Quiz 16: Externalities

The proposition that if bargaining is costless, the market can achieve an efficient outcome is the:

Coase theorem

If external costs exist, the competitive free market:

allocates resources inefficiently.

The marginal social benefit of pollution:

can be measured as the additional gain to society from one additional unit of pollution.

The marginal benefit of pollution emissions ____ as the quantity of pollution emissions ____.

decreases; increases

The marginal social benefit received from pollution is equal to its marginal social cost in the market for highly polished glass. In this situation:

firms in the market produce the socially optimal level of pollution.

A negative externality:

is an uncompensated cost imposed by an individual firm on others

An industry with production that generates external costs produces a quantity of output that is:

larger than the social optimal quantity

External benefits are associated with the production of batteries . Without government regulation, the market will:

price batteries at less than the marginal social benefit.

As the quantity of pollution rises, its marginal social cost:

rises

Taxes are a more effective method of controlling pollution than environmental standards because:

taxes encourage reducing pollution at the lowest possible cost.

Automobile emissions generate pollution, have costs, and cause discomfort to residents of a city. In this case:

the externality can be internalized by imposing a specific tax on drivers.

The efficient quantity of pollution emissions occurs where:

the marginal social benefit of pollution is equal to the marginal social cost of pollution

The additional cost imposed on society as a whole by an additional unit of pollution is:

the marginal social cost of pollution

The socially optimal quantity of pollution is:

the quantity whose marginal social cost is equal to the marginal social benefit

If government officials set an emissions tax too high:

there will be too little pollution.

When individuals take external costs and benefits into account:

they internalize the externality.

An advantage of tradable emissions permits is that:

they provide incentives for firms to develop technologies that are less polluting.

A copper mining operation discharges waste products into a river and causes higher costs and discomfort to downstream users of the water for which they are not compensated. In this case:

too much of society's resources is being used to produce copper.

A market economy will produce ______ without any government regulation

too much pollution

The licenses that are exchangeable and that enable the holder to pollute up to a specified amount during a given period are called:

tradable emissions permits.