Question 1

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 are true.E) None of the above
F) A) and C)

Question 2

One way to make consumers take a positive externality into account when making demand decisions is to:

Accepted Answer

A)  place a tax on the item.
B)  subsidize the purchase of the item.
C)  tax the producers of the item.
D)  None of these are true.E) C) and D)
F) None of the above

Question 3

The Coase theorem will hold only if:

Accepted Answer

A)  transactions costs are clearly identified and assigned.
B)  contracts are enforceable.
C)  the government will provide free mediation.
D)  None of these are true.E) A) and B)
F) A) and C)

Question 4

The graph shown displays a market with an externality.  Which areas represent deadweight loss?

Accepted Answer

A)  A + D
B)  D + E
C)  C + F
D)  B + CE) A) and C)
F) A) and B)

Question 5

The graph shown displays a market with an externality.  If the market quantity is 32 units, and the efficient quantity is 49 units, which of the following statements is true?Deadweight loss is represented by areas H + K.Line Y represents the social marginal benefit curve.This shows a positive externality.

Accepted Answer

A)  III only
B)  I and II only
C)  II and III only
D)  I onlyE) A) and D)
F) A) and B)

Question 6

When a quota is imposed on a market with a negative externality, the market is:

Accepted Answer

A)  efficient, because consumption occurs at the efficient level.
B)  not efficient, because the net benefits individuals receive from the amount set by the quota are different.
C)  efficient, because the net benefits individuals receive from the amount set by the quota are equal.
D)  not efficient, because the marginal cost outweighs the marginal benefit for too many consumers.E) All of the above
F) B) and C)

Question 7

Correcting a market with an externality through taxation creates _______ total surplus compared to correcting the market through the use of a quota.

Accepted Answer

A)  more
B)  less
C)  the same amount of
D)  All of these could be true dependent on whether the tax is imposed on the buyer or seller.E) None of the above
F) A) and C)

Question 8

Who gains surplus when consumers in a market are given a 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) A) and C)
F) C) and D)

Question 9

When a positive externality is present in a market, total surplus will _______ if buyers _______.

Accepted Answer

A)  increase; receive a subsidy
B)  decrease; receive a subsidy
C)  increase; only consider private benefits
D)  increase; only consider social costsE) B) and C)
F) A) and D)

Question 10

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

Accepted Answer

A)  cigarettes.
B)  alcohol.
C)  gasoline.
D)  A tax on any of these goods would be a Pigovian tax.E) B) and C)
F) None of the above

Question 11

A market with a positive 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 C)
F) A) and B)

Exam 18: Externalities

Correct Answer
verified

When a quota is imposed on a market with a negative externality, the market is:

Correct Answer
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The graph shown displays a market with an externality. Which areas represent deadweight loss?

Correct Answer
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One way to make consumers take a positive externality into account when making demand decisions is to:

Correct Answer
verified

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

Correct Answer
verified

Correcting a market with an externality through taxation creates _______ total surplus compared to correcting the market through the use of a quota.

Correct Answer
verified

When a positive externality is present in a market, total surplus will _ if buyers _.

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

The Coase theorem will hold only if:

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

Correct Answer
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Exam 18: Externalities

Correct AnswerverifiedShow Answer

When a quota is imposed on a market with a negative externality, the market is:

Correct AnswerverifiedShow Answer

The graph shown displays a market with an externality. Which areas represent deadweight loss?

Correct AnswerverifiedShow Answer

One way to make consumers take a positive externality into account when making demand decisions is to:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correcting a market with an externality through taxation creates _______ total surplus compared to correcting the market through the use of a quota.

Correct AnswerverifiedShow Answer

When a positive externality is present in a market, total surplus will _______ if buyers _______.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The Coase theorem will hold only if:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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When a positive externality is present in a market, total surplus will _ if buyers _.

Correct Answer
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Correct Answer
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