1.Which of the following is an example of government regulation?
The legal prohibition of an act with negative externalities
2. Why is the Coase theorem often inapplicable to real world situations?
Transaction costs are rarely low
3. Which of the following is an example of an individual who is not involved in a transaction but is bearing some cost?
An individual exposed to secondhand smoke
4. Which of the following is a public good?
Clean air
5. Then is government regulation an inefficient method to address externalities?
When the costs of regulation are unknown or outweigh the benefits
6. When is it appropriate for a government to provide a subsidy?
When a transaction has positive externalities
7. How do corrective taxes address negative externalities?
By increasing the private cost of producing a good or service generating the externality
8. Which of the following statements is true about how externalities impact economic efficiency?
Economic efficiency requires that the externality is internalized.
9. What activities in the marketplace are covered by the Clayton Act?
Regulate Monopolies and Trusts
10. Per Se Illegality & Rule of Reason fall under which act
Clayton Act
11. To solve the problem of externality, all of the following are valid measures except:
The use of government regulations
12.A chemical plant is located close to a river and the residue from the plant sometimes drains into that river. Although this act of polluting the river is not taken into account by the firm, this “negative externality†results in:
The firm’s social marginal costs exceeding the firm’s private marginal costs
13. According to Coase, what conditions must be met in order for a private solution to externalities to be successful?
Well defined property rights and no transaction costs
14. Levying environmental taxes and creating cap-and-trade quotas for emissions are both methods governments may use to reduce negative externalities. Which of the following best explains the economic rationale behind these policies?The policies ____.
place a monetary price on social costs so firms can guage their true costs accordingly
15. When is it appropriate for a government to provide a subsidy?
When a transaction has positive externalities
16. In the case of positive externalities, social marginal benefits __________ private marginal benefits.
exceed
17. Which of the following is an example of a permit system?
Entities purchase the rights to produce a given amount of negative externalities
18. Consider an individual who decides to pursue higher education. Who might experience positive externalities from this decision?
Members of society who benefit from a more productive community
19. What activities in the marketplace are covered by the Sherman Act?
Cover any contract, combination, or conspiracy in restraint of trade.
20. What activities in the marketplace are covered by the FTC Act?
Independent administrative agency charged with consumer protection
21. Which of the following is NOT a reason for market failure?
Abundance of public goods
22. When is government regulation an inefficient method to address externalities?
When the costs of regulation are unknown or outweigh the benefits
23. According to Coase, what conditions must be met in order for a private solution to externalities to be successful?
Well defined property rights and no transaction costs
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