Question

QUESTION 19

Emission controls on automobiles are an example of a

	a.	policy to reduce congestion on urban freeways.
	b.	corrective tax.
	c.	command-and-control policy to increase social efficiency.
	d.	policy that reduces pollution by allocating resources through market mechanisms.

4 points   

QUESTION 20

A benevolent social planner would prefer that the output of good x be decreased from its current level if, at the current level of output of good x,

	a.	social value = private value = private cost < social cost.
	b.	social cost = private cost = private value = social value.
	c.	private cost < social cost = private value = social value.
	d.	social cost = private cost = private value < social value.

4 points   

QUESTION 21

When a policy succeeds in giving buyers and sellers in a market an incentive to take into account the external effects of their actions, the policy is said to

	a.	externalize the actions of the buyers and sellers.
	b.	internalize the externality.
	c.	equalize private cost and external cost.
	d.	equalize private value and private cost.

4 points   

QUESTION 22

A corrective tax

	a.	can be used to internalize a negative externality.
	b.	imposed on sellers shifts the supply curve to the left.
	c.	imposed on buyers shifts the demand curve to the left.
	d.	All of the above are correct.

4 points   

QUESTION 23

The difference between social cost and private cost is a measure of the

	a.	cost incurred by the government when it intervenes in the market.
	b.	cost reduction when the negative externality is eliminated.
	c.	cost of an externality.
	d.	loss in profit to the seller as the result of a negative externality.

4 points   

QUESTION 24

When the government uses a command-and-control policy to solve an externality, it

	a.	is usually the most effective policy option available.
	b.	usually involves taxing the consumption of a commodity.
	c.	creates policies that directly regulate behavior.
	d.	typically refers to the Coase theorem to structure the policy.

4 points   

QUESTION 25

A negative externality will cause a private market to produce

	a.	less than the same market would produce in the presence of a positive externality.
	b.	more than is socially desirable.
	c.	less than is socially desirable.
	d.	exactly the quantity that is socially desirable.

Answer 1

QUESTION 19

Emission controls on automobiles are an example of a command-and-control policy to increase social efficiency. (option c)

QUESTION 20

A benevolent social planner would prefer that the output of good x be decreased from its current level if, at the current level of output of good x, then social value = private value = private cost < social cost. (option A)

QUESTION 21

When a policy succeeds in giving buyers and sellers in a market an incentive to take into account the external effects of their actions, the policy is said to internalize the externality. (option B)

QUESTION 22

A corrective tax can be used to internalize a negative externality. (option A)

QUESTION 23

The difference between social cost and private cost is a measure of the cost of an externality. (option C)

QUESTION 24

When the government uses a command-and-control policy to solve an externality, creates policies that directly regulate behavior. (option C)

QUESTION 25

A negative externality will cause a private market to produce more than is socially desirable. (option b)