Chapter_10_Practice_Test

Chapter_10_Practice_Test - AP Economics Mankiw Chapter 10...

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AP Economics Mankiw Chapter 10 Practice Test Directions: Mark T or F for the following statements. _____ 1. A positive externality is an external benefit that accrues to the buyers in a market while a negative externality is an external cost that accrues to the sellers in a market. _____ 2. If a market generates a negative externality, the social cost curve is above the supply curve (private cost curve). _____ 3. If a market generates a positive externality, the social value curve is above the demand curve (private value curve). _____ 4. A market that generates a negative externality that has not been internalized generates an equilibrium quantity that is less than optimal quantity. _____ 5. If a market generates a negative externality, a Pigovian tax will move the market toward a more efficient outcome. _____ 6. According to the Coase theorem, an externality always requires government intervention in order to internalize the externality. _____ 7. To reduce pollution by some targeted amount, it is most efficient if each firm that pollutes reduces its pollution by an equal amount. _____ 8. When Smokey the Bear says, “Only you can prevent forest fires,” society is attempting to use moral codes and social sanctions to internalize the externality associated with using fire while camping. _____ 9. A tax always makes the market less efficient. _____ 10. If Bob values smoking in a restaurant at $10 and Sue values clean air while she eats at $15, according to the Coase theorem, Bob will not smoke in the restaurant only if Sue owns the right to clean air. _____ 11. If transactions costs exceed the potential gains from an agreement between affected parties to an externality, there will be no private solution to the externality. _____ 12. A Pigovian tax sets the price of pollution while tradable pollution permits sets the quantity of pollution. _____ 13. An advantage of using tradable pollution permits to reduce pollution is that the regulator need not know anything about the demand for pollution rights.
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_____ 14. The majority of economists do not like the idea of putting a price tax on polluting the environment. _____ 15. For any given demand curve for pollution, a regulator can achieve the same level of pollution with either a Pigovian tax or by allocating tradable pollution permits. Directions: Choose the option that best answers the question. 16. An externality is A. The benefit that accrues to the buyer in a market B. The cost that accrues to the seller in a market C. The uncompensated impact of one person’s actions on the well-being of a bystander D. The compensation paid to a firm’s external consultants E. None of the above
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Chapter_10_Practice_Test - AP Economics Mankiw Chapter 10...

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