Negative Externalities and Social Optimization Quiz

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Which of the following best defines a normative economic principle?

A principle that measures economic welfare

A principle that predicts how people will behave

A principle that assesses market efficiency

A principle that says how people should behave (correct)

What does welfare economics study?

How equilibrium in the market maximizes total welfare

How buyers and sellers benefit from participating in the market

How the supply and demand curves relate to consumer and producer surplus

How the allocation of resources affects economic wellbeing (correct)

How is consumer surplus measured using the demand curve?

The area below the demand curve and above the price (correct)

The difference between the amount a seller is paid and the seller's cost

The difference between the maximum amount a buyer will pay and the amount the buyer actually pays

The area above the demand curve and below the price

Which of the following is an advantage of standards over market-based instruments?

Standards are easy to understand Signup and view all the answers

What is a disadvantage of standards compared to market-based instruments?

Firms have no incentives to reduce pollution beyond the standard Signup and view all the answers

What do tradable pollution permits combine?

Command-and-control approach with market-based instruments Signup and view all the answers

According to the text, what does the area below the price and above the supply curve measure in a market?

Producer surplus Signup and view all the answers

What kind of allocation would a fictional benevolent social planner choose to maximize society's well-being?

The quantity supplied and demanded must maximize total surplus received by all members of society. Signup and view all the answers

What does the equilibrium allocation in a perfectly competitive market achieve?

Maximizes total surplus Signup and view all the answers

What conditions must be satisfied for the equilibrium outcome to be an efficient allocation?

All of the above Signup and view all the answers

Which of the following is true about the social optimum in the presence of a negative externality?

The social optimum is determined by the intersection of the social cost and demand curves. Signup and view all the answers

What is the effect of a positive externality in consumption?

The demand curve does not change from the situation without external benefit. Signup and view all the answers

What is true about the market equilibrium in the presence of a positive externality?

The market participants trade too high a quantity. Signup and view all the answers

What is one way to deal with positive externalities in consumption?

Internalising the externalities by subsidising the sellers. Signup and view all the answers

According to welfare economics, what does consumer surplus measure in a market?

The net benefit that buyers receive from a good Signup and view all the answers

What does producer surplus measure in a market?

The net benefit that sellers receive from a good Signup and view all the answers

What does the area below the demand curve and above the price measure in a market?

Consumer surplus Signup and view all the answers

Which of the following is a disadvantage of standards compared to market-based instruments?

Firms have incentives to reduce pollution beyond the standard Signup and view all the answers

What do tradable pollution permits combine?

Command-and-control with market-based instruments Signup and view all the answers

What is the effect of a positive externality in consumption?

Consumers consume more than the socially optimal level Signup and view all the answers

According to the text, what does the area below the price and above the supply curve measure in a market?

Producer surplus Signup and view all the answers

What kind of an allocation would a fictional benevolent social planner choose to maximize society's well-being?

Allocation that maximizes total surplus Signup and view all the answers

What allocation is chosen in a competitive market?

Allocation based on demand of goods Signup and view all the answers

What is the effect of a negative externality in production?

Increase in social cost Signup and view all the answers

Which of the following is true about the social optimum in the presence of a positive externality?

The socially optimal level is larger than the equilibrium quantity. Signup and view all the answers

What is one way to deal with negative externalities in production?

Imposing a tax on the producer to reduce the equilibrium quantity. Signup and view all the answers

What is one way to deal with positive externalities in consumption?

Subsidizing the buyers to increase the equilibrium quantity. Signup and view all the answers

What is the command-and-control approach in environmental policy?

Setting a standard and monitoring and enforcing it. Signup and view all the answers

Negative Externalities and Social Optimization Quiz

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Questions and Answers

Which of the following best defines a normative economic principle?

What does welfare economics study?

How is consumer surplus measured using the demand curve?

Which of the following is an advantage of standards over market-based instruments?

What is a disadvantage of standards compared to market-based instruments?

What do tradable pollution permits combine?

According to the text, what does the area below the price and above the supply curve measure in a market?

What kind of allocation would a fictional benevolent social planner choose to maximize society's well-being?

What does the equilibrium allocation in a perfectly competitive market achieve?

What conditions must be satisfied for the equilibrium outcome to be an efficient allocation?

Which of the following is true about the social optimum in the presence of a negative externality?

What is the effect of a positive externality in consumption?

What is true about the market equilibrium in the presence of a positive externality?

What is one way to deal with positive externalities in consumption?

According to welfare economics, what does consumer surplus measure in a market?

What does producer surplus measure in a market?

What does the area below the demand curve and above the price measure in a market?

Which of the following is a disadvantage of standards compared to market-based instruments?

What do tradable pollution permits combine?

What is the effect of a positive externality in consumption?

According to the text, what does the area below the price and above the supply curve measure in a market?

What kind of an allocation would a fictional benevolent social planner choose to maximize society's well-being?

What allocation is chosen in a competitive market?

What is the effect of a negative externality in production?

Which of the following is true about the social optimum in the presence of a positive externality?

What is one way to deal with negative externalities in production?

What is one way to deal with positive externalities in consumption?

What is the command-and-control approach in environmental policy?

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