6. MICRO-CH-10

An externality is

• the benefit that accrues to the buyer in a market.

• the cost that accrues to the seller in a market.

• the uncompensated impact of one person's actions on the well-being of a bystander.

• the compensation paid to a firm's external consultants.

• None of the answers is correct.

A negative externality generates

• a social cost curve that is above the supply curve (private cost curve) for a good.

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

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

• None of the answers is correct.

A positive externality generates

• a social cost curve that is above the supply curve (private cost curve) for a good.

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

• a social value curve that is below the demand cui ve (private value curve) for a good.

• None of the answers is correct.

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

• optimal quantity to exceed the equilibrium quantity.

• equilibrium quantity to exceed the optimal quantity.

• equilibrium quantity to equal the optimal quantity.

• equilibrium quantity to be either above or below the optimal quantity.

A positive externality (that has not been internalized) causes the

• optimal quantity to exceed the equilibrium quantity.

• equilibrium quantity to exceed the optimal quantity.

• equilibrium quantity to equal the optimal quantity.

• equilibrium quantity to be either above or below the optimal quantity.

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

• ban the production of all goods creating negative externalities.

• have the government take over the production of the good causing the externality.

• subsidize the good.

• tax the good.

The government engages in an industrial policy

• to internalize the negative externality associated with industrial pollution.

• to internalize the positive externality associated with technology-enhancing industries.

• to help stimulate private solutions to the technology externality.

• by allocating tradable technology permits to high technology industry.

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

• an efficient market outcome.

• a technology spillover.

• a positive externality.

• a negative externality.

The most efficient pollution control system would ensure that

• each polluter reduce its pollution an equal amount.

• the polluters with the lowest cost of reducing pollution reduce their pollution the greatest amount.

• no pollution of the environment is tolerated.

• the regulators decide how much each polluter should reduce its pollution.

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

• each affected party has equal power in the negotiations.

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

• there are no transaction costs.

• the government requires them to negotiate with each other.

• there are a large number of affected parties.