Question 11) To totally internalize an externality, a government can

11) To totally internalize an externality, a government can levy a tax related only to the physical

quantity of pollution if

A) the economic damages associated with the pollution are different across different locations.

B) the economic damages are too large to be determined.

C) the economic damages associated with the pollution are the same across different locations.

D) the economic damages are zero.

12) To correct for a negative externality, a government might impose a uniform tax related only

to the physical quantity of pollution if

A) the administrative costs are high.

B) the cost of ascertaining the actual economic costs are relatively small.

C) the economic damages are zero.

D) the economic damages associated with the pollution are different across different locations.

13) An externality refers to the idea that

A) explicit costs differ from implicit costs.

B) decision-makers do not internalize all the costs.

C) we cannot do anything that does not affect other people.

D) private and internal costs differ.

14) Your neighbor has just planted some fragrant flowers. The wonderful scent drifts into your

room and makes you happy.

A) This scent is an internal cost to you.

B) This cannot be an externality since you are enjoying the scent.

C) This is an externality since you get a benefit from your neighbor’s flowers.

D) The social cost of this activity is entirely borne by you neighbor.

15) If all firms had to bear all the social costs of their actions, we should observe marginal cost

curves

A) of all firms shifting up.

B) of some firms shifting up, of some others shifting down, and of the rest not shifting at all.

C) of all firms that had generated externalities shifting up while there would be no change for the

rest of the firms.

D) of some firms shifting up and of the rest shifting down.

16) In order to correct the problems associated with external costs,

A) the signals given to the economy must change so that decision-makers will take into account

all the costs of their actions.

B) the government must take over production of industries that are responsible for most of the

pollution.

C) standards must be established that make it illegal to pollute.

D) the prices of all goods must be raised so people will consume less of the world’s resources.

17) Which of the following methods could be used to correct for external costs?

A) Impose a tax or an effluent fee on the offenders.

B) Have the offender clean up the pollution it caused.

C) Require firms in the industry to install pollution control devices.

D) All of the above would be appropriate.

18) Suppose cars are taxed according to the amount of pollution they emit per gallon of gasoline

consumed. We would expect to observe all of the following EXCEPT

A) an increase in quantity demanded of less-polluting automobiles and a reduction in quantity

demanded of more-polluting automobiles.

B) an increase in quantity demanded of more fuel-efficient cars.

C) an increase in production of automobiles that were less polluting.

D) an increase in the miles driven.

19) The most efficient way to get firms to reduce pollution is to

A) set uniform emission standards and require all firms to meet the standards.

B) make the worst polluters shut down and go out of business.

C) make them pay for the social costs of production and let them decide how to respond to the

higher costs.

D) provide firms and consumers with the information about the effects of their actions and

encourage them to behave responsibly.

20) When a polluter has to bear the full social cost of their actions, they will

A) weigh the costs and benefits of each potential action and might decide to not stop

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