Question 1

-Refer to the figure above. 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. 
A)  positive externalities. 
B)  negative externalities. 
C)  no externalities. 
D)  no equilibrium in the market.

Question 2

Tradable pollution permits

Accepted Answer

A)  reduce the incentive for technological innovations to further reduce pollution. 
B)  set the price of pollution. 
C)  determine the demand for pollution rights. 
D)  set the quantity of pollution. 
A)  reduce the incentive for technological innovations to further reduce pollution. 
B)  set the price of pollution. 
C)  determine the demand for pollution rights. 
D)  set the quantity of pollution.

Question 3

Suppose an industry emits a negative externality such as pollution and the possible methods to internalise the externality are command-and-control policies, Pigovian taxes, and tradable pollution permits. If economists were to rank these methods for internalising 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. 
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.

Question 4

Why are Pigovian taxes preferred to regulatory policies as methods to remedy negative externalities?

Accepted Answer

Pigovian taxes allow markets to coordina

Question 5

Is it right to say that monetary values can be placed on pollution?

Accepted Answer

All activities, including reducing pollu

Question 6

According to the Coase theorem, private parties can solve the problem of externalities if

Accepted Answer

A)  there are no transaction costs. 
B)  each affected party has equal power in the negotiations. 
C)  the party affected by the externality has the initial property right to be left alone. 
D)  there are a large number of affected parties. 
E)  the government requires them to negotiate with each other. 
A)  there are no transaction costs. 
B)  each affected party has equal power in the negotiations. 
C)  the party affected by the externality has the initial property right to be left alone. 
D)  there are a large number of affected parties. 
E)  the government requires them to negotiate with each other.

Question 7

A benefit of taxes over regulation to internalise 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. 
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.

Question 8

Which of the following is an example of potential flawed government behaviour?

Accepted Answer

A)  Voter incentives. 
B)  Bureaucrat Incentives. 
C)  The special-interest effect. 
D)  All of the above. 
A)  Voter incentives. 
B)  Bureaucrat Incentives. 
C)  The special-interest effect. 
D)  All of the above.

Question 9

Which of the following is true regarding tradable pollution permits and Pigovian taxes?

Accepted Answer

A)  Pigovian taxes shift the demand curve for the pollution to the left and so lead to a more efficient market solution. 
B)  Pigovian taxes and tradable pollution permits create an efficient market for pollution. 
C)  Tradable pollution permits efficiently reduce pollution only if they are initially distributed to the firms that can reduce pollution at the lowest cost. 
D)  To set the quantity of pollution with tradable pollution permits, the regulator must know everything about the demand for pollution rights. 
E)  Pigovian taxes are more likely to reduce pollution to a targeted amount than tradable pollution permits. 
A)  Pigovian taxes shift the demand curve for the pollution to the left and so lead to a more efficient market solution. 
B)  Pigovian taxes and tradable pollution permits create an efficient market for pollution. 
C)  Tradable pollution permits efficiently reduce pollution only if they are initially distributed to the firms that can reduce pollution at the lowest cost. 
D)  To set the quantity of pollution with tradable pollution permits, the regulator must know everything about the demand for pollution rights. 
E)  Pigovian taxes are more likely to reduce pollution to a targeted amount than tradable pollution permits.

Question 10

Internalising an externality means

Accepted Answer

A)  the good becomes a public good. 
B)  government regulations or taxes are sufficient to eliminate the externality completely. 
C)  government imposes regulations that eliminate the externality completely. 
D)  incentives are altered so that people take account of the external effects of their actions. 
A)  the good becomes a public good. 
B)  government regulations or taxes are sufficient to eliminate the externality completely. 
C)  government imposes regulations that eliminate the externality completely. 
D)  incentives are altered so that people take account of the external effects of their actions.

Question 11

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

Question 12

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

Accepted Answer

Taxation can be inefficient if groups an

Question 13

Which of the following is an example of a positive externality?

Accepted Answer

A)  Air pollution. 
B)  A person dropping litter in a public park. 
C)  A nice garden in front of your neighbour's house. 
D)  The pollution of a stream. 
A)  Air pollution. 
B)  A person dropping litter in a public park. 
C)  A nice garden in front of your neighbour's house. 
D)  The pollution of a stream.

Question 14

To internalise a positive externality, an appropriate public policy response would be to

Accepted Answer

A)  ban the good creating the externality. 
B)  tax the good. 
C)  subsidise the good. 
D)  have the government produce the good until the value of an additional unit is zero. 
A)  ban the good creating the externality. 
B)  tax the good. 
C)  subsidise the good. 
D)  have the government produce the good until the value of an additional unit is zero.

Question 15

Because there are positive externalities from higher education,

Accepted Answer

A)  private markets would provide too little of it. 
B)  private markets would provide too much of it. 
C)  the government should impose a tax on university students. 
D)  the government should impose a tax on students' families. 
A)  private markets would provide too little of it. 
B)  private markets would provide too much of it. 
C)  the government should impose a tax on university students. 
D)  the government should impose a tax on students' families.

Question 16

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. 
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.

Question 17

A Pigovian tax sets the price of pollution while tradable pollution permits set the quantity of pollution.

Accepted Answer

A) True 
 B)False

Question 18

When wealthy alumni provide charitable contributions to their universities to reduce the tuition payments of current students, it is an example of

Accepted Answer

A)  an attempt to internalise a positive externality. 
B)  an attempt to internalise a negative externality. 
C)  a Pigovian tax. 
D)  a command-and-control policy. 
A)  an attempt to internalise a positive externality. 
B)  an attempt to internalise a negative externality. 
C)  a Pigovian tax. 
D)  a command-and-control policy.

Question 19

The private benefit of consuming a good is

Accepted Answer

A)  its benefit to the people who buy and consume it. 
B)  its total benefit to everyone in the society. 
C)  its cost to everyone in the society. 
D)  the cost paid by the firm that produces and sells it. 
A)  its benefit to the people who buy and consume it. 
B)  its total benefit to everyone in the society. 
C)  its cost to everyone in the society. 
D)  the cost paid by the firm that produces and sells it.

Question 20

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

Accepted Answer

Lobbying by certain special interest gro

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

Tradable pollution permits

Why are Pigovian taxes preferred to regulatory policies as methods to remedy negative externalities?

Is it right to say that monetary values can be placed on pollution?

According to the Coase theorem, private parties can solve the problem of externalities if

A benefit of taxes over regulation to internalise externalities is

Which of the following is an example of potential flawed government behaviour?

Which of the following is true regarding tradable pollution permits and Pigovian taxes?

Internalising an externality means

A tax that is placed on new vehicles that are very fuel inefficient is an example of

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

Which of the following is an example of a positive externality?

To internalise a positive externality, an appropriate public policy response would be to

Because there are positive externalities from higher education,

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?

A Pigovian tax sets the price of pollution while tradable pollution permits set the quantity of pollution.

When wealthy alumni provide charitable contributions to their universities to reduce the tuition payments of current students, it is an example of

The private benefit of consuming a good is

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

What Is Economics

Thinking Like an Economist

The Market Forces of Supply and Demand

Elasticity and Its Applications

Background to Demand: Consumer Choices

Background to Supply: Firms in Competitive Markets

Consumers, Producers and the Efficiency of Markets

Supply, Demand and Government Policies

The Tax System

Public Goods, Common Resources and Merit Goods

Information and Behavioural Economics

Firms Production Decisions

Market Structures I: Monopoly

Market Structures Ii: Monopolistic Competition

Market Structures Iii: Oligopoly

The Economics of Factor Markets

Income Inequality and Poverty

Interdependence and the Gains From Trade

Filters

Exam 11: Market Failure and Externalities

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

Tradable pollution permits

Why are Pigovian taxes preferred to regulatory policies as methods to remedy negative externalities?

Is it right to say that monetary values can be placed on pollution?

According to the Coase theorem, private parties can solve the problem of externalities if

A benefit of taxes over regulation to internalise externalities is

Which of the following is an example of potential flawed government behaviour?

Which of the following is true regarding tradable pollution permits and Pigovian taxes?

Internalising an externality means

A tax that is placed on new vehicles that are very fuel inefficient is an example of

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

Which of the following is an example of a positive externality?

To internalise a positive externality, an appropriate public policy response would be to

Because there are positive externalities from higher education,

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?

A Pigovian tax sets the price of pollution while tradable pollution permits set the quantity of pollution.

When wealthy alumni provide charitable contributions to their universities to reduce the tuition payments of current students, it is an example of

The private benefit of consuming a good is

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

What Is Economics

Thinking Like an Economist

The Market Forces of Supply and Demand

Elasticity and Its Applications

Background to Demand: Consumer Choices

Background to Supply: Firms in Competitive Markets

Consumers, Producers and the Efficiency of Markets

Supply, Demand and Government Policies

The Tax System

Public Goods, Common Resources and Merit Goods

Information and Behavioural Economics

Firms Production Decisions

Market Structures I: Monopoly

Market Structures Ii: Monopolistic Competition

Market Structures Iii: Oligopoly

The Economics of Factor Markets

Income Inequality and Poverty

Interdependence and the Gains From Trade

Filters