Question 1

A tradable allowance is:

Accepted Answer

A)  the minimum amount set by the government that can be bought or sold in a market.
B)  a production or consumption quota that can be bought or sold.
C)  the permitted price for the trade of a particular good.
D)  None of these are true.E) A) and B)
F) A) and C)

Question 2

External costs and external benefits are collectively referred to as:

Accepted Answer

A)  externalities.
B)  network externalities.
C)  social externalities.
D)  social welfare.E) All of the above
F) A) and B)

Question 3

Costs that fall directly on an economic decision maker are called _______ costs.

Accepted Answer

A)  social
B)  private
C)  external
D)  networkE) A) and B)
F) None of the above

Question 4

Raising cattle causes negative externalities in the form of gas and manure produced by cows, which contains methane, a greenhouse gas that causes climate change. Suppose the government is developing a policy to counteract this externality. Which of the following is a policy that directly targets the externality?

Accepted Answer

A)  A tax on methane emissions
B)  A tax on cow purchases
C)  Tradeable permits where each allowance is for one cow
D)  All of these are policies that target the externality.E) A) and B)
F) None of the above

Question 5

The graph shown displays a market with an externality.  Which areas represent deadweight loss?

Accepted Answer

A)  A + B
B)  C + B
C)  D + E
D)  D + FE) A) and D)
F) B) and C)

Question 6

If a production process causes pollution, then the social cost curve will be placed:

Accepted Answer

A)  below the market supply curve.
B)  on top of the original market supply curve.
C)  above the market supply curve.
D)  at zero.E) A) and B)
F) All of the above

Question 7

If the social benefit is greater than the private benefit in a particular market, the private equilibrium will exist at a quantity that is _______ the socially optimal level.

Accepted Answer

A)  greater than
B)  equal to
C)  less than
D)  either greater than or less thanE) C) and D)
F) A) and C)

Question 8

A network externality is:

Accepted Answer

A)  a direct effect on an economic decision maker.
B)  an indirect effect on an economic decision maker.
C)  the effect that an additional participant in an activity has on the value of that activity for others.
D)  an uncompensated effect on someone other than the person who caused it.E) All of the above
F) B) and C)

Question 9

The graph shown displays a market with an externality.  Which areas represent deadweight loss?

Accepted Answer

A)  A + B
B)  C + B
C)  D + E
D)  F + GE) None of the above
F) All of the above

Question 10

When private benefits equal social benefits:

Accepted Answer

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

Question 11

Under the Coase theorem, a private solution to an externality yields _______ amount of efficiency and _______ distribution of surplus as compared to a government solution.

Accepted Answer

A)  the same; the same
B)  the same; a different
C)  a different; the same
D)  a different; a differentE) All of the above
F) C) and D)

Question 12

If the social cost is greater than the private cost in a particular market, the private equilibrium will exist at a quantity that is _______ the socially optimal level.

Accepted Answer

A)  equal to
B)  less than
C)  greater than
D)  either greater than or less thanE) C) and D)
F) A) and D)

Question 13

One way to make consumers take a negative externality into account when making demand decisions is to:

Accepted Answer

A)  place a tax on the item.
B)  subsidize the purchase of the item.
C)  give suppliers a production credit.
D)  None of these are true.E) All of the above
F) A) and B)

Question 14

The assumptions needed for the Coase theorem to work _______ in the real world.

Accepted Answer

A)  are often observed
B)  often do not hold true
C)  never hold true
D)  always hold trueE) A) and C)
F) None of the above

Question 15

The graph shown displays a market with an externality.  Which of the following statements is true?The market quantity is 7 units.Total surplus could be increased if the government imposed a tax on this good.This shows a positive consumption externality.

Accepted Answer

A)  I only
B)  II and III only
C)  I and II only
D)  III onlyE) A) and B)
F) All of the above

Question 16

If people took external benefits, suchas cleaner air, into consideration when deciding how much to consume of goods that cause externalities:they would consume less.they would act in a way that is optimal from a societal perspective.the markets for these goods would generate greater surplus.

Accepted Answer

A)  I and III only
B)  I and II only
C)  II and III only
D)  I, II, and IIIE) None of the above
F) B) and D)

Question 17

The net increase to total surplus when a positive externality is corrected is due to:

Accepted Answer

A)  the transfer of surplus from those affected by the externality to the consumer.
B)  the increased number of units bought and sold in the market.
C)  the transfer of surplus from the consumer to those affected by the externality.
D)  None of these are true.E) B) and D)
F) A) and B)

Question 18

When a positive externality is present in a market, the imposition of a government subsidy ensures:

Accepted Answer

A)  a fair distribution of surplus.
B)  an efficient outcome.
C)  that those who enjoy the benefit receive the surplus.
D)  All of these are true.E) A) and D)
F) B) and C)

Question 19

A Pigovian tax:

Accepted Answer

A)  counters the effect of a negative externality.
B)  increases efficiency in a market.
C)  increases total surplus in a market.
D)  All of these are true.E) None of the above
F) All of the above

Question 20

Which of the following is a good or service that exhibits a positive network externality?

Accepted Answer

A)  A telephone
B)  A social network website
C)  A workers' union
D)  All of these are goods or services that create positive network externalities.E) A) and C)
F) B) and D)

Exam 18: Externalities

A tradable allowance is:

Correct Answer
verified

The graph shown displays a market with an externality. Which of the following statements is true?The market quantity is 7 units.Total surplus could be increased if the government imposed a tax on this good.This shows a positive consumption externality.

Correct Answer
verified

If people took external benefits, suchas cleaner air, into consideration when deciding how much to consume of goods that cause externalities:they would consume less.they would act in a way that is optimal from a societal perspective.the markets for these goods would generate greater surplus.

Correct Answer
verified

Under the Coase theorem, a private solution to an externality yields _ amount of efficiency and _ distribution of surplus as compared to a government solution.

Correct Answer
verified

If the social cost is greater than the private cost in a particular market, the private equilibrium will exist at a quantity that is _______ the socially optimal level.

Correct Answer
verified

If the social benefit is greater than the private benefit in a particular market, the private equilibrium will exist at a quantity that is _______ the socially optimal level.

Correct Answer
verified

Correct Answer
verified

When a positive externality is present in a market, the imposition of a government subsidy ensures:

Correct Answer
verified

The graph shown displays a market with an externality. Which areas represent deadweight loss?

Correct Answer
verified

A network externality is:

Correct Answer
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A Pigovian tax:

Correct Answer
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The graph shown displays a market with an externality. Which areas represent deadweight loss?

Correct Answer
verified

One way to make consumers take a negative externality into account when making demand decisions is to:

Correct Answer
verified

External costs and external benefits are collectively referred to as:

Correct Answer
verified

If a production process causes pollution, then the social cost curve will be placed:

Correct Answer
verified

Costs that fall directly on an economic decision maker are called _______ costs.

Correct Answer
verified

The net increase to total surplus when a positive externality is corrected is due to:

Correct Answer
verified

When private benefits equal social benefits:

Correct Answer
verified

The assumptions needed for the Coase theorem to work _______ in the real world.

Correct Answer
verified

Which of the following is a good or service that exhibits a positive network externality?

Correct Answer
verified

Exam 18: Externalities

A tradable allowance is:

Correct AnswerverifiedShow Answer

The graph shown displays a market with an externality. Which of the following statements is true?The market quantity is 7 units.Total surplus could be increased if the government imposed a tax on this good.This shows a positive consumption externality.

Correct AnswerverifiedShow Answer

If people took external benefits, suchas cleaner air, into consideration when deciding how much to consume of goods that cause externalities:they would consume less.they would act in a way that is optimal from a societal perspective.the markets for these goods would generate greater surplus.

Correct AnswerverifiedShow Answer

Under the Coase theorem, a private solution to an externality yields _______ amount of efficiency and _______ distribution of surplus as compared to a government solution.

Correct AnswerverifiedShow Answer

If the social cost is greater than the private cost in a particular market, the private equilibrium will exist at a quantity that is _______ the socially optimal level.

Correct AnswerverifiedShow Answer

If the social benefit is greater than the private benefit in a particular market, the private equilibrium will exist at a quantity that is _______ the socially optimal level.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

When a positive externality is present in a market, the imposition of a government subsidy ensures:

Correct AnswerverifiedShow Answer

The graph shown displays a market with an externality. Which areas represent deadweight loss?

Correct AnswerverifiedShow Answer

A network externality is:

Correct AnswerverifiedShow Answer

A Pigovian tax:

Correct AnswerverifiedShow Answer

The graph shown displays a market with an externality. Which areas represent deadweight loss?

Correct AnswerverifiedShow Answer

One way to make consumers take a negative externality into account when making demand decisions is to:

Correct AnswerverifiedShow Answer

External costs and external benefits are collectively referred to as:

Correct AnswerverifiedShow Answer

If a production process causes pollution, then the social cost curve will be placed:

Correct AnswerverifiedShow Answer

Costs that fall directly on an economic decision maker are called _______ costs.

Correct AnswerverifiedShow Answer

The net increase to total surplus when a positive externality is corrected is due to:

Correct AnswerverifiedShow Answer

When private benefits equal social benefits:

Correct AnswerverifiedShow Answer

The assumptions needed for the Coase theorem to work _______ in the real world.

Correct AnswerverifiedShow Answer

Which of the following is a good or service that exhibits a positive network externality?

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Under the Coase theorem, a private solution to an externality yields _ amount of efficiency and _ distribution of surplus as compared to a government solution.

Correct Answer
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Correct Answer
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Correct Answer
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