Economics
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| A market demand curve reflects the | private benefits of consuming a product
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| When a negative externality exists, the private market produces | more than the economically efficient output level
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| A ________ occurs when an economic activity has a spillover cost that does not affect those directly engaged in the activity | negative externality
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| Conceptually, the efficient level of carbon emissions is the level for which | the marginal benefit of reducing carbon emissions is equal to the marginal cost of reducing carbon emissions
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| Which of the following describes how a negative externality affects a competitive market? | The externality causes a difference between the private cost of production and the social cost
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| If you burn your trash in the back yard in spite of regulations against it, then you are | avoiding the private costs associated with disposing your trash some other way and creating a social cost
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| An externality occurs when ________. | an economic activity affects third parties not engaged in the activity
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| Which of the following activities create a negative externality? | keeping a junked car parked on your front lawn
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| The marginal social cost curve ________ when production involves negative externalities | lies above the supply curve
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| If there is pollution in producing a product, then the market equilibrium price | is too low and equilibrium quantity is too high
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| Which of the following gives rise to a positive externality? | Consumption of a drug to cure a communicable disease
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| A positive externality causes | the marginal social benefit to exceed the marginal private cost of the last unit produced
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| The production of a certain fertilizer emits a gas that keeps away mosquitoes and other insects from the surrounding community. This is an example of a ________. | positive externality
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| If positive externalities are present in a free market, ________ at any output level | the marginal social benefit of production exceeds marginal private benefit
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| The marginal social benefit from the production of the last unit of a good is $4,800. If the willingness to pay for that unit is $3,900, what is the external benefit from its production? | $900
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| Which of the following activities can give rise to a positive externality | Getting a flu vaccination
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| Which of the following is true if the production of a good gives rise to a positive externality | The marginal social benefit from each level of output exceeds the consumers' willingness to pay
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| Which of the following describes how a positive externality affects a competitive market | The externality causes a difference between the private benefit from consumption and the social benefit
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| When products that create positive externalities are produced, at the market equilibrium output, the social benefit generated by consuming the product exceeds the private benefit | True
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| When there is a positive externality | the social benefit received by consumers is greater than the private benefit
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| Consider the following characteristics: a. low transactions costs b. small levels of pollution c. high levels of pollution d. clear assignment of property rights Which of the above are assumptions behind the Coase Theorem | a and d
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| If the paint on your house was eaten away by the fumes from a factory nearby and you hired a lawyer to sue the polluting firm, your legal fees would be considered | transactions costs
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| Which of the following is an implication of the Coase Theorem | Government intervention is not always necessary to solve externality problems
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| The costs in time and other resources that parties incur in the process of facilitating an exchange of goods and services are called | transactions costs
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| For the Coase theorem to work there must be clear assignment of property rights | True
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| Offering to pay the passenger in front of you to keep her from reclining her airplane seat is an example of | a Coasian solution to an externality situation
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| Suppose a negative externality exists in a market. If transactions costs are low and parties are willing to bargain then, according to the Coase theorem | an efficient solution can be reached regardless of the initial assignment of property rights
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| If transactions costs are low, private bargaining will always result in an efficient solution to the problem of externalities | False
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| The Coase Theorem states that ________. | negotiation between economic agents leads to an efficient allocation of resources
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| When the federal government orders firms to use particular methods to reduce pollution, it is said to be using | command-and-control policies
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| Assume that production from an electric utility caused acid rain. If the government imposed a tax on the utility equal to the cost of the acid rain, the government's action would | internalize the externality
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| A carbon tax which is designed to reduce pollution is an example of a | market-based policy
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| A Pigouvian tax is a tax designed to ________. | induce producers generating negative externalities to reduce production
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| Governments can increase the consumption of a product that creates positive externalities by | subsidizing the production of the product so that the supply is increased and market price is reduced
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| If production of a good gives rise to a negative externality, it can be internalized by taxing the producers of the good | True
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| A government regulation that bans the use of a certain polluting technology in the production of a good is an example of a ________ to solve an externality | command and control approach
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| Which of the following happens when a Pigouvian subsidy is provided | The marginal private benefit curve shifts upward
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| Assume that production from an electric utility caused acid rain and that the government imposed a tax on the utility equal to the cost of the acid rain. This is an example of | a Pigovian tax
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| The U.S. government has frequently used a "command-and-control" approach in dealing with pollution. Which of the following describes this approach? | The government imposes quantitative limits on the amount of pollution firms are allowed to generate
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