Question 1

A benefit that accrues without compensation to someone other than the person who caused it is called:

Accepted Answer

A)   an external benefit.
B)   a network benefit.
C)   a social benefit.
D)   a private benefit.E) B) and C)
F) All of the above

Question 2

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

Accepted Answer

A)   quantity consumed will still be too low.
B)   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) C) and D)
F) All of the above

Question 3

Thinking about the Coase theorem,the private solution yields __________ amount of efficiency and ___________ distribution of surplus as compared to a government solution.

Accepted Answer

A)   the same; the same
B)   the same; a different
C)   a different; the same
D)   a different; a differentE) B) and D)
F) A) and B)

Question 4

One problem with the effectiveness of Pigovian taxes is:

Accepted Answer

A)   knowing whether to impose it on the consumer or producer.
B)   knowing what the value of the tax should be.
C)   identifying those who are affected by the externality.
D)   none of these are problems.E) A) and B)
F) A) and C)

Question 5

External benefits are those 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 it.
D)   to the government without its direct intervention.E) B) and D)
F) B) and C)

Question 6

When government corrects a market with an externality present by allowing participants to buy up to the point where their net benefit is zero,they must be:

Accepted Answer

A)   imposing a tariff.
B)   offering a Coase tax.
C)   mandating a quota.
D)   imposing a tax.E) B) and C)
F) C) and D)

Question 7

A Pigovian tax is a tax:

Accepted Answer

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

Question 8

The net increase to total surplus when a positive externality is corrected is due to:

Accepted Answer

A)   the transfer of surplus from those affected by the externality to the consumer.
B)   the increased number of units bought and sold in the market.
C)   the transfer of surplus from the consumer to those affected by the externality.
D)   None of these statements is true.E) All of the above
F) C) and D)

Question 9

If a Pigovian tax is levied on producers,the supply curve will shift:

Accepted Answer

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

Question 10

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

Question 11

When a negative 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) None of the above
F) A) and B)

Question 12

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 D)
F) C) and D)

Question 13

Markets fail to maximize total surplus when:

Accepted Answer

A)   individual choices impose costs or benefits on others.
B)   society's choices impose costs or benefits on other societies.
C)   when all costs and benefits are received by participants in transactions.
D)   producer surplus is not exactly equal to consumer surplus.E) None of the above
F) All of the above

Question 14

When there are significant costs involved with coordinating a private solution to an externality:

Accepted Answer

A)   a leader will likely be elected to organize the coordination.
B)   it can act as a motivating factor to solve the externality problem expediently.
C)   it likely will not happen.
D)   None of these statements is true.E) A) and D)
F) A) and C)

Question 15

A positive externality is:

Accepted Answer

A)   an external benefit.
B)   an external cost that affects the buyer.
C)   an external cost that affects the seller.
D)   a benefit that affects the buyer, not the seller.E) None of the above
F) All of the above

Question 16

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

Question 17

The net increase to total surplus when a negative externality is corrected or eliminated is due to:

Accepted Answer

A)   the transfer of surplus from those affected by the externality to the consumer.
B)   the reduced number of transactions in the market.
C)   the transfer of surplus from consumer or producer to those affected by the externality.
D)   None of these statements is true.E) A) and C)
F) B) and C)

Question 18

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

Accepted Answer

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

Question 19

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) C) and D)
F) B) and D)

Question 20

An example of a good that creates a positive network externality is:

Accepted Answer

A)   the telephone.
B)   social network websites (e.g. Facebook) .
C)   a workers' union.
D)   All of these are examples of good that create positive network externalities.E) None of the above
F) B) and D)

Exam 18: Externalities

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

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Thinking about the Coase theorem,the private solution yields __________ amount of efficiency and ___________ distribution of surplus as compared to a government solution.

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When there are significant costs involved with coordinating a private solution to an externality:

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External benefits are those that accrue:

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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:

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

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When government corrects a market with an externality present by allowing participants to buy up to the point where their net benefit is zero,they must be:

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Markets fail to maximize total surplus when:

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One problem with the effectiveness of Pigovian taxes is:

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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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An example of a good that creates a positive network externality is:

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The net increase to total surplus when a negative externality is corrected or eliminated is due to:

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The net increase to total surplus when a positive externality is corrected is due to:

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

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A positive externality is:

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

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A Pigovian tax is a tax:

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A benefit that accrues without compensation to someone other than the person who caused it is called:

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If a Pigovian tax is levied on producers,the supply curve will shift:

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Thinking about the Coase theorem,the private solution yields amount of efficiency and _ distribution of surplus as compared to a government solution.

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