Question 1

When a negative externality exists,

Accepted Answer

A) external costs are necessarily greater than private costs. 
B) social costs equal private costs. 
C) social costs are less than private costs. 
D) social costs are greater than private costs. 
E) none of the above 
A) external costs are necessarily greater than private costs. 
B) social costs equal private costs. 
C) social costs are less than private costs. 
D) social costs are greater than private costs. 
E) none of the above

Question 2

To reduce pollution, economists generally prefer a corrective tax to a command-and-control policy because the same goals can be achieved but in an efficient manner with a corrective tax.

Accepted Answer

A) True 
 B)False

Question 3

Suppose the socially optimal output is 134 units of a good and the market output is 95 units of the good. A possible reason the market produces "too little" is that

Accepted Answer

A) marginal private benefits are less than marginal social benefits. 
B) marginal private benefits are greater than marginal private costs. 
C) marginal private benefits are greater than marginal social benefits. 
D) marginal private costs are greater than marginal private benefits. 
E) b and c 
A) marginal private benefits are less than marginal social benefits. 
B) marginal private benefits are greater than marginal private costs. 
C) marginal private benefits are greater than marginal social benefits. 
D) marginal private costs are greater than marginal private benefits. 
E) b and c

Question 4

According to the Coase theorem, externalities

Accepted Answer

A) must usually be internalized by taxation or subsidy. 
B) can be internalized by the market under certain conditions. 
C) result when firms fail to maximize profits. 
D) cannot be internalized if property rights are assigned. 
E) are not relevant to the issue of market failure. 
A) must usually be internalized by taxation or subsidy. 
B) can be internalized by the market under certain conditions. 
C) result when firms fail to maximize profits. 
D) cannot be internalized if property rights are assigned. 
E) are not relevant to the issue of market failure.

Question 5

Which of the following statements is true?

Accepted Answer

A) When production of a good yields positive externalities but output is currently at the market level, then a change in output to the socially optimal level will certainly be for the worse. 
B) When production of a good yields negative externalities but output is currently at the market level, then a change in output to the socially optimal level will cause benefits to increase by an amount greater than costs will increase. 
C) When production of a good yields positive externalities but output is currently at the market level, then a change in output to the socially optimal level will cause benefits to increase by an amount less than costs will increase. 
D) a, b, and c 
E) none of the above 
A) When production of a good yields positive externalities but output is currently at the market level, then a change in output to the socially optimal level will certainly be for the worse. 
B) When production of a good yields negative externalities but output is currently at the market level, then a change in output to the socially optimal level will cause benefits to increase by an amount greater than costs will increase. 
C) When production of a good yields positive externalities but output is currently at the market level, then a change in output to the socially optimal level will cause benefits to increase by an amount less than costs will increase. 
D) a, b, and c 
E) none of the above

Question 6

A good is nonexcludable if no externalities, either negative or positive, are associated with its production or consumption.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following statements is consistent with the Coase theorem?

Accepted Answer

A) In the case of zero transaction costs, a property rights assignment (made by a court) will be undone if it benefits the relevant parties to undo it. 
B) In the case of zero transaction costs, the resource allocative outcome will be the same no matter who is assigned the property right. 
C) Taxes can do what property rights assignments cannot. 
D) The market can solve all negative externality problems. 
E) a and b 
A) In the case of zero transaction costs, a property rights assignment (made by a court) will be undone if it benefits the relevant parties to undo it. 
B) In the case of zero transaction costs, the resource allocative outcome will be the same no matter who is assigned the property right. 
C) Taxes can do what property rights assignments cannot. 
D) The market can solve all negative externality problems. 
E) a and b

Exam 30: Market Failure Externalities Public Goods and Asymmetric Information

When a negative externality exists,

To reduce pollution, economists generally prefer a corrective tax to a command-and-control policy because the same goals can be achieved but in an efficient manner with a corrective tax.

Suppose the socially optimal output is 134 units of a good and the market output is 95 units of the good. A possible reason the market produces "too little" is that

According to the Coase theorem, externalities

Which of the following statements is true?

A good is nonexcludable if no externalities, either negative or positive, are associated with its production or consumption.

Which of the following statements is consistent with the Coase theorem?

What Economics Is About

Production Possibilities Frontier Framework

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