Question 1

When a negative externality is present in a market,when a tax is imposed,it is:

Accepted Answer

A)  efficient,because the net benefit of buying another unit is zero for all market participants.
B)  inefficient,because the net benefit of buying another unit is zero for all market participants.
C)  efficient,because the government mandates the efficient quantity without regard for net benefits.
D)  inefficient,because the government mandates the efficient quantity without regard for net benefits.E) None of the above
F) C) and D)

Question 2

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) A) and C)

Question 3

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

Question 4

If the revenues from a Pigovian tax are not directed to those who are affected by the externality,the outcome:

Accepted Answer

A)  is efficient and maximizes surplus.
B)  is not efficient and does not maximize surplus.
C)  is efficient,but does not maximize surplus.
D)  is not efficient and maximizes surplus.E) B) and D)
F) C) and D)

Question 5

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

Question 6

The idea of the "invisible hand" tells us that individuals will pursue:

Accepted Answer

A)  mutually beneficial trades with other individuals to maximize surplus.
B)  trades in which they will be the clear winner and the other will be a loser.
C)  the most equitable outcome possible.
D)  as few government policies as possible so the market can act freely.E) None of the above
F) A) and B)

Question 7

When negative externalities are present,it means that:

Accepted Answer

A)  individuals don't take into account all the costs associated with their market choice.
B)  society bears part of the cost borne of private transactions.
C)  production and consumption is above the socially optimal level.
D)  All of these statements are true.E) A) and B)
F) A) and C)

Question 8

Total surplus in the presence of a positive externality that has not been internalized:

Accepted Answer

A)  is greater than total surplus when the externality is internalized.
B)  is less than total surplus when the externality is internalized.
C)  is the same as total surplus when the externality is internalized.
D)  zero,since it has not been internalized.E) B) and C)
F) All of the above

Question 9

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

Accepted Answer

A)  increases,but producer and consumer surplus both fall.
B)  decreases,because producer and consumer surplus both fall.
C)  increases,because producer surplus increases.
D)  decreases,because consumer surplus falls more than producer surplus increases.E) A) and B)
F) A) and C)

Question 10

Pigovian taxes are used to counterbalance:

Accepted Answer

A)  negative externalities.
B)  positive externalities.
C)  network externalities.
D)  They could be used to counteract any of these.E) None of the above
F) A) and B)

Question 11

With the Coase theorem,the private solution yields:

Accepted Answer

A)  a more efficient outcome than a government solution would.
B)  a less efficient outcome than a government solution would.
C)  the same amount of efficiency a government solution would.
D)  None of these statements is true.E) C) and D)
F) None of the above

Question 12

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

Accepted Answer

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

Question 13

Externalities:

Accepted Answer

A)  are one of the most common causes of market failure.
B)  are present in most markets.
C)  are present in all but perfectly competitive markets.
D)  can increase total surplus if it's positive.E) B) and C)
F) All of the above

Question 14

Thinking about the Coase theorem,the private solution yields __________ amount of efficiency and ___________ distribution of surplus as compared to a government solution.

Accepted Answer

A)  the same;a different
B)  the same;the same
C)  a different;the same
D)  a different;a differentE) A) and B)
F) B) and C)

Question 15

Situations in which the actions of private individuals and firms are insufficient to ensure efficient markets are referred to as:

Accepted Answer

A)  market failures.
B)  disequilibrium.
C)  negative externality.
D)  price gouging.E) All of the above
F) A) and D)

Question 16

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,and that 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 statements is true.E) A) and B)
F) A) and C)

Question 17

Governments tend to see taxing an action that produces a negative externality as:

Accepted Answer

A)  the best solution possible,but often unattainable.
B)  the second best solution possible and often the most attainable.
C)  the best solution possible and often the most attainable.
D)  the second best solution possible,but often unattainable.E) All of the above
F) A) and C)

Question 18

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

Accepted Answer

A)  quantity consumed will still be too low.
B)  quantity consumed will still be too high.
C)  total surplus will be maximized,but the outcome will be inefficient.
D)  total surplus will not be maximized,but the outcome will be efficient.E) All of the above
F) B) and C)

Question 19

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

Accepted Answer

A)  is less than the socially optimal quantity.
B)  is always more than the socially optimal quantity.
C)  is the same as the socially optimal quantity.
D)  is often more than the socially optimal quantity.E) B) and C)
F) None of the above

Question 20

If a positive externality were present in a market,the social demand curve would be:

Accepted Answer

A)  above the private demand curve.
B)  below the private demand curve.
C)  the same as the private demand curve.
D)  Cannot say without more information.E) B) and C)
F) C) and D)

Exam 18: Externalities

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

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The idea of the "invisible hand" tells us that individuals will pursue:

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Externalities:

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

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When negative externalities are present,it means that:

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

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Pigovian taxes are used to counterbalance:

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If the revenues from a Pigovian tax are not directed to those who are affected by the externality,the outcome:

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The Coase theorem is the idea that:

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

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Situations in which the actions of private individuals and firms are insufficient to ensure efficient markets are referred to as:

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Governments tend to see taxing an action that produces a negative externality as:

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

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When a negative externality is present in a market,when a tax is imposed,it is:

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Thinking about the Coase theorem,the private solution yields __________ amount of efficiency and ___________ distribution of surplus as compared to a government solution.

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If a positive externality were present in a market,the social demand curve would be:

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

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A sin tax is an example of:

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Total surplus in the presence of a positive externality that has not been internalized:

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With the Coase theorem,the private solution yields:

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Thinking about the Coase theorem,the private solution yields amount of efficiency and _ distribution of surplus as compared to a government solution.

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