72. Thinking about the Coase theorem, the private solution yields __________ amount of efficiency and
___________ distribution of surplus as compared to a government solution.
73. The Coase theorem reminds us that efficiency is all about ____________________ and says nothing
about ______________________.
74. The distribution of surplus gained from private parties solving an externality problem on their own, as
described by the Coase theorem, is dependent on:
75. One way to make consumers take a positive externality into account in their demand decision is to:
76. One way to make consumers take a negative externality into account in their demand decision is to:
77. A tax meant to counter the effect of a negative externality is called:
78. A Pigovian tax is a tax:
79. A Pigovian tax is intended to:
80. An example of a Pigovian tax would be a tax on:
81. An example of a Pigovian tax would be a tax on:
82. A sin tax is an example of:
83. A carbon tax is an example of:
84. A tax on cigarettes:
85. The effect of a Pigovian tax on a market is:
86. In order for a Pigovian tax to be effective, it must:
87. If a Pigovian tax is levied on consumers, the demand curve will shift:
88. If a Pigovian tax is levied on producers, the supply curve will shift:
89. A Pigovian tax imposed on consumers ___________ the price, and if the same tax were imposed on
producers, it would _____________ the price.
90. One problem with the effectiveness of Pigovian taxes is:
91. One problem with the effectiveness of Pigovian taxes is:
92. If a Pigovian tax is not large enough, the resulting market quantity:
93. If a Pigovian tax is too large, the resulting:
94. If the revenues from a Pigovian tax are not directed to those who are affected by the externality, the
outcome:
95. Pigovian taxes are used to counterbalance:
96. The government could offer a subsidy to offset a:
97. The effect of a government subsidy in a market where a positive externality is present is:
98. In a market where a positive externality is present, the effect of a government subsidy would be to
ensure:
99. The distribution of surplus received from a subsidy offered in a market where a positive externality is
present depends on:
100. If the government’s provision of a subsidy is too small to counteract the entire effect of a positive
externality, the:
101. If the government’s provision of a subsidy is too large to counteract the entire effect of a positive
externality, the:
102. Who loses surplus when consumers in a market are forced to pay a Pigouvian tax for a negative
externality?
103. If the government were to restrict consumption to the efficient level in a market where a negative
externality is present, the market outcome:
104. In order to bring a market to its efficient outcome when a negative externality is present, the
government could:
105. Maximizing surplus in a market depends not only on the amount bought and sold, but also on:
18–22
106. Efficiency is reached by allocating resources to those who have the greatest willingness to pay for
them. This can be achieved in a market where a negative externality is present by:
107. When a negative externality is present in a market, when a quota is imposed, it is:
108. When a negative externality is present in a market, when a tax is imposed, it is:
109. When government corrects a market with an externality present by allowing participants to buy up to
110. Correcting a market with an externality through taxation creates ___________ total surplus
compared to correcting it through a quota.
111. Correcting a market with an externality through taxation is _________ correcting it through a quota.
112. A production or consumption quota that can be bought or sold is called:
113. A tradable allowance is:
114. Tradable allowances are like quotas in that they both:
115. Tradable allowances are like taxes in that they both:
116. When tradable allowances are used to correct negative externalities in a market, the outcome:
117. The government can both set the efficient level of output in a market and maximize surplus by
correcting for a negative externality by using:
118. The biggest difference between using a Pigovian tax or a tradable allowance to correct for a
negative externality is:
119. When economists propose taxes as a way to balance out the presence of externalities, they try to
propose taxes:
120. Economists tend to see taxing an action that produces a negative externality as:
121. The downside to targeting specific activities rather than the externality itself is:
122. The idea of a carbon tax makes more sense at the _________ level because it is ____________.
123. A policy that directly targets the externality:
124. The idea of the “invisible hand” tells us that individuals will pursue:
18–26
Chapter 18 Test Bank Summary
Category
# of Que
stions
AACSB: Knowledge Application
37
AACSB: Reflective Thinking
87
Accessibility: Keyboard Navigation
124
Blooms: Apply
37
Blooms: Understand
87
Difficulty: 02 Medium
87
Difficulty: 03 Hard
37
Learning Objective: 18-01 Explain how external costs and benefits affect the trade-
offs faced by economic decision makers.
20
Learning Objective: 18-
02 Calculate the effect of a negative externality on market price and quantity.
18
Learning Objective: 18-
03 Calculate the effect of a positive externality on market price and quantity.
19
Learning Objective: 18-
04 Describe how individuals could reach a private solution to an externality and explain
why this doesn’t always occur.
17
Learning Objective: 18-
05 Show how a tax or subsidy can be used to counteract an externality and discuss the pr
os and cons of such solutions.
28
Learning Objective: 18-
06 Show how quantity regulations and tradeable allowances can be used to counteract an
externality and discuss the pros and cons of such solutions.
22
Topic: Externalities
20
Topic: Negative Externalities
19
Topic: Positive Externalities
20
Topic: Private Solutions to Externalities
17
Topic: Public Policy Solutions to Externalities
26
18–27
Topic: Quotas as Solutions to Externalities
10
Topic: Tradable Allowances
11