Economics MCQs

Page No. 200

Tradable pollution permits ?


a reduce the incentive for technological innovations to further reduce pollution.

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b set the price of pollution.

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cdetermine the demand for pollution rights.

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dSet the quantity of pollution

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View Answer Set the quantity of pollution

The gas-guzzler tax that is placed on new vehicles that are very fuel inefficient is an example of ?


aa tradeable pollution permits.

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ban attempt to internalize a positive externality

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can application of the Coase theorem

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dan attempt to internalize a negative externality.

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View Answer an attempt to internalize a negative externality.

Roberto and Thomas live in a university hall of residence. Reberto values playing loud music at a value of €100. Thomas values peace and quiet at a value of €150. Which of the following statements is true about an efficient solution to this externality problem if Roberto has the right to play loud music and if there are no transaction costs ?


aThomas will pay Roberto between €100 and €150 and Roberto will continue to play loud music

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bRoberto will pay Thomas €150 and Roberto will continue to play loud music

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cThomas will pay Roberto between €100 and €150 and Roberto will stop playing loud music

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dRoberto will pay Thomas €100 and Roberto will stop playing loud music

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View Answer Thomas will pay Roberto between €100 and €150 and Roberto will stop playing loud music

Which of the following is not considered a transaction cost incurred by parties in the process of contracting to eliminate a pollution externality ?


acosts incurred due to lawyers’ fees

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bcosts incurred to reduce the pollution

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ccosts incurred to enforce the agreement

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dcosts incurred due to a large number of parties affected by the externality

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View Answer costs incurred to reduce the pollution

According to the Coase theorem, private parties can solve the problem of externalities if ?


athere are no transaction costs.

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beach affected party has equal power in the negotiations.

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cthe party affected by the externality has the initial property right to be left alone.

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dThere are a large number of affected parties.

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View Answer there are no transaction costs.

When an individual buys a car in a congested urban area, it generates ?


aa positive externality

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ba technology spillover

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can efficient market outcome.

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da negative externality

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View Answer a negative externality

To internalize a negative externality an appropriate public policy response would be to ?


a A. have the government take over the production of the good causing the externality

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b ban the production of all goods creating negative externalities

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ctax the good

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dsubsidize the good

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View Answer tax the good

A negative externality (that has not been internalized) causes the ?


a optimal quantity to exceed the equilibrium quantity.

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b equilibrium quantity to be either above or below the optimal quantity

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cequilibrium quantity to equal the optimal quantity

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d equilibrium quantity to exceed the optimal quantity

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View Answer equilibrium quantity to exceed the optimal quantity

A negative externality generates ?


aa social cost curve that is below the supply curve (private cost curve) for a good

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bnone of these answers

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ca social cost curve that is below the supply curve (private cost curve) for a good

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da social value curve that is above the demand curve (private value curve) for a good

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View Answer a social cost curve that is below the supply curve (private cost curve) for a good

Suppose an industry emits a negative externality such a pollution and the possible methods to internalize the externality are command-and-control policies, pigovian taxes, and tradable pollution permits. If economists were to rank these methods for internalizing a negative externality based on efficiency ease of implementation and the incentive for the industry to further reduce pollution in the future, they would probably rank them in the following order (from most favored to least favored) ?


aPigouvian taxes, command-and-control policies, tradable pollution permits.

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b tradable pollution permits, Pigouvian taxes, command-and-control policies

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ctradable pollution permits command-and-control policies, Pigovian taxes.

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dcommand-and-control policies, tradable pollution permits, Pigovian taxes.

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View Answer tradable pollution permits, Pigouvian taxes, command-and-control policies

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