Question 1

All externalities:

Accepted Answer

A)   are harmful to society and create costs external to the decision maker.
B)   are beneficial to society and create benefits external to the decision maker.
C)   create either a cost or benefit to a person other than the person who caused it.
D)   are addressed by the government through taxation.E) B) and C)
F) C) and D)

Question 2

When positive externalities exist in a market,if a Pigouvian subsidy is imposed:

Accepted Answer

A)   those who interact in the market will lose surplus.
B)   those who interact in the market will gain surplus.
C)   those who do not interact in the market, but are affected by the externality, will gain surplus.
D)   None of these statements is necessarily 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 tariff.
B)   a subsidy.
C)   a tradable allowance.
D)   a quota.E) None of the above
F) B) and D)

Question 4

When private benefits equal social benefits,it means that:

Accepted Answer

A)   positive externalities are present in the market.
B)   negative externalities are present in the market.
C)   positive externalities are not present in the market.
D)   no externality of any kind is present in the market.E) C) and D)
F) A) and C)

Question 5

If a negative 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)   the same as the private demand curve.
D)   Cannot say without more information.E) All of the above
F) A) and B)

Question 6

If a Pigovian tax is not large enough,the resulting market quantity:

Accepted Answer

A)   will be equal to the efficient quantity.
B)   will be more than the efficient quantity.
C)   will be less than the efficient quantity.
D)   will be where the social marginal cost equals the social marginal benefit.E) A) and D)
F) All of the above

Question 7

Who gains surplus when consumers in a market are given a Pigouvian subsidy for a positive externality?

Accepted Answer

A)   Consumers
B)   Producers
C)   Others affected by the externality
D)   Both consumers and producers gain surplus.E) All of the above
F) None of the above

Question 8

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

Question 9

External costs and external benefits are collectively referred to as:

Accepted Answer

A)   externalities.
B)   network externalities.
C)   social externalities.
D)   social welfare.E) A) and D)
F) A) and B)

Question 10

An example of a good that exhibits a negative network externality is:

Accepted Answer

A)   telephones.
B)   a wireless internet connection.
C)   Facebook.
D)   All of these are examples of goods that create negative network externalities.E) B) and C)
F) None of the above

Question 11

A production or consumption quota that can be bought or sold is called:

Accepted Answer

A)   a buyers' or sellers' quota.
B)   a tax.
C)   a tradable allowance.
D)   a subsidy.E) B) and D)
F) All of the above

Question 12

Who is affected when a Pigouvian subsidy is imposed on a market with a positive externality?

Accepted Answer

A)   Producers
B)   Consumers
C)   Those affected by the externality
D)   All of these groups would be affected.E) All of the above
F) A) and B)

Question 13

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 D)
F) C) and D)

Question 14

Who loses surplus when consumers in a market are forced to pay a Pigouvian tax for a negative externality?

Accepted Answer

A)   Consumers
B)   Producers
C)   Others affected by the externality
D)   Both producers and consumers lose surplus when negative externalities are internalized.E) A) and D)
F) None of the above

Question 15

When a market is corrected for externalities,it:

Accepted Answer

A)   is equitable.
B)   maximizes surplus.
C)   makes everyone in society better off.
D)   All of these statements are true.E) A) and B)
F) A) and C)

Question 16

External costs are those costs:

Accepted Answer

A)   that fall directly on an economic decision maker.
B)   that fall indirectly on an economic decision maker.
C)   that are imposed without compensation on someone other than the person who caused them.
D)   that are both social costs and private costs.E) None of the above
F) B) and C)

Question 17

A network externality is:

Accepted Answer

A)   a direct effect on an economic decision maker.
B)   an indirect effect on an economic decision maker.
C)   the effect that an additional user of a good or participant in an activity has on the value of that good or activity for others.
D)   an uncompensated effect on someone other than the person who caused it.E) A) and C)
F) A) and D)

Question 18

If the social benefit is greater than the private benefit in a particular market,then the socially optimal equilibrium will be at a quantity:

Accepted Answer

A)   greater than the private level.
B)   equal to the private level.
C)   less than the private level.
D)   greater than or less than the private level, depending on the size of the external costs.E) B) and C)
F) None of the above

Question 19

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) A) and D)
F) A) and C)

Question 20

A Pigovian tax imposed on consumers ___________ the price,and if the same tax were imposed on producers,it would _____________ the price.

Accepted Answer

A)   increases; decrease
B)   decreases; increase
C)   increases; increase
D)   decreases; decreaseE) A) and D)
F) C) and D)

Exam 18: Externalities

External costs and external benefits are collectively referred to as:

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When private benefits equal social benefits,it means that:

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Who is affected when a Pigouvian subsidy is imposed on a market with a positive externality?

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External costs are those costs:

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Who loses surplus when consumers in a market are forced to pay a Pigouvian tax for a negative externality?

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When positive externalities exist in a market,if a Pigouvian subsidy is imposed:

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A production or consumption quota that can be bought or sold is called:

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

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An example of a good that exhibits a negative network externality is:

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If the social benefit is greater than the private benefit in a particular market,then the socially optimal equilibrium will be at a quantity:

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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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When a market is corrected for externalities,it:

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When negative externalities are present,it means that:

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A Pigovian tax imposed on consumers ___________ the price,and if the same tax were imposed on producers,it would _____________ the price.

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Who gains surplus when consumers in a market are given a Pigouvian subsidy for a positive externality?

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A network externality 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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All externalities:

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If a Pigovian tax is not large enough,the resulting market quantity:

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A Pigovian tax imposed on consumers _ the price,and if the same tax were imposed on producers,it would ___ the price.

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