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externality internality MCQs

Practise focused externality internality questions with marked answers for exam preparation and subject revision.

externality internality Mcqs

1. Tradable pollution permits ?
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A. Set the quantity of pollution

B. determine the demand for pollution rights.

C. set the price of pollution.

D. reduce the incentive for technological innovations to further reduce pollution.

2. The most efficient pollution control system would ensure that ?
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A. the polluters with the lowest cost of reducing pollution reduce their pollution the greatest amount

B. no pollution of the environment is tolerated

C. the regulators decide how much each polluter should reduce its pollution.

D. each polluter reduces its pollution an equal amount

3. According to the Coase theorem, private parties can solve the problem of externalities if ?
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A. the party affected by the externality has the initial property right to be left alone.

B. there are no transaction costs.

C. the government requires them to negotiate with each other

D. There are a large number of affected parties.

E. each affected party has equal power in the negotiations.

4. To internalize a positive externality an appropriate public policy response would be to ?
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A. tax the good

B. subsidize the good

C. have the government produce the good until the value of an additional unit is zero

D. ban the good creating the externality

5. Which of the following is not considered a transaction cost incurred by parties in the process of contracting to eliminate a pollution externality ?
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A. costs incurred due to a large number of parties affected by the externality

B. costs incurred to enforce the agreement

C. All of these answers are considered transaction costs

D. costs incurred due to lawyers fees

E. costs incurred to reduce the pollution

6. A negative externality generates ?
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A. none of these answers

B. a social cost curve that is below the supply curve (private cost curve) for a good

C. a social cost curve that is below the supply curve (private cost curve) for a good

D. a social value curve that is above the demand curve (private value curve) for a good

7. Roberto and Thomas live in a university hall of residence. Reberto values playing loud music at a value of 100. Thomas values peace and quiet at a value of 150. Which of the following statements is true about an efficient solution to this externality problem if Roberto has the right to play loud music and if there are no transaction costs ?
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A. Roberto will pay Thomas 100 and Roberto will stop playing loud music

B. Roberto will pay Thomas 150 and Roberto will continue to play loud music

C. Thomas will pay Roberto between 100 and 150 and Roberto will stop playing loud music

D. Thomas will pay Roberto between 100 and 150 and Roberto will continue to play loud music

8. To internalize a negative externality an appropriate public policy response would be to ?
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A. have the government take over the production of the good causing the externality

B. subsidize the good

C. ban the production of all goods creating negative externalities

D. tax the good

9. Suppose an industry emits a negative externality such a pollution and the possible methods to internalize the externality are command-and-control policies, pigovian taxes, and tradable pollution permits. If economists were to rank these methods for internalizing 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 favored to least favored) ?
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A. tradable pollution permits, Pigouvian taxes, command-and-control policies

B. They would all rank equally high because the same result can be obtained from any one of the policies

C. Pigouvian taxes, command-and-control policies, tradable pollution permits.

D. tradable pollution permits command-and-control policies, Pigovian taxes.

E. command-and-control policies, tradable pollution permits, Pigovian taxes.

10. When wealthy alumni provide charitable contributions to their universities to reduce the tuition payments of current students it is an example of ?
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A. an attempt to internalize a negative externality

B. a command-and-control policy

C. an attempt to internalize a positive externality

D. a Pigouvian tax

11. A positive externality (that has not been internalized) caused the ?
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A. equilibrium quantity to exceed the optimal quantity

B. equilibrium quantity to be either above or below the optimal quantity

C. optimal quantity to exceed the equilibrium quantity

D. equilibrium quantity to equal the optimal quantity

12. A positive externality generates ?
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A. none of these answers

B. a social value curve that is below the demand curve (private value curve) for a good

C. a social cost curve that is above the supply curve (private cost curve) for a good

D. a social value curve that is above the demand curve (private value curve) for good

13. Which of the following is true regarding tradable pollution permits and Pigouvian taxes ?
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A. All of these answers are true

B. Pigovian taxes are more likely to reduce pollution to a targeted amount than tradable pollution permits.

C. Pigouvian taxes and tradable pollution permits create an efficient market for pollution.

D. To set the quantity of pollution with tradable pollution permits, the regulator must know everything about the demand for pollution rights.

E. Tradable pollution permits efficiently reduce pollution only if they are initially distributed to the firms that can regulator pollution at the lowest cost.

14. A negative externality (that has not been internalized) causes the ?
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A. equilibrium quantity to exceed the optimal quantity

B. equilibrium quantity to be either above or below the optimal quantity

C. optimal quantity to exceed the equilibrium quantity.

D. equilibrium quantity to equal the optimal quantity

15. A pigovian tax on pollution ?
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A. determines the demand for pollution rights.

B. Sets the price of pollution

C. reduces the incentive for technological innovations to further reduce pollution

D. Sets the quantity of pollution

16. The gas-guzzler tax that is placed on new vehicles that are very fuel inefficient is an example of ?
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A. a tradeable pollution permits.

B. an attempt to internalize a negative externality.

C. an application of the Coase theorem

D. an attempt to internalize a positive externality

17. The government engages in a technology policy ?
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A. to internalize the positive externality associated with technology-enhancing industries.

B. by allocating tradable technology permits to high technology industry.

C. to internalize the negative externality associated with industrial pollution

D. to help stimulate private solution to the technology externality

18. When an individual buys a car in a congested urban area, it generates ?
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A. a technology spillover

B. a positive externality

C. a negative externality

D. an efficient market outcome.

19. Roberto and Thomas live in a university hall of residence Roberto values playing loud music at a value of 100. Thomas values Pease and quiet at a value of 150. Which of the following statements is true ?
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A. It is efficient for Roberto to stop playing loud music only if Thomas has the property right to peace and quiet

B. It is efficient for Roberto to stop playing loud music only if Roberto has the property right to play loud music

C. It is efficient for Roberto to stop playing loud music regardless of who has the property right to the level of sound

D. it is efficient for Roberto to continue to play loud music

20. An externality is ?
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A. the cost that accrues to the seller in a market

B. The uncompensated impact of one persons actions on the well-being of a bystander

C. the compensation paid to a firms external consultants.

D. none of these answers

E. the benefit that accrues to the buyer in a market

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