Question 1

The surplus gained by those outside the market due to the reduction in pollution is _____________ the surplus lost by consumers and producers in the market for gasoline when the negative externality is internalized.

Accepted Answer

A)  always more than
B)  always less than
C)  often the same as
D)  sometimes less thanE) None of the above
F) C) and D)

Question 2

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

Question 3

The government can both set the efficient level of output in a market and maximize surplus by correcting for a negative externality by using:

Accepted Answer

A)  a tradable allowance.
B)  a tariff.
C)  a subsidy.
D)  a quota.E) B) and C)
F) All of the above

Question 4

The Coase theorem will hold only if:

Accepted Answer

A)  people can make enforceable agreements.
B)  there are no transactions costs.
C)  Both of these must hold true.
D)  Neither of these must hold true.E) B) and D)
F) None of the above

Question 5

When a positive externality is internalized,efficiency:

Accepted Answer

A)  increases.
B)  decreases.
C)  is not affected.
D)  drops to zero.E) A) and B)
F) A) and C)

Question 6

When private costs equal social costs,it means that:

Accepted Answer

A)  negative externalities are not present in the market.
B)  positive 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) C) and D)

Question 7

Who is affected when a negative externality becomes internalized 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) None of the above
F) B) and C)

Question 8

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

Question 9

A policy that directly targets the externality:

Accepted Answer

A)  encourages innovation,which matches the goal to stop production of the externality.
B)  gives firms incentives to find different ways to do things,rather than pay for the right to create the externality.
C)  is a better long-run solution.
D)  All of these statements are true.E) B) and D)
F) None of the above

Question 10

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

Accepted Answer

A)  lower when buyers only consider private costs.
B)  higher 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) None of the above

Question 11

A tradable allowance is:

Accepted Answer

A)  a production or consumption quota that can be bought or sold.
B)  an efficient amount set by the government that can be bought or sold in a market.
C)  the maximum amount the government will permit to be bought or sold of a particular good.
D)  None of these statements is true.E) A) and B)
F) C) and D)

Question 12

Efficiency is reached by allocating resources to those who have the greatest willingness to pay for them.This can be achieved in a market where a negative externality is present by:

Accepted Answer

A)  taxing consumers.
B)  giving consumers a subsidy.
C)  place a quota at the efficient level.
D)  All of these will achieve efficiency.E) C) and D)
F) B) and D)

Question 13

Taxing the externality itself to correct a market:

Accepted Answer

A)  is likely the best solution possible.
B)  can be unattainable.
C)  can be extremely difficult.
D)  All of these statements are true.E) A) and D)
F) All of the above

Question 14

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

Question 15

Private benefits are those benefits that accrue:

Accepted Answer

A)  directly to the decision maker of a market exchange.
B)  indirectly 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) B) and C)
F) A) and D)

Question 16

Knowing that the presence of externalities reduces surplus,it implies that:

Accepted Answer

A)  there are mutually beneficial trades waiting to be exploited so private parties have an incentive to solve the externality problem themselves.
B)  government needs to find them and correct the market.
C)  there are mutually beneficial trades waiting to be exploited,so government has an incentive to force those parties to solve the problem themselves.
D)  None of these statements is true.E) A) and B)
F) B) and C)

Question 17

When positive externalities are present in a market,it means that:

Accepted Answer

A)  private benefits are less than social benefits.
B)  private benefits are less than external benefits.
C)  social benefits are less than external benefits.
D)  external benefits are equal to social benefits.E) A) and B)
F) A) and C)

Question 18

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

Accepted Answer

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

Question 19

Any cost that is imposed without compensation on someone other than the person who caused it is called:

Accepted Answer

A)  private cost.
B)  social cost.
C)  external cost.
D)  network cost.E) All of the above
F) None of the above

Question 20

When a positive externality is internalized,efficiency increases by shifting the:

Accepted Answer

A)  external benefit from those not involved in the market to those involved.
B)  private cost from those involved in the market to those not involved.
C)  private cost from those not involved in the market to those involved.
D)  social cost from those not involved in the market to those involved.E) C) and D)
F) None of the above

Exam 18: Externalities

The surplus gained by those outside the market due to the reduction in pollution is _____________ the surplus lost by consumers and producers in the market for gasoline when the negative externality is internalized.

Correct AnswerverifiedShow Answer

When a positive externality is internalized,efficiency increases by shifting the:

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When private costs equal social costs,it means that:

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Knowing that the presence of externalities reduces surplus,it implies that:

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Private benefits are those benefits that accrue:

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A tradable allowance is:

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The government can both set the efficient level of output in a market and maximize surplus by correcting for a negative externality by using:

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The effect of a Pigovian tax on a market is:

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

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

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Taxing the externality itself to correct a market:

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When a positive externality is internalized,efficiency:

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When positive externalities are present in a market,it means that:

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Any cost that is imposed without compensation on someone other than the person who caused it is called:

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

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The Coase theorem will hold only if:

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Efficiency is reached by allocating resources to those who have the greatest willingness to pay for them.This can be achieved in a market where a negative externality is present by:

Correct AnswerverifiedShow Answer

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

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Who is affected when a negative externality becomes internalized in a market?

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A policy that directly targets the externality:

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

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