Question

Question 1:

The government imposes a tax on each plastic bag sold such that the producer of the plastic bags must pay the tax to the government. In the market for plastic bags, the:

a) supply curve shifts to the left.

b) supply curve shifts to the right.

c) demand curve shifts to the left.

d) demand curve shifts to the right.

e) the supply curve and the demand curve shift to the left.

Question 2:

A positive externality exists whenever:

	a) there are no internal costs.
	b) production of a good creates an external cost.
	c) production of a good creates an external benefit.
	d) production of a good has no social cost.
	e) production of a good has no social benefit Question 3: Negative externalities have __________ for third parties. a) internal costs b) internal benefits c) external costs d) external benefits e) social costs

Answer 1

Question 1

When tax is imposed on a good and is collected from producers or sellers then in that case it impacts the supply of a good.

Since, tax raises the cost of production of sellers which in turn reduces their profit margin and compels them to reduce production and thereby supply.

So, this imposition of tax on sellers will shift the supply curve to the left in the market for plastic bags.

Hence, the correct answer is the option (a).

Question 2

When transaction conducted by two parties create positive benefit in unintended manner for the third parties then such positive benfits are termed as positive externality.

A positive externality exists whenever production of a good creates an external benefit.

Hence, the correct answer is the option (c).

Question 3

When transaction conducted by two parties create negative impact in unintended manner on the third parties then such negative impact is termed as negative externality.

So, negative externalities have external costs for third parties.

Hence, the correct answer is the option (c).