Question 1

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) None of the above
F) C) and D)

Question 2

When a Pigouvian 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) None of the above

Question 3

If a production process involved the creation of a negative externality,then the social cost of production would be:

Accepted Answer

A)   larger than the private cost of production.
B)   the same as the private cost of production.
C)   smaller than the private cost of production.
D)   zero.E) A) and B)
F) A) and C)

Question 4

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 statements are true.E) A) and B)
F) All of the above

Question 5

The distribution of surplus gained from private parties solving an externality problem on their own,as described by the Coase theorem,is dependent on:

Accepted Answer

A)   who has more power to see to enforcement.
B)   which party has more negotiating power or wealth.
C)   where the initial rights of the parties lie.
D)   None of these statements is true.E) All of the above
F) A) and B)

Question 6

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) All of the above
F) B) and C)

Question 7

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) None of the above
F) C) and D)

Question 8

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) C) and D)
F) None of the above

Question 9

If people took external costs like pollution into consideration:

Accepted Answer

A)   they would consume less of the goods causing these externalities.
B)   they would act in a way that is optimal from a societal perspective
C)   the markets for these goods creating such externalities would generate greater surplus.
D)   All of these statements are true.E) A) and D)
F) B) and C)

Question 10

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

Question 11

Private benefits are those benefits that accrue:

Accepted Answer

A)   indirectly to the decision maker of a market exchange.
B)   directly to the decision maker of a market exchange.
C)   without compensation to someone other than the person who caused them.
D)   to third parties without direct government intervention.E) A) and C)
F) All of the above

Question 12

When a negative externality is present in a market,the quantity consumed:

Accepted Answer

A)   is always less than the socially optimal quantity.
B)   is more than the socially optimal quantity.
C)   is the same as the socially optimal quantity.
D)   is often less than the socially optimal quantity.E) A) and C)
F) A) and B)

Question 13

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) A) and B)
F) A) and D)

Question 14

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) B) and D)
F) A) and D)

Question 15

One problem with the effectiveness of Pigovian taxes is:

Accepted Answer

A)   the tax does not directly compensate those who are affected by the externality.
B)   knowing whether to impose it on the consumer or producer.
C)   the tax is always used to benefit those who bear the externalities.
D)   none of the above is a problem of Pigovian taxes.E) A) and B)
F) A) and C)

Question 16

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

Accepted Answer

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

Question 17

If the costs of coordination and enforcement are _______________ the surplus lost to the externality,then ________________.

Accepted Answer

A)   higher than; a private solution will not work
B)   lower than; a private solution will not work
C)   higher than; a private solution will work
D)   None of these statements is true.E) A) and C)
F) A) and B)

Question 18

If the government were to restrict consumption to the efficient level in a market where a negative externality is present,the market outcome:

Accepted Answer

A)   would not be efficient.
B)   would then be efficient.
C)   would be equitable.
D)   None of these statements is necessarily true.E) A) and B)
F) A) and C)

Question 19

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 D)

Question 20

The assumptions needed for the Coase theorem to work:

Accepted Answer

A)   are often observed in the real world.
B)   often do not hold true 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) C) and D)

Exam 18: Externalities

If the government were to restrict consumption to the efficient level in a market where a negative externality is present,the market outcome:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If a production process involved the creation of a negative externality,then the social cost of production would be:

Correct AnswerverifiedShow Answer

Tradable allowances are like taxes in that they both:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The assumptions needed for the Coase theorem to work:

Correct AnswerverifiedShow Answer

Private benefits are those benefits that accrue:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A carbon tax is an example of:

Correct AnswerverifiedShow Answer

If the costs of coordination and enforcement are _______________ the surplus lost to the externality,then ________________.

Correct AnswerverifiedShow Answer

When a negative externality is present in a market,the quantity consumed:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The distribution of surplus gained from private parties solving an externality problem on their own,as described by the Coase theorem,is dependent on:

Correct AnswerverifiedShow Answer

A sin tax is an example of:

Correct AnswerverifiedShow Answer

If people took external costs like pollution into consideration:

Correct AnswerverifiedShow Answer

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:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

One problem with the effectiveness of Pigovian taxes is:

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

If the costs of coordination and enforcement are _ the surplus lost to the externality,then __.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified