Question 1

When a market is corrected for externalities,it:

Accepted Answer

A)   is efficient and maximizes surplus.
B)   is equitable and makes everyone better off.
C)   needs government regulation to maintain.
D)   All of these statements are true.E) C) and D)
F) A) and B)

Question 2

When an externality is present in a market,and correcting it increases the efficiency of the market,we can conclude it is a:

Accepted Answer

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

Question 3

Efficient solutions to solving externality problems:

Accepted Answer

A)   are always supported by the government.
B)   increase surplus for everyone in society.
C)   are not always supported in political arenas.
D)   decrease surplus for everyone in society.E) A) and C)
F) B) and C)

Question 4

The effect of a Pigovian tax on a market is:

Accepted Answer

A)   increased price and reduced quantity to the efficient level.
B)   decreased price and increased quantity to the efficient level.
C)   increased price and quantity to the efficient level.
D)   decreased price and quantity to the efficient level.E) C) and D)
F) All of the above

Question 5

If companies who took into account an externality want to supply less at any given price compared to the original market supply,it must be a:

Accepted Answer

A)   positive externality.
B)   negative externality.
C)   network externality.
D)   social externality.E) All of the above
F) C) and D)

Question 6

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

Accepted Answer

A)   inefficient, because the net benefit of buying another unit is zero for all market participants.
B)   efficient, 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) A) and B)
F) None of the above

Question 7

A tradable allowance is:

Accepted Answer

A)   the minimum amount set by the government that can be bought or sold in a market.
B)   a production or consumption quota that can be bought or sold.
C)   the permitted price for the trade of a particular good.
D)   None of these statements is true.E) All of the above
F) A) and B)

Question 8

When we add private benefits and external benefits together,the result is called:

Accepted Answer

A)   production benefits.
B)   social benefits.
C)   public costs.
D)   network benefits.E) All of the above
F) None of the above

Question 9

Who are the only ones not affected when a Pigouvian subsidy is implemented for a positive externality 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) All of the above
F) A) and B)

Question 10

If a Pigovian tax is levied on consumers,the demand curve will shift:

Accepted Answer

A)   straight up, decreasing quantity.
B)   straight down, decreasing quantity.
C)   straight down, increasing quantity.
D)   straight up, increasing quantity.E) All of the above
F) A) and B)

Question 11

A Pigovian tax is intended to:

Accepted Answer

A)   counter the effect of a negative externality.
B)   decrease efficiency in a market.
C)   decrease total surplus in a market.
D)   All of these statements are true.E) A) and B)
F) B) and C)

Question 12

In a market where a positive externality is present,the effect of a government subsidy would be to ensure:

Accepted Answer

A)   a more fair distribution of surplus.
B)   an efficient outcome.
C)   that those who enjoy the benefit receive the surplus.
D)   All of these statements are true.E) A) and D)
F) B) and C)

Question 13

When a positive externality exists in a market,total surplus:

Accepted Answer

A)   is decreased by deadweight loss compared to that same market without a negative externality.
B)   is the same as a market without a negative externality.
C)   is increased by deadweight gain compared to that same market without a negative externality.
D)   is the same but re-distributed differently than if that same market did not have a negative externality.E) A) and C)
F) A) and D)

Question 14

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

Accepted Answer

A)   quantity consumed will become even lower.
B)   quantity consumed will become too high.
C)   total surplus will be maximized.
D)   None of these statements is true.E) A) and B)
F) All of the above

Question 15

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

Question 16

If companies that were creating pollution had to pay the social cost of production,they would want to supply:

Accepted Answer

A)   more at any given price.
B)   less at any given price.
C)   the same amount at the equilibrium price.
D)   the same amount at any given price.E) C) and D)
F) A) and C)

Question 17

If it's possible to eliminate the problems created by externalities,why do they persist?

Accepted Answer

A)   Correcting externalities would always reduce total surplus.
B)   It is difficult to measure external benefits and costs.
C)   The benefits of correcting the externalities generally exceed the costs.
D)   None of these statements is true.E) B) and C)
F) A) and C)

Question 18

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

Question 19

In order for a Pigovian tax to be effective,it must:

Accepted Answer

A)   be imposed on the consumer.
B)   be imposed on the producer.
C)   be imposed on those affected by the externality.
D)   None of these statements is true.E) B) and C)
F) C) and D)

Question 20

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)   equal to the socially optimal level.
B)   less than the socially optimal level.
C)   greater 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) A) and C)

Exam 18: Externalities

Who are the only ones not affected when a Pigouvian subsidy is implemented for a positive externality in a market?

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

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When an externality is present in a market,and correcting it increases the efficiency of the market,we can conclude it is a:

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If a Pigovian tax is levied on consumers,the demand curve will shift:

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

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The Coase theorem is the idea that:

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A Pigovian tax is intended to:

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When a market is corrected for externalities,it:

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When we add private benefits and external benefits together,the result is called:

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The effect of a Pigovian tax on a market is:

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A tradable allowance is:

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If companies that were creating pollution had to pay the social cost of production,they would want to supply:

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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 exists in a market,total surplus:

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In a market where a positive externality is present,the effect of a government subsidy would be to ensure:

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Efficient solutions to solving externality problems:

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If it's possible to eliminate the problems created by externalities,why do they persist?

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In order for a Pigovian tax to be effective,it must:

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

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If companies who took into account an externality want to supply less at any given price compared to the original market supply,it must be a:

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