CLEP Microeconomics chapter practice4 questions

28 Externalities

These questions come directly from the chapter practice in the book. Choose the best answer, check your reasoning, and use the explanation to correct any gap.

Question 1

Question 1 of 4

In a market with a negative production externality, the unregulated competitive output is generally

Firms respond to private marginal cost and omit external harm, so they produce units whose social cost exceeds buyers' benefit.
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A. greater than the socially efficient output

Firms respond to private marginal cost and omit external harm, so they produce units whose social cost exceeds buyers' benefit.

Question 2

Question 2 of 4

A positive consumption externality exists when

Vaccination, education, or similar consumption may benefit third parties, making social marginal benefit exceed private marginal benefit.
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E. third parties benefit from the buyer's consumption

Vaccination, education, or similar consumption may benefit third parties, making social marginal benefit exceed private marginal benefit.

Question 3

Question 3 of 4

A corrective tax designed to address a negative externality should ideally equal

A tax equal to marginal external cost can align private marginal cost with social marginal cost at the efficient quantity.
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B. marginal external cost at the efficient output

A tax equal to marginal external cost can align private marginal cost with social marginal cost at the efficient quantity.

Question 4

Question 4 of 4

Tradable emissions permits can achieve a pollution target at lower total cost because

Trading directs abatement toward firms that can reduce pollution most cheaply while preserving the overall cap.
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D. low-cost firms abate more and sell unused permits

Trading directs abatement toward firms that can reduce pollution most cheaply while preserving the overall cap.

Quiz complete