Question 1

If a Pigovian tax is levied on producers, the supply curve will shift straight _______ and the equilibrium quantity will _______.

Accepted Answer

A)  up; decrease
B)  down; decrease
C)  up; increase
D)  down; increaseE) A) and B)
F) None of the above

Question 2

If the costs of coordination and enforcement are _______ the surplus lost to the externality, then a private solution will _______.

Accepted Answer

A)  higher than; not work
B)  lower than; not work
C)  higher than; work
D)  None of these are true.E) None of the above
F) B) and C)

Question 3

If producers are forced to pay a Pigovian tax when negative externalities exist in a market, then: those who interact in the market will lose surplus. producers will gain surplus. society will gain surplus.

Accepted Answer

A)  I only
B)  II and III only
C)  I and III only
D)  I, II, and IIIE) B) and C)
F) B) and D)

Question 4

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 guarantee a fair distribution of surplus.
C)  Solutions can be diffuse, complex, and hard to control.
D)  All of these are true.E) B) and D)
F) None of the above

Question 5

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

Accepted Answer

A)  limit total consumption to the efficient quantity.
B)  tax the buyers or sellers in the market at the value of the external cost.
C)  limit the price of the good or service to its efficient level.
D)  All of these are actions the government might take to bring about an efficient outcome.E) All of the above
F) A) and C)

Question 6

A sin tax is an example of:

Accepted Answer

A)  a Pigovian tax.
B)  government policy increasing total surplus in a market.
C)  a tax that increases the efficiency of a market.
D)  All of these are true.E) B) and D)
F) None of the above

Question 7

When a market is fully corrected for externalities, it:

Accepted Answer

A)  is efficient and maximizes surplus.
B)  is equitable and makes everyone better off.
C)  must be maintained through government regulation.
D)  All of these are true.E) A) and D)
F) All of the above

Question 8

Who is affected when a subsidy is imposed on a market with a positive externality?

Accepted Answer

A)  Producers
B)  Consumers
C)  Those affected by the externality
D)  All of these groups would be affected by a subsidy.E) B) and D)
F) B) and C)

Question 9

External costs:

Accepted Answer

A)  fall directly on an economic decision maker.
B)  fall indirectly on an economic decision maker.
C)  are imposed without compensation on someone other than the person who caused them.
D)  are both social costs and private costs.E) C) and D)
F) None of the above

Question 10

When positive consumption externalities are present in a market:

Accepted Answer

A)  private benefits are less than social benefits.
B)  private benefits are less than external benefits.
C)  social benefits are less than external benefits.
D)  external benefits are equal to social benefits.E) A) and C)
F) B) and D)

Question 11

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

Accepted Answer

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

Question 12

When positive externalities are present in a market:

Accepted Answer

A)  individuals don't take into account all the benefits associated with their market choices.
B)  society bears part of the cost of private transactions.
C)  individuals consume more than the socially optimal quantity.
D)  All of these are true.E) A) and B)
F) A) and C)

Question 13

In order for a Pigovian tax to be effective, it must be imposed on:

Accepted Answer

A)  the consumer.
B)  the producer.
C)  those affected by the externality.
D)  None of these are true.E) A) and B)
F) A) and C)

Question 14

A carbon tax is an example of:

Accepted Answer

A)  a Coase theorem solution.
B)  a Pigovian tax.
C)  a market failure.
D)  a Coase tax.E) A) and B)
F) All of the above

Question 15

If a company who takes an externality into account wants to supply more at any given price compared to the original supply, it is addressing a _______ externality.

Accepted Answer

A)  positive
B)  negative
C)  network
D)  socialE) A) and D)
F) A) and C)

Question 16

Pigovian taxes are not always effective because:

Accepted Answer

A)  they do not directly compensate those who are affected by the externality.
B)  it is difficult to identify whether the tax should be imposed on the consumer or the producer.
C)  they are only used to benefit those who bear the externalities.
D)  None of these are reasons why Pigovian taxes are not always effective.E) A) and B)
F) None of the above

Question 17

When a subsidy is imposed on a market with a positive externality, efficiency:

Accepted Answer

A)  is not affected.
B)  decreases.
C)  increases.
D)  drops to zero.E) A) and B)
F) A) and C)

Question 18

If companies that are causing pollution were forced to pay the social cost of production, they would want to supply:

Accepted Answer

A)  more at any given price.
B)  less at any given price.
C)  the same amount at the equilibrium price only.
D)  the same amount at any given price.E) B) and C)
F) None of the above

Question 19

Maximizing total surplus in a market depends on the amount of the good that is bought and sold in addition to:

Accepted Answer

A)  what consumers do with the good.
B)  the productivity of sellers.
C)  who buys and sells the good.
D)  None of these are true.E) B) and D)
F) A) and D)

Question 20

Social costs are:

Accepted Answer

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

Exam 18: Externalities

A carbon tax is an example of:

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

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If a company who takes an externality into account wants to supply more at any given price compared to the original supply, it is addressing a _______ externality.

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

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Social costs are:

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If a Pigovian tax is levied on producers, the supply curve will shift straight _______ and the equilibrium quantity will _______.

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

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When a market is fully corrected for externalities, it:

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A sin tax is an example of:

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If producers are forced to pay a Pigovian tax when negative externalities exist in a market, then: those who interact in the market will lose surplus. producers will gain surplus. society will gain surplus.

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Who is affected when a subsidy is imposed on a market with a positive externality?

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If the costs of coordination and enforcement are _______ the surplus lost to the externality, then a private solution will _______.

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When a subsidy is imposed on a market with a positive externality, efficiency:

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If companies that are causing pollution were forced to pay the social cost of production, they would want to supply:

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External costs:

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Pigovian taxes are not always effective because:

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Maximizing total surplus in a market depends on the amount of the good that is bought and sold in addition to:

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When positive consumption externalities are present in a market:

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In order for a Pigovian tax to be effective, it must be imposed on:

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When positive externalities are present in a market:

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If a Pigovian tax is levied on producers, the supply curve will shift straight _ and the equilibrium quantity will _.

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If the costs of coordination and enforcement are _ the surplus lost to the externality, then a private solution will _.

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