their movements, and many of them will
even offer advice, if they see that you are really interested. But
remember that a good workman never likes to have a boy meddle
with his tools, and you should not ask foolish or unnecessary
questions.
Perhaps there is a carpenter’s shop near your home in which the
owner may let you work occasionally (if you keep out of his way),
and where, in the atmosphere of the craft, you will make faster
progress than you can possibly do at home with no one to tell or
show you how things should be done.
The Work-bench
One of the indispensable pieces of equipment for the boy

carpenter is a good work-bench. The bench must be substantially
made, and provided with a planing-stop, a vise, and a drawer in
which to keep small tools, nails, screws, and the various odds and
ends that are employed in carpentry.
To begin with, obtain four spruce or white-wood sticks, three
inches square and thirty-six inches long, planed on all sides. These
are for the legs. You will also need two pieces of clear pine, or white-
wood, three feet long and six inches wide, and two more the same
length and three inches wide. These pieces should be one and an
eighth inches thick, and planed on all sides and edges.
Fig. 1. Fig. 2. Fig. 3. Fig. 4. Fig. 5.
Lay two of the legs on the floor, three feet apart, and join the ends
with one of the six-inch strips. Six inches up from the free ends
fasten a narrow strip, as shown in Fig. 2 A. This finishes one of the
end supports. Flat-headed iron screws, two and a half inches long,
should be used for the unions, and a tighter joint may be secured by
also using glue.
Prepare, in similar fashion, the other pair of legs, and, with two
pieces of clear pine, or white-wood, five feet long, eight inches wide,
and seven-eighths of an inch thick, bind the four legs together, as
shown in Fig. 3. You should allow the boards to project six inches
beyond the legs at both ends. These pieces are the side-rails, or
aprons, and they should be securely fastened with glue and screws
to the upper end of each leg.
At the back of the bench arrange two braces of wood, three inches
wide and seven-eighths of an inch thick, as shown in Fig. 3. Bevelled
laps are to be cut in the side of two legs, as shown in Fig. 2 B, into
which the ends of the strips will fit flush. The upper ends of the strips
are to be mitred (cut at an angle), and attached to the inside of the
apron, as shown in Fig. 3.
For the top of the bench use clear pine planking not less than one
inch in thickness. This should be fitted closely together, and fastened
to the cross-pieces with stout screws.
From hard-wood a piece should be shaped for a vise-jaw thirty-two
inches long, three inches wide at the bottom, and seven inches wide
at the top. Near the bottom of the jaw an oblong hole should be cut
to receive the end of a sliding piece, which in turn is provided with
several holes for a peg to fit into. A corresponding oblong hole is cut
near the foot of one leg, through which the piece containing the
holes will pass. This last regulates the spread of the jaw. This
construction may be seen in Fig. 4, and its final position is shown in
the illustration of the finished bench (Fig. 1).
Near the top of the jaw a hole is cut to receive the screw that is
turned with the lever-stick to tighten the jaw. A bench-screw may be
purchased at any hardware store, and fitted to the work-bench. If it
should prove too much of an undertaking for the youthful workman, a
carpenter will put it in place at a trifling cost. The wood screws are
the cheapest, but the steel ones are the most satisfactory, and will
cost about one dollar for a small one.
From the apron (at the front of the bench) a piece should be cut
fifteen inches long and six inches wide. This opening will admit a

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 private cost + average cost = social cost Incorrect

1183 Which of the following illustrates the concept of external cost?

1184 Antibiotics may be ________, since people consider only the

1185 An external cost:

 causes markets to allocate resources efficiently. Incorrect

1186 A chemical bathroom cleaner has an ingredient X that allows

1187 Which of the following answers correctly identifies social cost?

 market price + external cost = social cost (True Answer

1188 An external cost is a cost paid by:

 the consumers trading in the market. Incorrect

1189 When patients or farmers choose whether to use more

1192 Table: Costs of Antibiotics

Reference: Ref 10-1

1193 Table: Costs of Antibiotics

Reference: Ref 10-1

(Table: Costs of Antibiotics) Refer to the table. The market equilibrium

1194 Table: Costs of Antibiotics

Reference: Ref 10-1

1195 Which of the following statements is TRUE?

1196 Figure: Market with External Cost

(Figure: Market with External Cost) The figure displays a

1197 Figure: Market with External Cost

Reference: Ref 10-2

(Figure: Market with External Cost) Suppose that the figure

1199 If an external cost is present in a market, economic efficiency

1200 When the government intervenes in markets with external

1202 Ideally, a market should maximize:

 consumer surplus. Incorrect

1204 Social surplus is consumer surplus:

 minus producer surplus. Incorrect

1205 Which of the following statements is correct under a market

1207 Figure: Efficient Market Outcome

(Figure: Efficient Market Outcome) Refer to the figure. The

1208 Figure: Efficient Market Outcome

Reference: Ref 10-3

(Figure: Efficient Market Outcome) Refer to the figure.

1209 The market equilibrium is not efficient when the consumption

1211 If antibiotic users are required to bear all the costs of

1212 Figure: Market for Bathroom Cleaner

Reference: Ref 10-4

(Figure: Market for Bathroom Cleaner) The figure shows a

Reference: Ref 10-4

(Figure: Market for Bathroom Cleaner) The figure shows a

1214 Figure: Market for Bathroom Cleaner

Reference: Ref 10-4

(Figure: Market for Bathroom Cleaner) The figure shows a

1215 Which of the following is an example involving an external

1216 An external benefit in a market will cause the market to

1217 Private markets fail to reach a socially optimal equilibrium