Question 1

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 a fair outcome is achieved
D)  None of these are true.E) All 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)  a leader will likely be elected to organize the coordination.
B)  these costs can act as a motivating factor to solve the externality problem expediently.
C)  a private solution likely will not occur.
D)  None of these are true.E) A) and D)
F) B) and C)

Question 3

Correcting the externality that is present in a market increases the efficiency of the market. What type of externality exists in this market?

Accepted Answer

A)  Negative
B)  Positive
C)  Network
D)  Either negative or positiveE) B) and C)
F) A) and B)

Question 4

Pigovian taxes are not always effective because it is difficult to identify:

Accepted Answer

A)  whether the tax should be imposed on the consumer or the producer.
B)  what the amount of the tax should be.
C)  who is being affected by the externality.
D)  None of these are reasons why Pigovian taxes are not always effective.E) All of the above
F) B) and C)

Question 5

When private costs equal social costs:

Accepted Answer

A)  negative production externalities are not present in the market.
B)  positive consumption externalities are present in the market.
C)  the external cost must be small relative to the private cost in the market.
D)  no externality of any kind is present in the market.E) A) and B)
F) None of the above

Question 6

An external cost is typically referred to as a:

Accepted Answer

A)  societal drain.
B)  negative externality.
C)  negative cost.
D)  network externality.E) B) and D)
F) A) and B) B

Question 7

A production or consumption quota that can be bought or sold is called a:

Accepted Answer

A)  buyers' or sellers' quota.
B)  tax.
C)  tradable allowance.
D)  subsidy.E) B) and D)
F) All of the above

Question 8

Latoya and Maggie are roommates. Maggie likes to play music in their dorm room every evening. Tonight, Latoya needs to study for her economics exam and would prefer that Maggie not play music. Latoya values silence at $50. Maggie values her music at $20. Assume the roommates can bargain with zero transactions costs. If the dorm enforces quiet hours in the evening, when students are not supposed to play music, which of the following is true?

Accepted Answer

A)  Maggie could offer to pay Latoya $20 in exchange for playing her music, an offer that Latoya would accept.
B)  Maggie will not be able to offer any amount high enough to convince Latoya to allow music.
C)  Maggie and Latoya will not be able to reach the efficient outcome.
D)  Latoya could offer to pay Maggie $20 in exchange for Maggie turning off her music, an offer that Maggie would accept.E) A) and B)
F) A) and C)

Question 9

A positive externality is a(n) :

Accepted Answer

A)  external benefit.
B)  external cost that affects the buyer.
C)  external cost that affects the seller.
D)  benefit that affects the buyer, but not the seller.E) A) and B)
F) A) and C)

Question 10

When private benefits are less than social benefits:

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 B)
F) A) and D)

Question 11

The downside of using a tax to target 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) A) and B)
F) A) and C)

Question 12

All externalities:

Accepted Answer

A)  are harmful to society and create costs external to the decision maker.
B)  are beneficial to society and create benefits external to the decision maker.
C)  create either a cost or benefit to a person other than the person who caused them.
D)  are addressed by the government through taxation.E) A) and D)
F) B) and C)

Question 13

A Pigovian tax will _______ the price when imposed on consumers and _______ the price when imposed on producers.

Accepted Answer

A)  increase; decrease
B)  decrease; increase
C)  increase; increase
D)  decrease; decreaseE) None of the above
F) C) and D)

Question 14

A benefit that accrues without compensation to someone other than the person who caused it is called a(n) _______ benefit.

Accepted Answer

A)  external
B)  network
C)  social
D)  privateE) A) and B)
F) B) and D)

Question 15

If the government's provision of a subsidy is too large to counteract the entire effect of a positive externality, what result can we expect?

Accepted Answer

A)  The quantity consumed will become even lower.
B)  The quantity consumed will become too high.
C)  Total surplus will be maximized.
D)  None of these are true.E) A) and B)
F) B) and C)

Question 16

A carbon tax makes more sense at the _______ level than at the _______ level because it _______.

Accepted Answer

A)  individual; corporate; is easier to monitor
B)  individual; corporate; has a larger impact
C)  corporate; individual; has a larger impact
D)  corporate; individual; is easier to monitorE) A) and B)
F) All of the above

Question 17

When a subsidy is imposed on a market with a positive externality: total surplus increases. the market quantity moves closer to the efficient quantity. deadweight loss decreases.

Accepted Answer

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

Question 18

The government offers subsidies to offset _______ externalities.

Accepted Answer

A)  negative
B)  positive
C)  network
D)  Any of these could be offset by a subsidy.E) A) and B)
F) A) and C)

Question 19

The Coase theorem is the idea that:

Accepted Answer

A)  individuals can reach an efficient equilibrium through private trades, even in the presence of an externality.
B)  there are always mutually beneficial trades waiting to be exploited, which creates a clear role for government taxation.
C)  the actions of private individuals and firms are insufficient to ensure efficient markets.
D)  None of these are true.E) All of the above
F) B) and C) A

Question 20

Suppose a company is forced to pay for the externality caused by its production. As a result, it chooses to supply less. What kind of externality does this company create?

Accepted Answer

A)  Positive
B)  Negative
C)  Network
D)  SocialE) C) and D)
F) A) and C)

Exam 18: Externalities

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

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

Correct Answer
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Correcting the externality that is present in a market increases the efficiency of the market. What type of externality exists in this market?

Correct Answer
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Pigovian taxes are not always effective because it is difficult to identify:

Correct Answer
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When private costs equal social costs:

Correct Answer
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An external cost is typically referred to as a:

Correct Answer
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B

A production or consumption quota that can be bought or sold is called a:

Correct Answer
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Correct Answer
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A positive externality is a(n) :

Correct Answer
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When private benefits are less than social benefits:

Correct Answer
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The downside of using a tax to target specific activities, rather than the externality itself, is:

Correct Answer
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All externalities:

Correct Answer
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A Pigovian tax will _ the price when imposed on consumers and _ the price when imposed on producers.

Correct Answer
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A benefit that accrues without compensation to someone other than the person who caused it is called a(n) _______ benefit.

Correct Answer
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If the government's provision of a subsidy is too large to counteract the entire effect of a positive externality, what result can we expect?

Correct Answer
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A carbon tax makes more sense at the ___ level than at the _ level because it _____.

Correct Answer
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When a subsidy is imposed on a market with a positive externality: total surplus increases. the market quantity moves closer to the efficient quantity. deadweight loss decreases.

Correct Answer
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D

The government offers subsidies to offset _______ externalities.

Correct Answer
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The Coase theorem is the idea that:

Correct Answer
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A

Suppose a company is forced to pay for the externality caused by its production. As a result, it chooses to supply less. What kind of externality does this company create?

Correct Answer
verified

Exam 18: Externalities

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correcting the externality that is present in a market increases the efficiency of the market. What type of externality exists in this market?

Correct AnswerverifiedShow Answer

Pigovian taxes are not always effective because it is difficult to identify:

Correct AnswerverifiedShow Answer

When private costs equal social costs:

Correct AnswerverifiedShow Answer

An external cost is typically referred to as a:

Correct AnswerverifiedB

A production or consumption quota that can be bought or sold is called a:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A positive externality is a(n) :

Correct AnswerverifiedShow Answer

When private benefits are less than social benefits:

Correct AnswerverifiedShow Answer

The downside of using a tax to target specific activities, rather than the externality itself, is:

Correct AnswerverifiedShow Answer

All externalities:

Correct AnswerverifiedShow Answer

A Pigovian tax will _______ the price when imposed on consumers and _______ the price when imposed on producers.

Correct AnswerverifiedShow Answer

A benefit that accrues without compensation to someone other than the person who caused it is called a(n) _______ benefit.

Correct AnswerverifiedShow Answer

If the government's provision of a subsidy is too large to counteract the entire effect of a positive externality, what result can we expect?

Correct AnswerverifiedShow Answer

A carbon tax makes more sense at the _______ level than at the _______ level because it _______.

Correct AnswerverifiedShow Answer

When a subsidy is imposed on a market with a positive externality: total surplus increases. the market quantity moves closer to the efficient quantity. deadweight loss decreases.

Correct AnswerverifiedD

The government offers subsidies to offset _______ externalities.

Correct AnswerverifiedShow Answer

The Coase theorem is the idea that:

Correct AnswerverifiedA

Suppose a company is forced to pay for the externality caused by its production. As a result, it chooses to supply less. What kind of externality does this company create?

Correct AnswerverifiedShow Answer

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

Correct Answer
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Correct Answer
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B

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A Pigovian tax will _ the price when imposed on consumers and _ the price when imposed on producers.

Correct Answer
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Correct Answer
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Correct Answer
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A carbon tax makes more sense at the ___ level than at the _ level because it _____.

Correct Answer
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D

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A

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