Question 1

Which of the following is an example of potential flawed government behaviour?

Accepted Answer

A)   voter incentives
B)   bureaucrat Incentives
C)   the special-interest effect
D)   all of the aboveE) All of the above
F) None of the above

Question 2

A Pigovian tax sets the price of pollution while tradable pollution permits sets the quantity of pollution.

Accepted Answer

A) True 
 B)False  True

Question 3

Refer to the figure below. This diagram represents the tobacco industry. The market creates an equilibrium price and quantity exchanged of

Accepted Answer

A)   €1.90 and 38 units.
B)   €1.80 and 35 units.
C)   €1.60 and 42 units.
D)   €1.35 and 58 units.E) C) and D)
F) A) and C)

Question 4

Which best describes making political decisions to return favours.

Accepted Answer

A)   short-termism
B)   cronyism
C)   special interest effect
D)   rent seekingE) A) and B)
F) A) and C)

Question 5

A positive externality generates

Accepted Answer

A)   a social cost curve that is above the supply curve (private cost curve)  for a good.
B)   a benefit to suppliers that is greater than the value of producer surplus
C)   a social value curve that is above the demand curve (private value curve)  for a good.
D)   a social value curve that is below the demand curve (private value curve)  for a good.E) A) and B)
F) All of the above

Question 6

Internalizing an externality means

Accepted Answer

A)   the good becomes a public good.
B)   government regulations or taxes are sufficient to eliminate the externality completely.
C)   government imposes regulations that eliminate the externality completely.
D)   incentives are altered so that people take account of the external effects of their actions.E) B) and C)
F) None of the above D

Question 7

Using a supply and demand diagram, demonstrate how a negative externality leads to market inefficiency. How might the government help to eliminate this inefficiency?

Accepted Answer

<img  loading="lazy" src="/assets/images/blured-textbook.svg" class="d-inline m-1" alt="blured image" width="139" height="30"> When a negative externality exists, the...

Question 8

For any given demand curve for pollution, a regulator can achieve the same level of pollution with either a Pigovian tax or by allocating tradable pollution permits.

Accepted Answer

A) True 
 B)False

Question 9

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?

Accepted Answer

​ <img  loading="lazy" src="/assets/images/blured-textbook.svg" class="d-inline m-1" alt="blured image" width="139" height="30"> Yes, these two quantities c...

Question 10

Tax avoidance is

Accepted Answer

A)   Illegal when finding loopholes in the system
B)   legal when finding loopholes in the system
C)   legal and includes the informal economy
D)   illegal and includes the informal economyE) B) and C)
F) All of the above

Question 11

Why are Pigovian taxes preferred to regulatory policies as methods to remedy negative externalities?

Accepted Answer

Pigovian taxes allow markets to coordina...

Question 12

Refer to the figure below. This diagram represents the tobacco industry. The socially optimal price and quantity exchanged are

Accepted Answer

A)   €1.90 and 38 units.
B)   €1.80 and 35 units.
C)   €1.60 and 42 units.
D)   €1.35 and 58 units.E) A) and B)
F) C) and D)

Question 13

If a market generates a positive externality, the social value curve is above the demand curve (private value curve).

Accepted Answer

A) True 
 B)False

Question 14

When wealthy alumni provide charitable contributions to their universities to reduce the tuition payments of current students, it is an example of

Accepted Answer

A)   an attempt to internalize a positive externality.
B)   an attempt to internalize a negative externality.
C)   a Pigovian tax.
D)   a command-and-control policy.E) C) and D)
F) A) and B) A

Question 15

Is it right to say that monetary values can be placed on pollution?

Accepted Answer

All activities, including reducing pollu...

Question 16

A positive externality is an external benefit that accrues to the buyers in a market while a negative externality is an external cost that accrues to the sellers in a market.

Accepted Answer

A) True 
 B)False

Question 17

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?

Accepted Answer

Private parties may fail to bargain to a...

Question 18

A negative externality (that has not been internalized)  causes the

Accepted Answer

A)   optimal quantity to exceed the equilibrium quantity.
B)   equilibrium quantity to be either above or below the optimal quantity.
C)   equilibrium quantity to equal the optimal quantity.
D)   equilibrium quantity to exceed the optimal quantity.E) B) and D)
F) None of the above

Question 19

Tax evasion is

Accepted Answer

A)   Illegal and when finding loopholes in the system
B)   legal and when finding loopholes in the system
C)   legal and includes the informal economy
D)   illegal and includes the informal economyE) None of the above
F) All of the above

Question 20

Because there are positive externalities from higher education,

Accepted Answer

A)   private markets would provide too little of it.
B)   private markets would provide too much of it.
C)   the government should impose a tax on university students.
D)   the government should impose a tax on students' families.E) None of the above
F) A) and B)

Exam 11: Market Failure and Externalities

Which of the following is an example of potential flawed government behaviour?

Correct AnswerverifiedShow Answer

A Pigovian tax sets the price of pollution while tradable pollution permits sets the quantity of pollution.

Correct AnswerverifiedTrue

Refer to the figure below. This diagram represents the tobacco industry. The market creates an equilibrium price and quantity exchanged of

Correct AnswerverifiedShow Answer

Which best describes making political decisions to return favours.

Correct AnswerverifiedShow Answer

A positive externality generates

Correct AnswerverifiedShow Answer

Internalizing an externality means

Correct AnswerverifiedD

Using a supply and demand diagram, demonstrate how a negative externality leads to market inefficiency. How might the government help to eliminate this inefficiency?

Correct Answerverified When a negative externality exists, the...View AnswerShow Answer

For any given demand curve for pollution, a regulator can achieve the same level of pollution with either a Pigovian tax or by allocating tradable pollution permits.

Correct AnswerverifiedShow Answer

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?

Correct Answerverified​ Yes, these two quantities c...View AnswerShow Answer

Tax avoidance is

Correct AnswerverifiedShow Answer

Why are Pigovian taxes preferred to regulatory policies as methods to remedy negative externalities?

Correct AnswerverifiedPigovian taxes allow markets to coordina...View AnswerShow Answer

Refer to the figure below. This diagram represents the tobacco industry. The socially optimal price and quantity exchanged are

Correct AnswerverifiedShow Answer

If a market generates a positive externality, the social value curve is above the demand curve (private value curve).

Correct AnswerverifiedShow Answer

When wealthy alumni provide charitable contributions to their universities to reduce the tuition payments of current students, it is an example of

Correct AnswerverifiedA

Is it right to say that monetary values can be placed on pollution?

Correct AnswerverifiedAll activities, including reducing pollu...View AnswerShow Answer

A positive externality is an external benefit that accrues to the buyers in a market while a negative externality is an external cost that accrues to the sellers in a market.

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedPrivate parties may fail to bargain to a...View AnswerShow Answer

A negative externality (that has not been internalized) causes the

Correct AnswerverifiedShow Answer

Tax evasion is

Correct AnswerverifiedShow Answer

Because there are positive externalities from higher education,

Correct AnswerverifiedShow Answer

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True

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D

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When a negative externality exists, the...
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Yes, these two quantities c...
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Pigovian taxes allow markets to coordina...
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A

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All activities, including reducing pollu...
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Private parties may fail to bargain to a...
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