BECO chapter 10

29. Which of the following statements is not correct?

Corrective taxes set the maximum quantity of pollution, whereas tradable pollution permits fix the price of pollution.

35. In which of the following cases is the Coase theorem most likely to solve the externality?

Ed is allergic to his roommate's cat.

4. Which of the following statements is not correct?

The government cannot improve upon the outcomes of private markets.

22. Which of the following is an example of a positive externality?

Your neighbor plants a nice garden in front of his house.

16. Which of the following illustrates the concept of a negative externality?

Your sleep is disrupted by a neighbor's loud music.

34. Employing a lawyer to draft and enforce a private contract between parties wishing to solve an externality problem is an example of

a transaction cost.

33. Two types of private solutions to the problem of externalities are

charities and the Golden Rule.

18. Negative externalities lead markets to produce

greater than efficient output levels and positive externalities lead markets to produce smaller than efficient output levels.

5. Ashlyn installed a wooden sculpture in her front yard. A positive externality arises if the sculpture

increases the value of other properties in the neighborhood.

30. Most economists prefer corrective taxes to regulation as a way to correct the problem of pollution because the market-based solution

is less costly to society.

1. An externality is the uncompensated impact of

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

17. When positive externalities are present in a market

social benefits will be greater than private benefits.

31. In some cases, tradable pollution permits may be better than a corrective tax because

the government can set a maximum level of pollution using permits.

2. Which of the following statements about a well-maintained yard best conveys the general nature of the externality?

A well-maintained yard conveys a positive externality because it increases the value of adjacent properties in the neighborhood.

32. Which of the following is not a characteristic of pollution permits?

Allowing firms to trade their permits reduces the total quantity of pollution beyond the initial allocation.

28. Which of the following is not an advantage of corrective taxes?

They subsidize the production of goods with positive externalities.

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

property rights are clearly defined.

3. Dioxin emission that results from the production of paper is a good example of a negative externality because

self-interested paper producers will not consider the full cost of the dioxin pollution they create.