Question 1

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

Accepted Answer

A)  The quantity consumed will still be too low.
B)  The 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) A) and B)
F) A) and C)

Question 2

An example of a Pigovian tax would be a tax on:

Accepted Answer

A)  income.
B)  cigarettes.
C)  corporate capital gains.
D)  A tax on any of these goods would be a Pigovian tax.E) A) and B)
F) C) and D)

Question 3

If a Pigovian tax is not large enough, the resulting market quantity will be _______ the efficient quantity.

Accepted Answer

A)  equal to
B)  more than
C)  less than
D)  set where social marginal cost equalsE) A) and D)
F) C) and D)

Question 4

Which type of tax is intended to counter the effect of a negative externality?

Accepted Answer

A)  Coase
B)  Pigovian
C)  External
D)  Social benefitE) A) and B)
F) All of the above

Question 5

When negative externalities are present in a market:

Accepted Answer

A)  individuals are not taking into account all the costs associated with their market choices.
B)  society bears part of the cost of private transactions.
C)  production and consumption are above the socially optimal level.
D)  All of these are true.E) A) and B)
F) A) and C)

Question 6

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

Accepted Answer

A)  production benefits.
B)  social benefits.
C)  public costs.
D)  network benefits.E) C) and D)
F) A) and B)

Question 7

If the social benefit is greater than the private benefit in a particular market, then the socially optimal equilibrium will exist at a quantity that is _______ the private level.

Accepted Answer

A)  greater than
B)  equal to
C)  less than
D)  either greater than or less thanE) None of the above
F) B) and C)

Question 8

When a positive externality is present in a market, the imposition of a government subsidy will:

Accepted Answer

A)  increase surplus.
B)  increase efficiency.
C)  make consumers internalize the external benefit.
D)  All of these are true.E) A) and B)
F) B) and C)

Question 9

Tradable allowances and quotas both:

Accepted Answer

A)  reduce the quantity bought and sold to the efficient level.
B)  maximize surplus.
C)  create efficient outcomes.
D)  All of these are true.E) A) and B)
F) A) and C)

Question 10

What tool can a government use to correct a market with a negative externality, thereby setting the efficient level of output and maximizing surplus?

Accepted Answer

A)  Tariff
B)  Subsidy
C)  Tradable allowance
D)  QuotaE) All of the above
F) A) and C)

Question 11

Correcting a market with an externality through taxation is _______ correcting it through the use of a quota.

Accepted Answer

A)  more efficient than
B)  less efficient than
C)  just as efficient as
D)  All of these could be true dependent on whether the tax is imposed on the buyer or seller.E) A) and B)
F) A) and D)

Question 12

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 be efficient.
C)  would be equitable.
D)  None of these are true.E) A) and D)
F) A) and B)

Question 13

Benefits that accrue directly to the decision maker of a market exchange are called _______ benefits.

Accepted Answer

A)  private
B)  network
C)  external
D)  socialE) All of the above
F) None of the above

Question 14

Which of the following is a good or service that exhibits a negative network externality?

Accepted Answer

A)  A telephone
B)  A wireless internet connection
C)  A social network website
D)  All of these are goods or services that create negative network externalities.E) A) and D)
F) A) and C)

Question 15

If a negative consumption externality were present in a market, the social benefit curve would be:

Accepted Answer

A)  above the private demand curve.
B)  below the private demand curve.
C)  identical to the private demand curve.
D)  The social benefit curve's location cannot be determined without more information.E) A) and B)
F) B) and C)

Question 16

If people took external costs, such as pollution, into consideration when deciding how much to consume of goods that cause externalities, they would:

Accepted Answer

A)  consume a socially non-optimal amount.
B)  not change their consumption behavior.
C)  consume more.
D)  consume less.E) A) and B)
F) A) and C)

Question 17

A market with a negative externality has total surplus that is _______ total surplus in a market without a negative externality.

Accepted Answer

A)  lower due to deadweight loss than
B)  equal to
C)  higher due to deadweight loss than
D)  equal to, but redistributed differently, thanE) B) and D)
F) C) and D)

Question 18

Private benefits 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) B) and D)
F) A) and B)

Question 19

Tradable allowances and taxes both:

Accepted Answer

A)  impose a quota on output.
B)  maximize surplus.
C)  create inefficient outcomes.
D)  None of these are true.E) A) and B)
F) All of the above

Question 20

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

Exam 18: Externalities

If a Pigovian tax is not large enough, the resulting market quantity will be _______ the efficient quantity.

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

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What tool can a government use to correct a market with a negative externality, thereby setting the efficient level of output and maximizing surplus?

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

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Which type of tax is intended to counter the effect of a negative externality?

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A market with a negative externality has total surplus that is _______ total surplus in a market without a negative externality.

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When negative externalities are present in a market:

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Private benefits accrue:

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If a negative consumption externality were present in a market, the social benefit curve would be:

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Which of the following is a good or service that exhibits a negative network externality?

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Benefits that accrue directly to the decision maker of a market exchange are called _______ benefits.

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Efficient solutions to solving externality problems:

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An example of a Pigovian tax would be a tax on:

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Tradable allowances and quotas both:

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If the social benefit is greater than the private benefit in a particular market, then the socially optimal equilibrium will exist at a quantity that is _______ the private level.

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Tradable allowances and taxes both:

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When a positive externality is present in a market, the imposition of a government subsidy will:

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If people took external costs, such as pollution, into consideration when deciding how much to consume of goods that cause externalities, they would:

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Correcting a market with an externality through taxation is _______ correcting it through the use of a quota.

Correct AnswerverifiedShow Answer

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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