Deck 18: Externalities

Question 1

We typically call an external cost:

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

Answer 1

B

Question 2

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.

Answer 2

C

Question 3

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

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

Answer 3

B

Question 4

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 5

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 6

If people took external costs like pollution into consideration,they would on net:

A) consume a socially non-optimal amount of the goods causing the externalities.
B) not change their behavior to consume more or less of the goods causing externalities.
C) consume more of the goods causing these externalities.
D) consume less of the goods causing these externalities.

Question 7

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 8

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.

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

Private benefits are those benefits that accrue:

A) indirectly to the decision maker of a market exchange.
B) directly 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 11

If people took external costs like pollution into consideration:

A) they would consume less of the goods causing these externalities.
B) they would act in a way that is optimal from a societal perspective
C) the markets for these goods creating such externalities would generate greater surplus.
D) All of these statements are true.

Question 12

External benefits are those 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 it.
D) to the government without its direct intervention.

Question 13

External costs and external benefits are collectively referred to as:

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

Question 14

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

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

Question 15

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 16

A network externality is:

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.

Question 17

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 18

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 19

An example of a good that creates a positive network externality is:

A) the telephone.
B) social network websites (e.g. Facebook).
C) a workers' union.
D) All of these are examples of good that create positive network externalities.

Question 20

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.

Question 21

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 22

When a negative externality exists in a market,total surplus:

A) is decreased by deadweight loss compared to that same market without a negative externality.
B) is the same as a market without a negative externality.
C) is increased by deadweight gain compared to that same market without a negative externality.
D) is the same but re-distributed differently than if that same market did not have a negative externality.

Question 23

Who is affected when a Pigouvian tax is imposed on a market with a negative production externality?

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

Question 24

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 25

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

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

Question 26

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 27

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 28

The net increase to total surplus when a negative externality is corrected or eliminated 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 29

If a negative externality were present in a market,the social benefit 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 30

When negative externalities exist in a market,if the producers are forced to pay a Pigouvian tax then:

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

Question 31

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 32

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 33

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 34

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

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

Question 35

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

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

Question 36

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

A) negative externality.
B) positive externality.
C) network externality.
D) either a negative or a positive externality.

Question 37

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 38

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

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

Question 39

Who are the only ones not affected by a Pigouvian tax when a negative externality exists 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 40

If companies who took into account 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 41

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 42

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

A) higher when buyers receive a Pigouvian subsidy for the externality.
B) lower when buyers receive a Pigouvian subsidy for the externality.
C) higher when buyers only consider private benefits.
D) Any of these statements could be true.

Question 43

The net increase to total surplus when a positive externality is corrected 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 44

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 45

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

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

Question 46

Who are the only ones not affected when a Pigouvian subsidy is implemented for a positive externality 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 47

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

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 48

When a positive externality exists in a market,total surplus:

A) is decreased by deadweight loss compared to that same market without a negative externality.
B) is the same as a market without a negative externality.
C) is increased by deadweight gain compared to that same market without a negative externality.
D) is the same but re-distributed differently than if that same market did not have a negative externality.

Question 49

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

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

Question 50

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

A) Consumers
B) Producers
C) Others affected by the externality
D) Both consumers and producers gain surplus.

Question 51

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 52

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 53

When a Pigouvian subsidy is imposed on a market with a positive externality efficiency:

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

Question 54

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

A) below the private demand curve.
B) above the private demand curve.
C) the same as the private demand curve.
D) Cannot say without more information.

Question 55

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 56

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 57

When private benefits equal social benefits,it means that:

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.

Question 58

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

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

Question 59

When Pigouvian subsidy is imposed on a market with a positive externality,total surplus:

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

Question 60

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

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

Question 61

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 62

A tax meant to counter the effect of a negative externality is called:

A) a Coase tax.
B) a Pigovian tax.
C) an external tax.
D) a social benefit tax.

Question 63

The assumptions needed for the Coase theorem to work:

A) are often observed in the real world.
B) often do not hold true in the real world.
C) never hold true in the real world.
D) always hold true in the real world.

Question 64

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 65

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.

Question 66

The Coase theorem reminds us that efficiency is all about ____________________ and says nothing about ______________________.

A) maximizing total surplus; the distribution of that surplus
B) equitably distributing surplus; maximizing that surplus
C) who gets the most surplus; whether that's a fair outcome
D) None of these statements is true.

Question 67

A Pigovian tax is intended to:

A) counter the effect of a negative externality.
B) decrease efficiency in a market.
C) decrease total surplus in a market.
D) All of these statements are true.

Question 68

Knowing that the presence of externalities reduces surplus,it implies that:

A) there are mutually beneficial trades waiting to be exploited so private parties have an incentive to solve the externality problem themselves.
B) government needs to find them and correct the market.
C) there are mutually beneficial trades waiting to be exploited, so government has an incentive to force those parties to solve the problem themselves.
D) None of these statements is true.

Question 69

Thinking about the Coase theorem,the private solution yields __________ amount of efficiency and ___________ distribution of surplus as compared to a government solution.

A) the same; the same
B) the same; a different
C) a different; the same
D) a different; a different

Question 70

A Pigovian tax is a tax:

A) meant to counter the effect of a negative externality.
B) that increases efficiency in a market.
C) that increases total surplus in a market.
D) All of these statements are true.

Question 71

The Coase theorem is the idea that:

A) individuals can reach an efficient equilibrium through private trades, even in the presence of an externality.
B) there are always mutually beneficial trades waiting to be exploited, and that creates a clear role for government taxation.
C) the actions of private individuals and firms are insufficient to ensure efficient markets.
D) None of these statements is true.

Question 72

The distribution of surplus gained from private parties solving an externality problem on their own,as described by the Coase theorem,is dependent on:

A) who has more power to see to enforcement.
B) which party has more negotiating power or wealth.
C) where the initial rights of the parties lie.
D) None of these statements is true.

Question 73

An example of a Pigovian tax would be a tax on:

A) income.
B) cigarettes.
C) corporate capital gains.
D) All of these are examples.

Question 74

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 75

The idea that individuals can reach an efficient equilibrium through private trades,even in the presence of an externality,is called:

A) market failure.
B) trade quotas.
C) the Coase theorem.
D) the invisible hand.

Question 76

If the costs of coordination and enforcement are _______________ the surplus lost to the externality,then ________________.

A) higher than; a private solution will not work
B) lower than; a private solution will not work
C) higher than; a private solution will work
D) None of these statements is true.

Question 77

When there are significant costs involved with coordinating a private solution to an externality:

A) a leader will likely be elected to organize the coordination.
B) it can act as a motivating factor to solve the externality problem expediently.
C) it likely will not happen.
D) None of these statements is true.

Question 78

The Coase theorem will hold only if:

A) people can make enforceable agreements.
B) there are no transactions costs.
C) Both of these must hold true.
D) Neither of these must hold true.

Question 79

The Coase theorem will hold only if:

A) the transactions costs are clearly identified and assigned.
B) the contracts are enforceable.
C) government will provide free mediation.
D) None of these statements is true.

Question 80

With the Coase theorem,the private solution yields:

A) a more efficient outcome than a government solution would.
B) a less efficient outcome than a government solution would.
C) the same amount of efficiency a government solution would.
D) None of these statements is true.