Question 1

When a person drives a car that pollutes the air the

Accepted Answer

A)   private cost of consuming the car's services exceeds the social cost.
B)   private benefit of consuming the car's services exceeds the social benefit.
C)   social cost of consuming the car's services exceeds the private cost.
D)   social benefit of consuming the car's services exceeds the private benefits.E) C) and D)
F) None of the above

Question 2

Refer to the figure below. This diagram represents the tobacco industry. The industry creates

Accepted Answer

A)   positive externalities.
B)   negative externalities.
C)   no externalities.
D)   no equilibrium in the market.E) A) and D)
F) All of the above

Question 3

A market that generates a negative externality that has not been internalized generates an equilibrium quantity that is less than the optimal quantity.

Accepted Answer

A) True 
 B)False

Question 4

If a perfectly competitive industry is not forced to take account of a negative externality it creates, it will produce where

Accepted Answer

A)   the marginal cost of production equals the marginal private benefit.
B)   the marginal cost of production equals the marginal social benefit.
C)   the marginal social cost of production equals the marginal social benefit.
D)   price equals marginal social benefit.E) A) and D)
F) C) and D)

Question 5

Using a supply and demand diagram, demonstrate how a positive externality leads to market inefficiency. How might the government help to eliminate this inefficiency?

Accepted Answer

<img  loading="lazy" src="/assets/images/blured-textbook.svg" class="d-inline m-1" alt="blured image" width="139" height="30"> When a positive externality exists, the...

Question 6

If a market generates a negative externality, a Pigovian tax will move the market toward a more efficient outcome.

Accepted Answer

A) True 
 B)False

Question 7

The most efficient pollution control system would ensure that

Accepted Answer

A)   the regulators decide how much each polluter should reduce its pollution.
B)   no pollution of the environment is tolerated.
C)   each polluter reduce its pollution an equal amount.
D)   the polluters with the lowest cost of reducing pollution reduce their pollution the greatest amount.E) B) and D)
F) B) and C)

Question 8

When a group of neighbours ask a householder to tidy his front garden because they keep their own gardens tidy and attractive, they are attempting to use moral codes and social sanctions to internalize the externality associated with an untidy garden in a residential area.

Accepted Answer

A) True 
 B)False

Question 9

A Pigovian tax on pollution

Accepted Answer

A)   sets the quantity of pollution.
B)   reduces the incentive for technological innovations to further reduce pollution.
C)   sets the price of pollution.
D)   determines the demand for pollution rights.E) C) and D)
F) B) and D)

Question 10

Which of the following is not considered a transaction cost incurred by parties in the process of contracting to eliminate a pollution externality?

Accepted Answer

A)   costs incurred due to lawyers' fees
B)   costs incurred to reduce the pollution
C)   costs incurred to enforce the agreement
D)   costs incurred due to a large number of parties affected by the externality
E)   All of these answers are considered transaction costs.F) B) and D)
G) D) and E)

Question 11

Why might government decision-making be flawed by listening to lobbying?

Accepted Answer

Lobbying by certain special interest gro...

Question 12

Suppose an industry emits a negative externality such as pollution and the possible methods to internalize the externality are command-and-control policies, Pigovian taxes, and tradable pollution permits. If economists were to rank these methods for internalizing a negative externality based on efficiency, ease of implementation, and the incentive for the industry to further reduce pollution in the future, they would probably rank them in the following order (from most favoured to least favoured) :

Accepted Answer

A)   Pigovian taxes, command-and-control policies, tradable pollution permits.
B)   tradable pollution permits, Pigovian taxes, command-and-control policies.
C)   tradable pollution permits, command-and-control policies, Pigovian taxes.
D)   command-and-control policies, tradable pollution permits, Pigovian taxes.
E)   They would all rank equally high because the same result can be obtained from any one of the policies.F) B) and C)
G) D) and E)

Question 13

Flu injections are associated with a positive externality. (Those who come in contact with people who are inoculated are helped as well.)  Given perfect competition with no government intervention in the vaccination market, which of the following holds?

Accepted Answer

A)   At the current output level, the marginal social benefit exceeds the marginal private benefit.
B)   The current output level is inefficiently low.
C)   A subsidy on each injection could turn an inefficient situation into an efficient one.
D)   All of the above are correct.E) B) and C)
F) A) and C)

Question 14

According to the Coase theorem, an externality always requires government intervention in order to internalize the externality.

Accepted Answer

A) True 
 B)False

Question 15

A benefit of taxes over regulation to internalize externalities is

Accepted Answer

A)   it is easier to choose the optimal amount of taxes than the optimal amount of regulation.
B)   regulations are more difficult to impose than taxes.
C)   taxes equate the social costs with the social benefits.
D)   taxes provide incentives to adopt new methods to reduce the externality.E) B) and D)
F) A) and B)

Question 16

If a market generates a negative externality, the social cost curve is above the supply curve (private cost curve).

Accepted Answer

A) True 
 B)False

Question 17

Refer to the figure below. This diagram represents the tobacco industry. Which of the following would be included in the supply (private cost)  curve?

Accepted Answer

A)   the cost of labour
B)   the cost to the government of the hospital expenses of smokers with cancer
C)   the increased risk of cancer to the non-smoking passengers in the smoker's car pool
D)   all of the aboveE) A) and B)
F) C) and D)

Question 18

The gas-guzzler tax that is placed on new vehicles that are very fuel inefficient is an example of

Accepted Answer

A)   a tradable pollution permit.
B)   an attempt to internalize a positive externality.
C)   an application of the Coase theorem.
D)   an attempt to internalize a negative externality.E) C) and D)
F) B) and D)

Question 19

To internalize a negative externality, an appropriate public policy response would be to

Accepted Answer

A)   have the government take over the production of the good causing the externality.
B)   ban the production of all goods creating negative externalities.
C)   tax the good.
D)   subsidize the good.E) B) and D)
F) C) and D)

Question 20

Why might an inefficient tax system negate the effects of accounting for externalities?

Accepted Answer

Taxation can be inefficient if groups an...

Exam 11: Market Failure and Externalities

According to the Coase theorem, an externality always requires government intervention in order to internalize the externality.

Correct Answer
verified

The gas-guzzler tax that is placed on new vehicles that are very fuel inefficient is an example of

Correct Answer
verified

When a person drives a car that pollutes the air the

Correct Answer
verified

Why might government decision-making be flawed by listening to lobbying?

Correct Answer
verified
Lobbying by certain special interest gro...
View Answer

A benefit of taxes over regulation to internalize externalities is

Correct Answer
verified

If a market generates a negative externality, the social cost curve is above the supply curve (private cost curve).

Correct Answer
verified

A Pigovian tax on pollution

Correct Answer
verified

Refer to the figure below. This diagram represents the tobacco industry. Which of the following would be included in the supply (private cost) curve?

Correct Answer
verified

To internalize a negative externality, an appropriate public policy response would be to

Correct Answer
verified

A market that generates a negative externality that has not been internalized generates an equilibrium quantity that is less than the optimal quantity.

Correct Answer
verified

Which of the following is not considered a transaction cost incurred by parties in the process of contracting to eliminate a pollution externality?

Correct Answer
verified

Why might an inefficient tax system negate the effects of accounting for externalities?

Correct Answer
verified
Taxation can be inefficient if groups an...
View Answer

Correct Answer
verified

Using a supply and demand diagram, demonstrate how a positive externality leads to market inefficiency. How might the government help to eliminate this inefficiency?

Correct Answer
verified
When a positive externality exists, the...
View Answer

If a perfectly competitive industry is not forced to take account of a negative externality it creates, it will produce where

Correct Answer
verified

When a group of neighbours ask a householder to tidy his front garden because they keep their own gardens tidy and attractive, they are attempting to use moral codes and social sanctions to internalize the externality associated with an untidy garden in a residential area.

Correct Answer
verified

Refer to the figure below. This diagram represents the tobacco industry. The industry creates

Correct Answer
verified

The most efficient pollution control system would ensure that

Correct Answer
verified

Flu injections are associated with a positive externality. (Those who come in contact with people who are inoculated are helped as well.) Given perfect competition with no government intervention in the vaccination market, which of the following holds?

Correct Answer
verified

If a market generates a negative externality, a Pigovian tax will move the market toward a more efficient outcome.

Correct Answer
verified

Exam 11: Market Failure and Externalities

According to the Coase theorem, an externality always requires government intervention in order to internalize the externality.

Correct AnswerverifiedShow Answer

The gas-guzzler tax that is placed on new vehicles that are very fuel inefficient is an example of

Correct AnswerverifiedShow Answer

When a person drives a car that pollutes the air the

Correct AnswerverifiedShow Answer

Why might government decision-making be flawed by listening to lobbying?

Correct AnswerverifiedLobbying by certain special interest gro...View AnswerShow Answer

A benefit of taxes over regulation to internalize externalities is

Correct AnswerverifiedShow Answer

If a market generates a negative externality, the social cost curve is above the supply curve (private cost curve).

Correct AnswerverifiedShow Answer

A Pigovian tax on pollution

Correct AnswerverifiedShow Answer

Refer to the figure below. This diagram represents the tobacco industry. Which of the following would be included in the supply (private cost) curve?

Correct AnswerverifiedShow Answer

To internalize a negative externality, an appropriate public policy response would be to

Correct AnswerverifiedShow Answer

A market that generates a negative externality that has not been internalized generates an equilibrium quantity that is less than the optimal quantity.

Correct AnswerverifiedShow Answer

Which of the following is not considered a transaction cost incurred by parties in the process of contracting to eliminate a pollution externality?

Correct AnswerverifiedShow Answer

Why might an inefficient tax system negate the effects of accounting for externalities?

Correct AnswerverifiedTaxation can be inefficient if groups an...View AnswerShow Answer

Correct AnswerverifiedShow Answer

Using a supply and demand diagram, demonstrate how a positive externality leads to market inefficiency. How might the government help to eliminate this inefficiency?

Correct Answerverified When a positive externality exists, the...View AnswerShow Answer

If a perfectly competitive industry is not forced to take account of a negative externality it creates, it will produce where

Correct AnswerverifiedShow Answer

When a group of neighbours ask a householder to tidy his front garden because they keep their own gardens tidy and attractive, they are attempting to use moral codes and social sanctions to internalize the externality associated with an untidy garden in a residential area.

Correct AnswerverifiedShow Answer

Refer to the figure below. This diagram represents the tobacco industry. The industry creates

Correct AnswerverifiedShow Answer

The most efficient pollution control system would ensure that

Correct AnswerverifiedShow Answer

Flu injections are associated with a positive externality. (Those who come in contact with people who are inoculated are helped as well.) Given perfect competition with no government intervention in the vaccination market, which of the following holds?

Correct AnswerverifiedShow Answer

If a market generates a negative externality, a Pigovian tax will move the market toward a more efficient outcome.

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Lobbying by certain special interest gro...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Taxation can be inefficient if groups an...
View Answer

Correct Answer
verified

Correct Answer
verified
When a positive externality exists, the...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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