Question : 9.3  Government Solutions to Externalities 1) Government invention required to solve : 1377434

9.3  Government Solutions to Externalities

1) Government invention is required to solve externality problems if ________.

A) transaction costs associated with private negotiations are low

B) the number of people affected the externality is small

C) the number of people affected by the externality is large

D) property rights are clearly defined

2) A government regulation that bans the use of a certain polluting technology in the production of a good is an example of a ________ to solve an externality.

A) social enforcement mechanism

B) command and control approach

C) market-based approach

D) Coasian approach

3) A Pigouvian tax is a tax designed to ________.

A) induce consumers of a good to reduce the consumption of the good

B) induce producers generating negative externalities to reduce production

C) induce producers generating positive externalities to reduce production

D) induce producers to stop the production of a good

4) The production of an industrial good in a plant emits harmful gases that cause breathing difficulty. Which of the following will happen if the government imposes a Pigouvian tax on the plant?

A) Marginal external cost will increase.

B) Marginal private cost will fall.

C) The quantity supplied of the good will decrease.

D) The demand for the good will increase.

5) When a Pigouvian tax is imposed, ________.

A) the marginal private cost curve shifts upward

B) the demand curve shifts rightward

C) the marginal social cost curve shifts downward

D) the marginal social benefit curve shifts downward

6) The production of steel in a factory generates a negative externality. A per-unit tax on the factory that equals ________ of steel production will internalize the externality entirely.

A) the marginal private cost

B) the marginal social cost

C) the marginal external cost

D) the marginal external benefit

7) Smoking increases the risk of lung infections not only for active smokers but also for other people inhaling the smoke passively. Which of the following will help in reducing smoking?

A) A corrective tax

B) A life insurance

C) A health insurance

D) A health tax

8) A corrective subsidy induces the ________ to the socially optimal level.

A) consumers of a negative externality to increase the quantity consumed

B) producers of a negative externality to increase the quantity produced

C) consumers of a positive externality to increase the quantity consumed

D) producers of a positive externality to reduce the quantity produced

9) A Pigouvian subsidy leads to a socially efficient outcome by ________.

A) raising individual’s marginal benefit from consumption

B) lowering the marginal private cost of production

C) raising the marginal external benefit from consumption

D) lowering the marginal external cost of production

10) Which of the following happens when a Pigouvian subsidy is provided?

A) The marginal social cost curve shifts upward.

B) The marginal private cost curve shifts downward.

C) The marginal social benefit curve shifts downward.

D) The marginal private benefit curve shifts upward.