Question 1

The government could offer a subsidy to offset a:

Accepted Answer

A)  negative externality.
B)  positive externality.
C)  network externality.
D)  A subsidy could offset any of these.E) None of the above
F) A) and B)

Question 2

When there are significant costs involved with coordinating a private solution to an externality:

Accepted Answer

A)  it likely will not happen.
B)  a leader will likely be elected to organize the coordination.
C)  it can act as a motivating factor to solve the externality problem expediently.
D)  None of these statements is true.E) B) and C)
F) A) and D)

Question 3

When a market is corrected for externalities,it:

Accepted Answer

A)  is equitable.
B)  maximizes surplus.
C)  makes everyone in society better off.
D)  All of these statements are true.E) A) and C)
F) All of the above

Question 4

External costs are those costs:

Accepted Answer

A)  that fall directly on an economic decision maker.
B)  that fall indirectly on an economic decision maker.
C)  that are imposed without compensation on someone other than the person who caused them.
D)  that are both social costs and private costs.E) A) and D)
F) A) and B)

Question 5

The idea that individuals can reach an efficient equilibrium through private trades,even in the presence of an externality,is called:

Accepted Answer

A)  the Coase theorem.
B)  market failure.
C)  trade quotas.
D)  the invisible hand.E) All of the above
F) None of the above

Question 6

If the social cost is greater than the private cost in a particular market,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) C) and D)
F) B) and D)

Question 7

Benefits that accrue directly to the decision maker of a market exchange are called:

Accepted Answer

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

Question 8

The net increase to total surplus when a positive externality is internalized 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 statements is true.E) B) and C)
F) C) and D)

Question 9

A sin tax is an example of:

Accepted Answer

A)  a Pigovian tax.
B)  a Coase theorem solution.
C)  a market failure.
D)  a Coase tax.E) None of the above
F) A) and D)

Question 10

Markets fail to maximize total surplus when:

Accepted Answer

A)  individual choices impose costs or benefits on others.
B)  society's choices impose costs or benefits on other societies.
C)  when all costs and benefits are received by participants in transactions.
D)  producer surplus is not exactly equal to consumer surplus.E) None of the above
F) A) and C)

Question 11

If the social cost is greater than the private cost in a particular market,the private equilibrium will be at a quantity:

Accepted Answer

A)  greater than the socially optimal level.
B)  equal to the socially optimal level.
C)  less than the socially optimal level.
D)  greater than or less than the socially optimum level,depending on the size of the external costs.E) None of the above
F) B) and C)

Question 12

If companies who internalized an externality want to supply more at any given price compared to the original supply,they must have internalized a:

Accepted Answer

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

Question 13

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

Accepted Answer

A)  increases more than the increase in consumer surplus.
B)  decreases less than the increase in consumer surplus.
C)  increases less than the decrease to producer surplus.
D)  decreases more than the decrease to producer surplus.E) A) and C)
F) B) and C)

Question 14

A tax meant to counter the effect of a negative externality is called:

Accepted Answer

A)  a Coase tax.
B)  a Pigovian tax.
C)  an external tax.
D)  a social benefit tax.E) All of the above
F) A) and B)

Question 15

The downside to targeting specific activities rather than the externality itself is:

Accepted Answer

A)  it risks misaligning the incentives that producers and consumers face with the goal of minimizing the externality.
B)  it requires a number of different activities to be identified and several different policies to be written,which can be cumbersome and difficult to manage.
C)  any one activity is likely to not make a significant difference in the presence of an externality.
D)  All of these statements are true.E) B) and D)
F) All of the above

Question 16

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

Accepted Answer

A)  higher when buyers internalize the externality.
B)  lower when buyers internalize the externality.
C)  higher when buyers only consider private benefits.
D)  Any of these statements could be true.E) None of the above
F) B) and C)

Question 17

When positive externalities are present,it means that:

Accepted Answer

A)  individuals don't take into account all the benefits associated with their market choice.
B)  society bears part of the cost borne of private transactions.
C)  individuals consume more than the social optimum.
D)  All of these statements are true.E) B) and C)
F) All of the above

Question 18

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

Question 19

The effect of positive network externalities can be so powerful that it may even:

Accepted Answer

A)  create a natural monopoly.
B)  transfer deadweight loss to surplus.
C)  encourage competition and increase efficiency.
D)  None of these statements is true.E) B) and C)
F) All of the above

Question 20

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

Accepted Answer

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

Exam 18: Externalities

A sin tax is an example of:

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The idea that individuals can reach an efficient equilibrium through private trades,even in the presence of an externality,is called:

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Markets fail to maximize total surplus when:

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The effect of positive network externalities can be so powerful that it may even:

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

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Benefits that accrue directly to the decision maker of a market exchange are called:

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A tax meant to counter the effect of a negative externality is called:

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External costs are those costs:

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

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The downside to targeting specific activities rather than the externality itself is:

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If companies who internalized an externality want to supply more at any given price compared to the original supply,they must have internalized a:

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When there are significant costs involved with coordinating a private solution to an externality:

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When positive externalities are present,it means that:

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

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When a market is corrected for externalities,it:

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The government could offer a subsidy to offset a:

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

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

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If the social cost is greater than the private cost in a particular market,the private equilibrium will be at a quantity:

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

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

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