Deck 18: Externalities

Question 1

Benefits that accrue directly to the decision maker of a market exchange are called:

A)private benefits.
B)network benefits.
C)external benefits.
D)social benefits.

Answer 1

private benefits.

Question 2

A positive externality is:

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.

Answer 2

an external benefit.

Question 3

An example of a positive network externality is:

A)the telephone.
B)Facebook.
C)a union.
D)All of these are examples of a positive network externality.

Answer 3

All of these are examples of a positive network externality.

Question 4

External costs and external benefits are collectively referred to as:

A)externalities.
B)network externalities.
C)social externalities.
D)social welfare.

Question 5

If people took externalities like pollution into consideration,on balance they would consume less of the good causing these externalities.This tells us:

A)the market equilibrium is not maximizing surplus.
B)the efficient outcome for society is at a lower quantity.
C)market discouraging actions,like taxation,can help bring efficiency to markets where externalities are present.
D)All of these statements are true.

Question 6

Externalities:

A)are one of the most common causes of market failure.
B)are present in most markets.
C)are present in all but perfectly competitive markets.
D)can increase total surplus if it's positive.

Question 7

Private benefits are those benefits that accrue:

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 them.
D)to third parties without direct government intervention.

Question 8

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

A)an external benefit.
B)a network benefit.
C)a social benefit.
D)a private benefit.

Question 9

All externalities:

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.

Question 10

External benefits are those that accrue:

A)without compensation to someone other than the person who caused it.
B)directly to the decision maker of a market exchange.
C)indirectly to the decision maker of a market exchange.
D)to the government without its direct intervention.

Question 11

Private costs are those costs that fall:

A)directly on an economic decision maker.
B)indirectly on an economic decision maker.
C)without compensation on someone other than the person who caused them.
D)in external costs,not counting social costs.

Question 12

We call costs that fall directly on an economic decision maker:

A)private costs.
B)social costs.
C)external costs.
D)network costs.

Question 13

External costs are those costs:

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.

Question 14

When we add private benefits and external benefits together,the result is called:

A)production benefits.
B)social benefits.
C)public costs.
D)network benefits.

Question 15

Any cost that is imposed without compensation on someone other than the person who caused it is called:

A)private cost.
B)social cost.
C)external cost.
D)network cost.

Question 16

A network externality is:

A)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.
B)directly on an economic decision maker.
C)indirectly on an economic decision maker.
D)without compensation on someone other than the person who caused it.

Question 17

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 is called:

A)network externality.
B)social externality.
C)negative externality.
D)private externality.

Question 18

Markets fail to maximize total surplus when:

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.

Question 19

We typically call an external cost:

A)a societal drain.
B)a negative externality.
C)a negative cost.
D)a network externality.

Question 20

Social costs are:

A)private costs plus external costs.
B)network costs minus private costs.
C)external costs minus private costs.
D)those costs imposed without compensation on someone other than the person who caused them.

Question 21

If the social cost is greater than the private cost in a particular market,the private equilibrium will be at a quantity:

A)greater than the socially optimal level.
B)equal to the socially optimal level.
C)less than the socially optimal level.
D)greater than or less than the socially optimum level,depending on the size of the external costs.

Question 22

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

A)private costs are less than social costs.
B)private costs are less than external costs.
C)social costs are less than external costs.
D)external costs are equal to social costs.

Question 23

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

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.

Question 24

An example of a negative network externality is:

A)a wireless Internet connection.
B)ocean fishing.
C)Facebook.
D)All of these are examples of a negative network externality.

Question 25

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

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.

Question 26

When private costs equal social costs,it means that:

A)negative externalities are not present in the market.
B)positive externalities are present in the market.
C)the external cost must be small relative to the private cost in the market.
D)no externality of any kind is present in the market.

Question 27

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

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.

Question 28

When private benefits equal social benefits,it means that:

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

Question 29

When negative externalities exist in a market,if it is internalized:

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 lose surplus.
D)those who do not interact in the market,but are affected by the externality,will gain surplus.

Question 30

The effect of positive network externalities can be so powerful that it may even:

A)create a natural monopoly.
B)transfer deadweight loss to surplus.
C)encourage competition and increase efficiency.
D)None of these statements is true.

Question 31

When positive externalities are present,it means that:

A)individuals don't take into account all the benefits associated with their market choice.
B)society bears part of the cost borne of private transactions.
C)individuals consume more than the social optimum.
D)All of these statements are true.

Question 32

Who loses surplus when consumers in a market are forced to internalize a negative externality?

A)Consumers
B)Producers
C)Others affected by the externality
D)Both producers and consumers lose surplus when negative externalities are internalized.

Question 33

Who gains surplus when consumers in a market are forced to internalize a negative externality?

A)Consumers
B)Producers
C)Others affected by the externality
D)All of these groups gain surplus when negative externalities are internalized.

Question 34

When negative externalities are present,it means that:

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.

Question 35

If a positive externality were present in a market,the social demand curve would be:

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.

Question 36

One way to make consumers take a negative externality into account in their demand decision is to:

A)place a tax on the item.
B)subsidize the purchase of the item.
C)give suppliers a production credit.
D)None of these statements is true.

Question 37

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

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.

Question 38

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

A)greater than the socially optimal level.
B)equal to the socially optimal level.
C)less than the socially optimal level.
D)greater than or less than the socially optimum level,depending on the size of the external costs.

Question 39

One way to make consumers take a positive externality into account in their demand decision is to:

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 statements is true.

Question 40

When private benefits are less than social benefits,it means that:

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

Question 41

Total surplus in the presence of a negative externality that has not been internalized equals:

A)consumer surplus + producer surplus - external cost
B)consumer surplus + producer surplus + external cost
C)consumer surplus - producer surplus - external cost
D)consumer surplus - producer surplus + external cost

Question 42

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

A)higher when buyers internalize the externality.
B)lower when buyers internalize the externality.
C)higher when buyers only consider private benefits.
D)Any of these statements could be true.

Question 43

Who is affected when a positive externality becomes internalized in a market?

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

Question 44

If a production process created pollution,then the social supply curve would be:

A)above the original market supply curve.
B)below the original market supply curve.
C)the same as the original market supply curve.
D)zero.

Question 45

Who are the only ones not affected when a positive externality becomes internalized in a market?

A)Producers
B)Consumers
C)Those affected by the externality
D)All of these groups are affected when it becomes internalized.

Question 46

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

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

Question 47

Who loses surplus when consumers in a market are forced to internalize a positive externality?

A)Consumers
B)Producers
C)Others affected by the externality
D)Both producers and consumers lose surplus when positive externalities are internalized.

Question 48

The surplus gained by those outside the market due to the reduction in pollution is _____________ the surplus lost by consumers and producers in the market for gasoline when the negative externality is internalized.

A)always more than
B)always less than
C)often the same as
D)sometimes less than

Question 49

Who are the only ones not affected when a negative externality becomes internalized in a market?

A)Producers
B)Consumers
C)Those affected by the externality
D)All of these groups are affected when it becomes internalized.

Question 50

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

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

Question 51

If companies who internalized an externality want to supply more at any given price compared to the original supply,they must have internalized a:

A)positive externality.
B)negative externality.
C)network externality.
D)social externality.

Question 52

When a negative externality is internalized,efficiency increases by shifting the:

A)external cost from those not involved in the market to those involved.
B)external cost from those involved in the market to those not involved.
C)private cost from those not involved in the market to those involved.
D)social cost from those not involved in the market to those involved.

Question 53

If a production process involved the creation of a negative externality,then the social cost of production would be:

A)larger than the private cost of production.
B)the same as the private cost of production.
C)smaller than the private cost of production.
D)zero.

Question 54

Who is affected when a negative externality becomes internalized in a market?

A)Producers
B)Consumers
C)Those affected by the externality
D)All of these groups are affected when it becomes internalized.

Question 55

Who gains surplus when consumers in a market internalize a positive externality?

A)Consumers
B)Producers
C)Others affected by the externality
D)Both consumers and producers gain surplus when positive externalities are internalized.

Question 56

When positive externalities exist in a market,if it is internalized:

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.

Question 57

When a positive externality is internalized,efficiency:

A)increases.
B)decreases.
C)is not affected.
D)drops to zero.

Question 58

When a positive externality is internalized,efficiency increases by shifting the:

A)external benefit from those not involved in the market to those involved.
B)private cost from those involved in the market to those not involved.
C)private cost from those not involved in the market to those involved.
D)social cost from those not involved in the market to those involved.

Question 59

If companies that were creating pollution had to pay the social cost of production,they would want to supply:

A)less at any given price.
B)more at any given price.
C)the same amount at the equilibrium price.
D)the same amount at any given price.

Question 60

If companies who internalized an externality want to supply less at any given price compared to the original market supply,it must be a:

A)positive externality.
B)negative externality.
C)network externality.
D)social externality.

Question 61

If it's possible to eliminate the problems created by externalities,why do they persist?

A)Correcting externalities would always reduce total surplus.
B)It is difficult to measure external benefits and costs.
C)The benefits of correcting the externalities generally exceed the costs.
D)None of these statements is true.

Question 62

Efficient solutions to solving externality problems:

A)are always supported by the government.
B)increase surplus for everyone in society.
C)are not always supported in political arenas.
D)decrease surplus for everyone in society.

Question 63

When a positive externality is present in a market,the quantity consumed:

A)is less than the socially optimal quantity.
B)is always more than the socially optimal quantity.
C)is the same as the socially optimal quantity.
D)is often more than the socially optimal quantity.

Question 64

When an externality is present in a market,and internalizing it increases the efficiency of the market,we can conclude it is a:

A)negative externality.
B)positive externality.
C)network externality.
D)It could be a negative or positive externality.

Question 65

Total surplus in the presence of a positive externality that has not been internalized equals:

A)consumer surplus + producer surplus - external benefit
B)consumer surplus + producer surplus + external benefit
C)consumer surplus - producer surplus - external benefit
D)consumer surplus - producer surplus + external benefit

Question 66

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

A)increases,but producer and consumer surplus both fall.
B)decreases,because producer and consumer surplus both fall.
C)increases,because producer surplus increases.
D)decreases,because consumer surplus falls more than producer surplus increases.

Question 67

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

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.

Question 68

Total surplus in the presence of a positive externality that has not been internalized:

A)is greater than total surplus when the externality is internalized.
B)is less than total surplus when the externality is internalized.
C)is the same as total surplus when the externality is internalized.
D)zero,since it has not been internalized.

Question 69

The idea of the "invisible hand" tells us that individuals will pursue:

A)mutually beneficial trades with other individuals to maximize surplus.
B)trades in which they will be the clear winner and the other will be a loser.
C)the most equitable outcome possible.
D)as few government policies as possible so the market can act freely.

Question 70

If it's possible to eliminate the problems created by externalities,why do they persist?

A)It can be difficult to coordinate the millions of market participants.
B)Creating a more efficient solution does not mean it will have a fair distribution of that surplus.
C)They can be diffuse,complex,and hard to control.
D)All of these statements are true.

Question 71

When a market is corrected for externalities,it:

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

Question 72

The total gains in surplus from internalizing the externality:

A)outweigh the losses.
B)are less than the losses.
C)exactly equal the losses.
D)None of these is necessarily true.

Question 73

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

A)increases,but producer and consumer surplus both fall.
B)decreases,because producer and consumer surplus both fall.
C)increases,because producer surplus increases.
D)decreases,because consumer surplus falls more than producer surplus increases.

Question 74

"Market failure" refers to situations in which the:

A)actions of private individuals and firms are insufficient to ensure efficient markets.
B)equilibrium in a market is harmful to either the buyer or seller.
C)equilibrium in a market cannot be reached.
D)actions of private individuals and firms are based on insufficient information.

Question 75

Situations in which the actions of private individuals and firms are insufficient to ensure efficient markets are referred to as:

A)market failures.
B)disequilibrium.
C)negative externality.
D)price gouging.

Question 76

When a positive externality is internalized in a market,total surplus:

A)increases more than the increase in consumer surplus.
B)decreases less than the increase in consumer surplus.
C)increases less than the decrease to producer surplus.
D)decreases more than the decrease to producer surplus.

Question 77

When a negative externality is present in a market,the quantity consumed:

A)is always less than the socially optimal quantity.
B)is more than the socially optimal quantity.
C)is the same as the socially optimal quantity.
D)is often less than the socially optimal quantity.

Question 78

The net increase to total surplus when a negative externality is internalized is due to:

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.

Question 79

Total surplus in the presence of an externality that has not been internalized:

A)is greater than total surplus when the externality is internalized.
B)is less than total surplus when the externality is internalized.
C)is the same as total surplus when the externality is internalized.
D)is zero,since it has not been internalized.

Question 80

When a market is corrected for externalities,it:

A)is efficient and maximizes surplus.
B)is equitable and makes everyone better off.
C)needs government regulation to maintain.
D)All of these statements are true.