Economics: Negative and Positive Externalities
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Questions and Answers

What is the effect of a tax imposed on the seller of a good?

  • Lowers the supply curve downward
  • Raises the demand curve
  • Raises the supply curve upward (correct)
  • Lowers the demand curve

How does a tax affect the demand curve when the buyer pays the tax?

  • Raises the supply curve
  • Moves the supply curve downward
  • Raises the demand curve
  • Moves the demand curve downward (correct)

What happens to the amount of a good consumed if the supply and demand curves are price elastic and a tax is imposed?

  • It increases
  • It lowers (correct)
  • It stays the same
  • It slightly decreases

What does the imposition of externality taxes often require?

<p>Considerable public transaction costs (B)</p> Signup and view all the answers

Who postulated that externalities are a problem of unclear or inadequate property rights?

<p>Ronald Coase (C)</p> Signup and view all the answers

What option does a firm have if it owns the right to impose negative externalities?

<p>Resell those rights to another willing firm (B)</p> Signup and view all the answers

Which of the following is an example of a tolerable externality?

<p>Water extraction from rivers (D)</p> Signup and view all the answers

Who decides the allowable level of externality and initial rights allocation for externalities society is willing to tolerate?

<p>Government representatives (A)</p> Signup and view all the answers

What can be a possible consequence of an improperly set externality tax?

<p>Incorrect level of market improvement (A)</p> Signup and view all the answers

When externalities are considered property rights, what becomes possible?

<p>Reselling externality rights (A)</p> Signup and view all the answers

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