Question 1

Correcting a market with an externality through taxation is _________ correcting it through a quota.

Accepted Answer

A)  more efficient than
B)  less efficient than
C)  just as efficient as
D)  Any of these statements could be true depending on whether the tax is imposed on the buyer or seller.E) All of the above
F) A) and B)

Question 2

If people took externalities like pollution into consideration,on balance they would consume less of the good causing these externalities.This tells us:

Accepted Answer

A)  the market equilibrium is not maximizing surplus.
B)  the efficient outcome for society is at a lower quantity.
C)  market discouraging actions,like taxation,can help bring efficiency to markets where externalities are present.
D)  All of these statements are true.E) A) and D)
F) All of the above

Question 3

If the social benefit is greater than the private benefit in a particular market,then the socially optimal equilibrium will be at a quantity:

Accepted Answer

A)  greater than the private level.
B)  equal to the private level.
C)  less than the private level.
D)  greater than or less than the private level,depending on the size of the external costs.E) A) and B)
F) A) and C)

Question 4

If the government's provision of a subsidy is too large to counteract the entire effect of a positive externality,the:

Accepted Answer

A)  quantity consumed will become too high.
B)  quantity consumed will become even lower.
C)  total surplus will be maximized.
D)  None of these statements is true.E) A) and D)
F) None of the above

Question 5

A network externality is:

Accepted Answer

A)  the effect that an additional user of a good or participant in an activity has on the value of that good or activity for others.
B)  directly on an economic decision maker.
C)  indirectly on an economic decision maker.
D)  without compensation on someone other than the person who caused it.E) All of the above
F) A) and D)

Question 6

"Market failure" refers to situations in which the:

Accepted Answer

A)  actions of private individuals and firms are insufficient to ensure efficient markets.
B)  equilibrium in a market is harmful to either the buyer or seller.
C)  equilibrium in a market cannot be reached.
D)  actions of private individuals and firms are based on insufficient information.E) C) and D)
F) None of the above

Question 7

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

Accepted Answer

A)  be imposed on the consumer.
B)  be imposed on the producer.
C)  apply to those affected by the externality.
D)  None of these statements is true.E) A) and B)
F) B) and C)

Question 8

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) None of the above
F) A) and B)

Question 9

One way to make consumers take a negative externality into account in their demand decision 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 statements is true.E) A) and D)
F) C) and D)

Question 10

Who is affected when a positive externality becomes internalized in a market?

Accepted Answer

A)  Producers
B)  Consumers
C)  Those affected by the externality
D)  All of these groups would be affected.E) A) and B)
F) None of the above

Question 11

The assumptions needed for the Coase theorem to work:

Accepted Answer

A)  often do not hold true in the real world.
B)  are often observed in the real world.
C)  never hold true in the real world.
D)  always hold true in the real world.E) A) and B)
F) None of the above

Question 12

When economists propose taxes as a way to balance out the presence of externalities,they try to propose taxes:

Accepted Answer

A)  based on the externality itself,rather than the action that creates it.
B)  on the action that creates the externality,rather than the externality itself.
C)  on what is simplest to implement.
D)  on what will likely generate the most revenue.E) A) and B)
F) A) and C)

Question 13

If companies that were creating pollution had to pay the social cost of production,they would want to supply:

Accepted Answer

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

Question 14

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) A) and D)
F) A) and C)

Question 15

Tradable allowances are like taxes in that they both:

Accepted Answer

A)  impose a quota on output.
B)  maximize surplus.
C)  are not efficient.
D)  None of these statements is true.E) B) and C)
F) C) and D)

Question 16

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 benefit of 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) C) and D)
F) A) and C)

Question 17

The effect that an additional user of a good or participant in an activity has on the value of that good or activity for others is called:

Accepted Answer

A)  network externality.
B)  social externality.
C)  negative externality.
D)  private externality.E) B) and D)
F) A) and C)

Question 18

When negative externalities exist in a market,if it is internalized:

Accepted Answer

A)  those who interact in the market will lose surplus.
B)  those who interact in the market will gain surplus.
C)  those who do not interact in the market,but are affected by the externality,will lose surplus.
D)  those who do not interact in the market,but are affected by the externality,will gain surplus.E) A) and B)
F) All of the above

Question 19

When a market is corrected for externalities,it:

Accepted Answer

A)  is efficient and maximizes surplus.
B)  is equitable and makes everyone better off.
C)  needs government regulation to maintain.
D)  All of these statements are true.E) All of the above
F) A) and C)

Question 20

The total gains in surplus from internalizing the externality:

Accepted Answer

A)  outweigh the losses.
B)  are less than the losses.
C)  exactly equal the losses.
D)  None of these is necessarily true.E) B) and C)
F) A) and D)

Exam 18: Externalities

The assumptions needed for the Coase theorem to work:

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Who is affected when a positive externality becomes internalized in a market?

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Tradable allowances are like taxes in that they both:

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If companies that were creating pollution had to pay the social cost of production,they would want to supply:

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

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When negative externalities exist in a market,if it is internalized:

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A network externality is:

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If the government's provision of a subsidy is too large to counteract the entire effect of a positive externality,the:

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When economists propose taxes as a way to balance out the presence of externalities,they try to propose taxes:

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The total gains in surplus from internalizing the externality:

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The effect that an additional user of a good or participant in an activity has on the value of that good or activity for others is called:

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Correcting a market with an externality through taxation is _________ correcting it through a quota.

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"Market failure" refers to situations in which the:

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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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If people took externalities like pollution into consideration,on balance they would consume less of the good causing these externalities.This tells us:

Correct AnswerverifiedShow Answer

If the social benefit is greater than the private benefit in a particular market,then the socially optimal equilibrium will be at a quantity:

Correct AnswerverifiedShow Answer

One way to make consumers take a negative externality into account in their demand decision is to:

Correct AnswerverifiedShow Answer

When a market is corrected for externalities,it:

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

Correct AnswerverifiedShow Answer

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