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Externalities Quiz (chapter 10)

11 Questions
Externalities Quiz (chapter 10)

Test your knowledge with this quiz based on externalities in chapter 10 of the book 'Economics' - Mankiw and Taylor.

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Questions and Answers
  • 1. 
    An externality is:
    • A. 

      A negative effect borne onto a third party.

    • B. 

      A positive effect borne onto a third party.

    • C. 

      Costs which have to be borne by a third party.

  • 2. 
    A negative externality has an impact which is beneficial.
    • A. 

      True

    • B. 

      False

  • 3. 
    Externalities...
    • A. 

      Affect economic well-being.

    • B. 

      Cause markets to allocate resources inefficiently.

    • C. 

      Cause governments to respond to decisions to protect third parties.

    • D. 

      Cannot be represented in graph form.

  • 4. 
    Incentivising buyers/sellers to take external effects of their actions into account is known as internalizing an externality.
    • A. 

      True

    • B. 

      False

  • 5. 
    Positive externality:
    • A. 

      Social cost curve lies to the LEFT of a supply (private cost)curve.

    • B. 

      Social value curve lies to the RIGHT of demand (private benefit) curve.

    • C. 

      Markets produce LARGER quantity than is socially desirable.

    • D. 

      Markets produce SMALLER quantity than is socially desirable

  • 6. 
    Government action is the only way of solving externalities.
    • A. 

      True

    • B. 

      False

  • 7. 
    • A. 

      They can bargain over the allocation of resources by methods of payment.

    • B. 

      They can bargain over the allocation of resources without cost.

    • C. 

      The government is involved.

    • D. 

      They ignore all costs to third parties.

  • 8. 
    The government can remedy externalities by:
    • A. 

      Making certain behaviours required.

    • B. 

      Making certain behaviours forbidden.

    • C. 

      Ignoring certain behaviours.

  • 9. 
    A Pigovian Tax is a:
    • A. 

      Tax enacted to correct the effect(s) of a negative externality.

    • B. 

      Tax enacted to correct the effect(s) of a positive externality.

    • C. 

      Tax enacted to correct the effect(s) of governmental mistakes.

    • D. 

      Tax enacted to correct the effect(s) of income poverty.

  • 10. 
    • A. 

      Internalize the externality of pollution by making it cheap for firms to pollute.

    • B. 

      Are cost-effective in terms of methods to keep the environment clean.

    • C. 

      Are voluntary transfers of the right to pollute, from one firm to another.

    • D. 

      May be worse than Pigovian Tax if the government doesn't know the demand curve.

    • E. 

      Internalize the externality of pollution by making it costly for firms to pollute.

  • 11. 
    Property rights grant the exclusive right of a party to determine how a resource is used.
    • A. 

      True

    • B. 

      False