MODULE 74: Introduction to Externalities

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Tackle the Test: Multiple-Choice Questions

Question

The socially optimal level of pollution is
A.
less than that created by the market, but not zero.
B.
more than that created by the market.
C.
whatever the market creates.
D.
determined by firms.
E.
zero.

The socially optimal level of pollution is
Question

Which of the following is a source of negative externalities?
A.
loud conversations in a library
B.
smokestack scrubbers
C.
a beautiful view
D.
national defense
E.
a decision to purchase dressy but uncomfortable shoes

Which of the following is a source of negative externalities?
Question

Inefficiencies created by externalities can be dealt with through
A.
government actions only.
B.
private actions only.
C.
market outcomes only.
D.
either private or government actions.
E.
neither private nor government actions.

Inefficiencies created by externalities can be dealt with through
Question

The Coase theorem asserts that, under the right circumstances, inefficiencies created by externalities can be dealt with through
A.
lawsuits.
B.
private bargaining.
C.
vigilante actions.
D.
government policies.
E.
mediation.

The Coase theorem asserts that, under the right circumstances, inefficiencies created by externalities can be dealt with through
Question

Which of the following makes it more likely that private solutions to externality problems will succeed?
A.
high transaction costs
B.
high prices for legal services
C.
delays in the bargaining process
D.
a small number of affected parties
E.
loosely defined legal rights

Which of the following makes it more likely that private solutions to externality problems will succeed?