Question 1

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

Accepted Answer

A)   market failure.
B)   trade quotas.
C)   the Coase theorem.
D)   the invisible hand.E) C) and D)
F) A) and B)

Question 2

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) None of the above
F) All of the above

Question 3

Correcting a market with an externality through taxation creates ___________ total surplus compared to correcting it through a quota.

Accepted Answer

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

Question 4

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

Accepted Answer

A)   higher when buyers only consider private costs.
B)   lower when buyers only consider private costs.
C)   lower when buyers consider social costs.
D)   None of these statements is true.E) A) and B)
F) A) and C)

Question 5

Who are the only ones not affected by a Pigouvian tax when a negative externality exists in a market?

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 6

If people took external costs like pollution into consideration,they would on net:

Accepted Answer

A)   consume a socially non-optimal amount of the goods causing the externalities.
B)   not change their behavior to consume more or less of the goods causing externalities.
C)   consume more of the goods causing these externalities.
D)   consume less of the goods causing these externalities.E) B) and C)
F) A) and B) D

Question 7

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

Question 8

A tax on cigarettes:

Accepted Answer

A)   increases total surplus.
B)   increases efficiency in the market.
C)   will increase both total surplus and efficiency in the market.
D)   like any tax, will always reduce surplus and efficiency in markets.E) A) and D)
F) A) and C) C

Question 9

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

Accepted Answer

A)   positive externality.
B)   negative externality.
C)   network externality.
D)   social externality.E) A) and D)
F) None of the above

Question 10

When negative externalities exist in a market,if the producers are forced to pay a Pigouvian tax then:

Accepted Answer

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

Question 11

Social costs are:

Accepted Answer

A)   private costs plus external costs.
B)   network costs minus private costs.
C)   external costs minus private costs.
D)   those costs imposed without compensation on someone other than the person who caused them.E) None of the above
F) A) and C)

Question 12

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) C) and D)
F) B) and D)

Question 13

When Pigouvian subsidy is imposed on a market with a positive externality,total surplus:

Accepted Answer

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

Question 14

We call costs that fall directly on an economic decision maker:

Accepted Answer

A)   social costs.
B)   private costs.
C)   external costs.
D)   network costs.E) B) and D)
F) C) and D)

Question 15

Maximizing surplus in a market depends not only on the amount bought and sold,but also on:

Accepted Answer

A)   what those consumers do with it.
B)   how productive the sellers are.
C)   who buys and sells it.
D)   None of these statements is true.E) All of the above
F) A) and D)

Question 16

The Coase theorem will hold only if:

Accepted Answer

A)   the transactions costs are clearly identified and assigned.
B)   the contracts are enforceable.
C)   government will provide free mediation.
D)   None of these statements is true.E) None of the above
F) B) and D)

Question 17

If a Pigovian tax is too large,the resulting:

Accepted Answer

A)   quantity will be too high.
B)   outcome will not maximize surplus.
C)   outcome will still be efficient.
D)   All of these statements are true.E) A) and C)
F) B) and C) B

Question 18

The distribution of surplus received from a subsidy offered in a market where a positive externality is present depends on:

Accepted Answer

A)   how the subsidy is distributed among those affected by the externality.
B)   if those who are affected receive their true value of the externality.
C)   where the government gets the money to pay for the subsidy.
D)   None of these statements is true.E) B) and C)
F) C) and D)

Question 19

When private benefits are less than social benefits,it means that:

Accepted Answer

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

Question 20

One way to make consumers take a positive 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)   tax the producers of the item.
D)   None of these statements is true.E) B) and C)
F) All of the above

Exam 18: Externalities

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

Correct AnswerverifiedShow Answer

When positive externalities are present,it means that:

Correct AnswerverifiedShow Answer

Correcting a market with an externality through taxation creates ___________ total surplus compared to correcting it through a quota.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Who are the only ones not affected by a Pigouvian tax when a negative externality exists in a market?

Correct AnswerverifiedShow Answer

If people took external costs like pollution into consideration,they would on net:

Correct AnswerverifiedD

The government could offer a subsidy to offset a:

Correct AnswerverifiedShow Answer

A tax on cigarettes:

Correct AnswerverifiedC

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

Correct AnswerverifiedShow Answer

When negative externalities exist in a market,if the producers are forced to pay a Pigouvian tax then:

Correct AnswerverifiedShow Answer

Social costs are:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When Pigouvian subsidy is imposed on a market with a positive externality,total surplus:

Correct AnswerverifiedShow Answer

We call costs that fall directly on an economic decision maker:

Correct AnswerverifiedShow Answer

Maximizing surplus in a market depends not only on the amount bought and sold,but also on:

Correct AnswerverifiedShow Answer

The Coase theorem will hold only if:

Correct AnswerverifiedShow Answer

If a Pigovian tax is too large,the resulting:

Correct AnswerverifiedB

The distribution of surplus received from a subsidy offered in a market where a positive externality is present depends on:

Correct AnswerverifiedShow Answer

When private benefits are less than social benefits,it means that:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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D

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C

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B

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