Question 1

If a Pigovian tax is too large,the resulting:

Accepted Answer

A)  outcome will not maximize surplus.
B)  quantity will be too high.
C)  outcome will still be efficient.
D)  All of these statements are true.E) None of the above
F) All of the above

Question 2

In order to bring a market to its efficient outcome when a negative externality is present,the government could:

Accepted Answer

A)  limit total consumption to the efficient quantity.
B)  tax the affected party the value of the external cost.
C)  limit the price to the efficient level.
D)  Any of these would bring the market to its efficient level.E) B) and C)
F) C) and D)

Question 3

When a negative externality is present in a market,the quantity consumed:

Accepted Answer

A)  is always less than the socially optimal quantity.
B)  is more than the socially optimal quantity.
C)  is the same as the socially optimal quantity.
D)  is often less than the socially optimal quantity.E) A) and D)
F) All of the above B

Question 4

Who gains surplus when consumers in a market are forced to internalize a negative externality?

Accepted Answer

A)  Consumers
B)  Producers
C)  Others affected by the externality
D)  All of these groups gain surplus when negative externalities are internalized.E) C) and D)
F) B) and D)

Question 5

When private benefits are less than social benefits,it means that:

Accepted Answer

A)  positive externalities are present in the market.
B)  positive externalities are not present in the market.
C)  negative externalities are not present in the market.
D)  no externality of any kind is present in the market.E) A) and B)
F) C) and D) A

Question 6

A production or consumption quota that can be bought or sold is called:

Accepted Answer

A)  a tradable allowance.
B)  a buyers' or sellers' quota.
C)  a tax.
D)  a subsidy.E) A) and C)
F) B) and C)

Question 7

Social costs are:

Accepted Answer

A)  private costs plus external costs.
B)  network costs minus private costs.
C)  external costs minus private costs.
D)  those costs imposed without compensation on someone other than the person who caused them.E) A) and C)
F) C) and D)

Question 8

If it's possible to eliminate the problems created by externalities,why do they persist?

Accepted Answer

A)  Correcting externalities would always reduce total surplus.
B)  It is difficult to measure external benefits and costs.
C)  The benefits of correcting the externalities generally exceed the costs.
D)  None of these statements is true.E) B) and D)
F) C) and D)

Question 9

A benefit that accrues without compensation to someone other than the person who caused it is called:

Accepted Answer

A)  an external benefit.
B)  a network benefit.
C)  a social benefit.
D)  a private benefit.E) C) and D)
F) B) and D)

Question 10

If a production process created pollution,then the social supply curve would be:

Accepted Answer

A)  above the original market supply curve.
B)  below the original market supply curve.
C)  the same as the original market supply curve.
D)  zero.E) B) and C)
F) A) and C)

Question 11

When private benefits equal social benefits,it means that:

Accepted Answer

A)  positive externalities are not present in the market.
B)  positive externalities are present in the market.
C)  negative externalities are present in the market.
D)  no externality of any kind is present in the market.E) All of the above
F) A) and C) A

Question 12

When government corrects a market with an externality present by allowing participants to buy up to the point where their net benefit is zero,they must be:

Accepted Answer

A)  imposing a tax.
B)  imposing a tariff.
C)  offering a Coase tax.
D)  mandating a quota.E) A) and C)
F) B) and D)

Question 13

A Pigovian tax:

Accepted Answer

A)  counters the effect of a negative externality.
B)  decreases efficiency in a market.
C)  decreases total surplus in a market.
D)  All of these statements are true.E) A) and B)
F) A) and C)

Question 14

An example of a Pigovian tax would be a tax on:

Accepted Answer

A)  cigarettes.
B)  alcohol.
C)  gasoline.
D)  All of these are examples.E) All of the above
F) C) and D)

Question 15

One problem with the effectiveness of Pigovian taxes is:

Accepted Answer

A)  knowing what the value of the tax should be.
B)  knowing whether to impose it on the consumer or producer.
C)  identifying those who are affected by the externality.
D)  All of these are problems.E) C) and D)
F) A) and C)

Question 16

Tradable allowances are like quotas in that they both:

Accepted Answer

A)  limit the quantity bought and sold to the efficient level.
B)  maximize surplus.
C)  are efficient.
D)  All of these statements are true.E) B) and D)
F) B) and C)

Question 17

The Coase theorem will hold only if:

Accepted Answer

A)  the transactions costs are clearly identified and assigned.
B)  the contracts are enforceable.
C)  government will provide free mediation.
D)  None of these statements is true.E) A) and B)
F) A) and C)

Question 18

Efficient solutions to solving externality problems:

Accepted Answer

A)  are always supported by the government.
B)  increase surplus for everyone in society.
C)  are not always supported in political arenas.
D)  decrease surplus for everyone in society.E) C) and D)
F) B) and C)

Question 19

The effect of a government subsidy in a market where a positive externality is present is:

Accepted Answer

A)  to increase surplus.
B)  to increase efficiency.
C)  to make consumers internalize the external benefit.
D)  All of these statements are true.E) B) and C)
F) A) and D)

Question 20

If a negative externality were present in a market,the social demand curve would be:

Accepted Answer

A)  above the private demand curve.
B)  below the private demand curve.
C)  the same as the private demand curve.
D)  Cannot say without more information.E) A) and D)
F) A) and C)

Exam 18: Externalities

If a Pigovian tax is too large,the resulting:

Correct AnswerverifiedShow Answer

In order to bring a market to its efficient outcome when a negative externality is present,the government could:

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When a negative externality is present in a market,the quantity consumed:

Correct AnswerverifiedB

Who gains surplus when consumers in a market are forced to internalize a negative externality?

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When private benefits are less than social benefits,it means that:

Correct AnswerverifiedA

A production or consumption quota that can be bought or sold is called:

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Social costs are:

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If it's possible to eliminate the problems created by externalities,why do they persist?

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A benefit that accrues without compensation to someone other than the person who caused it is called:

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If a production process created pollution,then the social supply curve would be:

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When private benefits equal social benefits,it means that:

Correct AnswerverifiedA

When government corrects a market with an externality present by allowing participants to buy up to the point where their net benefit is zero,they must be:

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A Pigovian tax:

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An example of a Pigovian tax would be a tax on:

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One problem with the effectiveness of Pigovian taxes is:

Correct AnswerverifiedShow Answer

Tradable allowances are like quotas in that they both:

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The Coase theorem will hold only if:

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Efficient solutions to solving externality problems:

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The effect of a government subsidy in a market where a positive externality is present is:

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If a negative externality were present in a market,the social demand curve would be:

Correct AnswerverifiedShow Answer

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