question
Markets fail to maximize total surplus when:
answer
individual choices impose costs or benefits on others
question
If a production process causes pollution, then the social cost curve will be placed:
answer
above the market supply curve
question
The net increase to total surplus when a negative externality is corrected or eliminated is due to:
answer
the reduced number of transactions in the market
question
When a positive externality is present in a market, consumers will purchase _______ the socially optimal quantity.
answer
less than
question
The Coase theorem is the idea that:
answer
individuals can reach an efficient equilibrium through private trades, even in the presence of an externality
question
A carbon tax is an example of:
answer
a Pigovian tax
question
If producers are forced to pay a Pigovian tax when negative externalities exist in a market, then:
I. those who interact in the market will lose surplus.
II. producers will gain surplus.
III. society will gain surplus.
I. those who interact in the market will lose surplus.
II. producers will gain surplus.
III. society will gain surplus.
answer
I and III only
question
When a subsidy is imposed on a market with a positive externality, efficiency:
answer
increases
question
A carbon tax makes more sense at the _______ level than at the _______ level because it _______.
answer
corporate, individual, is easier to monitor
question
Raising cattle causes negative externalities in the form of gas and manure produced by cows, which contains methane, a greenhouse gas that causes climate change. Suppose the government is developing a policy to counteract this externality. Which of the following is a policy that directly targets the externality?
answer
A tax on methane emissions
question
Social norms can reduce the overconsumption problems associated with the tragedy of the commons. Social norms are most effective in all of the following situations except when:
answer
users participate in the setting of usage rules.
question
The free-rider problem and the tragedy of the commons can rely on strong social norms to help reframe the decision _________ by imposing ________ on people who fail to pay or overuse the resource.
answer
trade-offs, costs
question
A gated community passes a bylaw requiring all homeowners to mow their lawns once a week during the summer:
answer
increase supply
question
London begins charging a toll to all vehicles that drive within the city limits:
answer
decrease demand
question
A city government increases the frequency of street sweeping:
answer
increase supply
question
The National Park Service increases the cost of a pass to enter the Everglades:
answer
decrease demand
question
When using tradable allowances to solve a common-resource problem or an externality problem, a _________ is set on the total _________ of the resource, and shares of that total are ___________ individuals or firms.
answer
cap, quantity, given to
question
A three-person town is considering a fireworks display. Jonathan is willing to pay $100 to see the fireworks; Marian is willing to pay $30; and Sam is willing to pay $20. The cost of the fireworks is $120.
To maximize efficiency, the town _______ have a fireworks display
Will any one citizen provide the fireworks on his or her own? _____
Suppose the town decides to put the matter to a vote. If at least two people vote in favor of the fireworks display, each person will be taxed $40 and the fireworks display will be held. How many people will vote in favor of the fireworks display? ______
To maximize efficiency, the town _______ have a fireworks display
Will any one citizen provide the fireworks on his or her own? _____
Suppose the town decides to put the matter to a vote. If at least two people vote in favor of the fireworks display, each person will be taxed $40 and the fireworks display will be held. How many people will vote in favor of the fireworks display? ______
answer
should, no, 1
question
The Laffer curve demonstrates that raising tax rates:
answer
first increases and then eventually decreases tax revenues
question
The U.S. Social Security system pays current retirees using:
answer
funds contributed from current employees
question
Which of the following is not a public good that the government can make excludable?
answer
National Defense
question
The tragedy of the commons is the:
answer
depletion of a common resource due to individually rational, but collectively inefficient, overconsumption
question
In many areas, local governments only allow individuals with hunting permits to hunt. This regulation is likely in place because without it:
I. the tragedy of the commons would exist.
II. the hunted animals are nonexcludable goods.
III. the hunted animals are rival goods.
I. the tragedy of the commons would exist.
II. the hunted animals are nonexcludable goods.
III. the hunted animals are rival goods.
answer
I, II, and III
question
Tradable allowances may be a better solution to common-resource problems than quotas because tradable allowances:
answer
ensure that the resource is allocated to those with the highest willingness to pay, while quotas do not.
question
As tax rates get higher, at some point, taxes can get so high that the _________ effect dominates the ________ effect, and raising taxes further will ________ total revenue.
answer
quantity, price, decrease
question
A system in which average tax rates are higher than marginal tax rates is called:
answer
regressive
question
A(n) _________ tax is is deducted directly from your paycheck and used to pay for Social Security and Medicare.
answer
payroll
question
The main reason to balance a budget cyclically rather than annually is:
answer
to allow the government to use discretionary fiscal policies
question
An example of discretionary government spending is:
answer
highway spending
question
An example of nondiscretionary government spending is
answer
social security
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