Question 1

When private costs equal social costs,it means that:

Accepted Answer

A)   negative externalities are not present in the market.
B)   positive externalities are present in the market.
C)   the external cost must be small relative to the private cost in the market.
D)   no externality of any kind is present in the market.E) B) and C)
F) A) and D)

Question 2

The Coase theorem reminds us that efficiency is all about ____________________ and says nothing about ______________________.

Accepted Answer

A)   maximizing total surplus; the distribution of that surplus
B)   equitably distributing surplus; maximizing that surplus
C)   who gets the most surplus; whether that's a fair outcome
D)   None of these statements is true.E) C) and D)
F) B) and C)

Question 3

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 parties involved in the market 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) A) and D)

Question 4

When tradable allowances are used to correct negative externalities in a market,the outcome:

Accepted Answer

A)   limits the quantity bought and sold to the efficient level.
B)   maximizes surplus.
C)   is efficient.
D)   All of these statements are true.E) All of the above
F) A) and B)

Question 5

A policy that directly targets the externality:

Accepted Answer

A)   encourages innovation, which matches the goal to stop production of the externality.
B)   gives firms incentives to find different ways to do things, rather than pay for the right to create the externality.
C)   Both of the above statements is true.
D)   None of these statements are true.E) C) and D)
F) A) and B)

Question 6

With the Coase theorem,the private solution yields:

Accepted Answer

A)   a more efficient outcome than a government solution would.
B)   a less efficient outcome than a government solution would.
C)   the same amount of efficiency a government solution would.
D)   None of these statements is true.E) A) and D)
F) A) and B)

Question 7

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) A) and B)
F) B) and C)

Question 8

Tradable allowances are like quotas in that they both:

Accepted Answer

A)   reduce the quantity bought and sold to the efficient level.
B)   maximize surplus.
C)   are efficient.
D)   All of these statements are true.E) None of the above
F) A) and D)

Question 9

Who is affected when a Pigouvian tax is imposed on a market with a negative production externality?

Accepted Answer

A)   Producers
B)   Consumers
C)   Those affected by the externality
D)   All of these groups are affected when it becomes internalized.E) A) and C)
F) B) and D)

Question 10

The idea of a carbon tax makes more sense at the _________ level because it is ____________.

Accepted Answer

A)   individual; easier to monitor
B)   individual; going to have a larger impact
C)   corporate; going to have a larger impact
D)   corporate; easier to monitorE) A) and C)
F) None of the above

Question 11

The biggest difference between using a Pigovian tax or a tradable allowance to correct for a negative externality is:

Accepted Answer

A)   the government collect revenues from the tax, and the private parties trade quota rights on their own.
B)   the tax creates an efficient outcome, and the tradable allowances do not.
C)   the tax maximizes total surplus, but the tradable allowances do not.
D)   All of these are differences between the two government policies.E) C) and D)
F) B) and C)

Question 12

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

Accepted Answer

A)   income.
B)   cigarettes.
C)   corporate capital gains.
D)   All of these are examples.E) A) and D)
F) None of the above

Question 13

If a positive externality were present in a market,the social benefit curve would be:

Accepted Answer

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

Question 14

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

Accepted Answer

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

Question 15

When a positive externality is present in a market,total surplus is:

Accepted Answer

A)   higher when buyers receive a Pigouvian subsidy for the externality.
B)   lower when buyers receive a Pigouvian subsidy for the externality.
C)   higher when buyers only consider private benefits.
D)   Any of these statements could be true.E) A) and D)
F) A) and C)

Question 16

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

Accepted Answer

A)   It can be difficult to coordinate the millions of market participants.
B)   Creating a more efficient solution does not mean it will have a fair distribution of that surplus.
C)   They can be diffuse, complex, and hard to control.
D)   All of these statements are true.E) A) and B)
F) B) and C)

Question 17

We typically call an external cost:

Accepted Answer

A)   a societal drain.
B)   a negative externality.
C)   a negative cost.
D)   a network externality.E) A) and B)
F) All of the above

Question 18

When a negative externality is present in a market,when a quota is imposed,it is:

Accepted Answer

A)   efficient, because the market consumes the efficient level.
B)   not efficient, because individuals' net benefits from the amount set by the quota are different.
C)   efficient, because the net benefit of everyone at the amount set by the quota is equal.
D)   not efficient, because the marginal cost outweighs the marginal benefit for too many consumers at the amount set by the quota.E) A) and B)
F) All of the above

Question 19

Economists tend to see taxing an action that produces a negative externality as:

Accepted Answer

A)   the best solution possible, but often unattainable.
B)   the second best solution possible but one that is attainable.
C)   the best solution possible and often the most attainable.
D)   the second best solution possible, but often unattainable.E) All of the above
F) C) and D)

Question 20

Any cost that is imposed without compensation on someone other than the person who caused it is called:

Accepted Answer

A)   private cost.
B)   social cost.
C)   external cost.
D)   network cost.E) None of the above
F) B) and D)

Exam 18: Externalities

When a positive externality is present in a market,total surplus is:

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Any cost that is imposed without compensation on someone other than the person who caused it is called:

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When a negative externality is present in a market,when a quota is imposed,it is:

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When tradable allowances are used to correct negative externalities in a market,the outcome:

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When private costs equal social costs,it means that:

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A policy that directly targets the externality:

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

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We typically call an external cost:

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Economists tend to see taxing an action that produces a negative externality as:

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

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The idea of a carbon tax makes more sense at the _________ level because it is ____________.

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If a positive externality were present in a market,the social benefit curve would be:

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Who is affected when a Pigouvian tax is imposed on a market with a negative production externality?

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With the Coase theorem,the private solution yields:

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The biggest difference between using a Pigovian tax or a tradable allowance to correct for a negative externality is:

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Tradable allowances are like quotas in that they both:

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

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The Coase theorem reminds us that efficiency is all about ____________________ and says nothing about ______________________.

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

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

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The idea of a carbon tax makes more sense at the _ level because it is ____.

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The Coase theorem reminds us that efficiency is all about and says nothing about __.

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