Question 1

An example of a good that exhibits a negative network externality is:

Accepted Answer

A)   telephones.
B)   a wireless internet connection.
C)   Facebook.
D)   All of these are examples of goods that create negative network externalities.E) C) and D)
F) A) and D)

Question 2

A production or consumption quota that can be bought or sold is called:

Accepted Answer

A)   a buyers' or sellers' quota.
B)   a tax.
C)   a tradable allowance.
D)   a subsidy.E) A) and C)
F) B) and D)

Question 3

If the revenues from a Pigovian tax are not directed to those who are affected by the externality,the outcome:

Accepted Answer

A)   is efficient and maximizes surplus.
B)   is not efficient and does not maximize surplus.
C)   is efficient, but does not maximize surplus.
D)   is not efficient and maximizes surplus.E) All of the above
F) A) and D)

Question 4

If a Pigovian tax is not large enough,the resulting market quantity:

Accepted Answer

A)   will be equal to the efficient quantity.
B)   will be more than the efficient quantity.
C)   will be less than the efficient quantity.
D)   will be where the social marginal cost equals the social marginal benefit.E) B) and D)
F) B) and C)

Question 5

External costs are those costs:

Accepted Answer

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

Question 6

When a market is corrected for externalities,it:

Accepted Answer

A)   is equitable.
B)   maximizes surplus.
C)   makes everyone in society better off.
D)   All of these statements are true.E) A) and B)
F) None of the above

Question 7

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

Accepted Answer

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

Question 8

When negative externalities are present,it means that:

Accepted Answer

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

Question 9

All externalities:

Accepted Answer

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

Question 10

External costs and external benefits are collectively referred to as:

Accepted Answer

A)   externalities.
B)   network externalities.
C)   social externalities.
D)   social welfare.E) C) and D)
F) None of the above

Question 11

When private benefits equal social benefits,it means that:

Accepted Answer

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

Question 12

The government can both set the efficient level of output in a market and maximize surplus by correcting for a negative externality by using:

Accepted Answer

A)   a tariff.
B)   a subsidy.
C)   a tradable allowance.
D)   a quota.E) A) and D)
F) A) and B)

Question 13

Who loses surplus when consumers in a market are forced to pay a Pigouvian tax for a negative externality?

Accepted Answer

A)   Consumers
B)   Producers
C)   Others affected by the externality
D)   Both producers and consumers lose surplus when negative externalities are internalized.E) None of the above
F) A) and C)

Question 14

A Pigovian tax imposed on consumers ___________ the price,and if the same tax were imposed on producers,it would _____________ the price.

Accepted Answer

A)   increases; decrease
B)   decreases; increase
C)   increases; increase
D)   decreases; decreaseE) A) and B)
F) A) and C)

Question 15

Pigovian taxes are used to counterbalance:

Accepted Answer

A)   negative externalities.
B)   positive externalities.
C)   network externalities.
D)   They could be used to counteract any of these.E) B) and C)
F) All of the above

Question 16

A network externality is:

Accepted Answer

A)   a direct effect on an economic decision maker.
B)   an indirect effect on an economic decision maker.
C)   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.
D)   an uncompensated effect on someone other than the person who caused it.E) B) and D)
F) A) and B)

Question 17

Who gains surplus when consumers in a market are given a Pigouvian 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 B)
F) B) and C)

Question 18

Who is affected when a Pigouvian subsidy is imposed on a market with a positive externality?

Accepted Answer

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

Question 19

When positive externalities exist in a market,if a Pigouvian subsidy is imposed:

Accepted Answer

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

Question 20

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

Accepted Answer

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

Exam 18: Externalities

External costs are those costs:

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When private benefits equal social benefits,it means that:

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Who loses surplus when consumers in a market are forced to pay a Pigouvian tax for a negative externality?

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External costs and external benefits are collectively referred to as:

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

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If a Pigovian tax is not large enough,the resulting market quantity:

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If the revenues from a Pigovian tax are not directed to those who are affected by the externality,the outcome:

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When positive externalities exist in a market,if a Pigouvian subsidy is imposed:

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Who is affected when a Pigouvian subsidy is imposed on a market with a positive externality?

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A production or consumption quota that can be bought or sold is called:

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When negative externalities are present,it means that:

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

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

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All externalities:

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When a market is corrected for externalities,it:

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An example of a good that exhibits a negative network externality is:

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The government can both set the efficient level of output in a market and maximize surplus by correcting for a negative externality by using:

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A Pigovian tax imposed on consumers ___________ the price,and if the same tax were imposed on producers,it would _____________ the price.

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A network externality is:

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Pigovian taxes are used to counterbalance:

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A Pigovian tax imposed on consumers _ the price,and if the same tax were imposed on producers,it would ___ the price.

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