Question 1

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.E) A) and C)
F) A) and B)

Question 2

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.F) B) and E)
G) B) and C)

Question 3

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.F) All of the above
G) C) and E)

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

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

Question 6

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.E) C) and D)
F) All of the above

Question 7

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

Question 8

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.E) C) and D)
F) A) and D)

Question 9

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

Accepted Answer

Taxation can be inefficient if groups an...

Question 10

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

Accepted Answer

All activities, including reducing pollu...

Question 11

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.E) C) and D)
F) B) and C)

Question 12

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.E) None of the above
F) A) and B)

Question 13

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.E) A) and C)
F) A) and B)

Question 14

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.F) A) and B)
G) A) and C)

Question 15

-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.E) B) and D)
F) All of the above

Question 16

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.E) B) and C)
F) A) and C)

Question 17

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.E) A) and C)
F) All of the above

Question 18

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

Accepted Answer

Lobbying by certain special interest gro...

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

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.E) C) and D)
F) B) and C)

Exam 11: Market Failure and Externalities

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

Correct Answer
verified
Taxation can be inefficient if groups an...
View Answer

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

Correct Answer
verified
Lobbying by certain special interest gro...
View Answer

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?

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

Internalising an externality means

Correct Answer
verified

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

Correct Answer
verified
Pigovian taxes allow markets to coordina...
View Answer

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

Correct Answer
verified

A benefit of taxes over regulation to internalise externalities is

Correct Answer
verified

Because there are positive externalities from higher education,

Correct Answer
verified

Tradable pollution permits

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified
All activities, including reducing pollu...
View Answer

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

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

The private benefit of consuming a good is

Correct Answer
verified

Exam 11: Market Failure and Externalities

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

Correct AnswerverifiedTaxation can be inefficient if groups an...View AnswerShow Answer

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

Correct AnswerverifiedLobbying by certain special interest gro...View AnswerShow Answer

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?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Internalising an externality means

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedPigovian taxes allow markets to coordina...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

A benefit of taxes over regulation to internalise externalities is

Correct AnswerverifiedShow Answer

Because there are positive externalities from higher education,

Correct AnswerverifiedShow Answer

Tradable pollution permits

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedAll activities, including reducing pollu...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The private benefit of consuming a good is

Correct AnswerverifiedShow Answer

Correct Answer
verified
Taxation can be inefficient if groups an...
View Answer

Correct Answer
verified
Lobbying by certain special interest gro...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Pigovian taxes allow markets to coordina...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
All activities, including reducing pollu...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified