All Free Economics MCQs with Answers
Every Economics question in the bank, across all chapters, each with the correct answer and a written explanation. Free and unlimited, with no account needed.
4,037 questions · page 127 of 202
2521. The gas-guzzler tax that is placed on new vehicles that are very fuel inefficient is an example of ?
- A. a tradeable pollution permits.
- B. an attempt to internalize a positive externality
- C. an application of the Coase theorem
- D. an attempt to internalize a negative externality.
Explanation: Fuel-inefficient vehicles impose pollution costs on people who are not involved in the purchase, creating a negative externality.
Correct answer: an attempt to internalize a negative externality.- A. Thomas will pay Roberto between €100 and €150 and Roberto will continue to play loud music
- B. Roberto will pay Thomas €150 and Roberto will continue to play loud music
- C. Thomas will pay Roberto between €100 and €150 and Roberto will stop playing loud music
- D. Roberto will pay Thomas €100 and Roberto will stop playing loud music
Explanation: Stopping the music is efficient because Thomas's €150 valuation of quiet exceeds Roberto's €100 benefit from loud music.
Correct answer: Thomas will pay Roberto between €100 and €150 and Roberto will stop playing loud music- A. costs incurred due to lawyers' fees
- B. costs incurred to reduce the pollution
- C. costs incurred to enforce the agreement
- D. costs incurred due to a large number of parties affected by the externality
- E. All of these answers are considered transaction costs
Explanation: The cost of reducing pollution is an abatement cost, not a transaction cost of reaching and enforcing an agreement.
Correct answer: costs incurred to reduce the pollution- A. there are no transaction costs.
- B. each affected party has equal power in the negotiations.
- C. the party affected by the externality has the initial property right to be left alone.
- D. There are a large number of affected parties.
- E. the government requires them to negotiate with each other
Explanation: The Coase theorem requires negligible or zero transaction costs so that affected parties can bargain toward an efficient outcome.
Correct answer: there are no transaction costs.- A. a positive externality
- B. a technology spillover
- C. an efficient market outcome.
- D. a negative externality
Explanation: A car added to a congested urban road increases travel time for other road users without compensating them.
Correct answer: a negative externality- A. have the government take over the production of the good causing the externality
- B. ban the production of all goods creating negative externalities
- C. tax the good
- D. subsidize the good
Explanation: A tax raises the private cost of producing the good toward its full social cost, reducing the overproduction caused by the negative…
Correct answer: tax the good- A. optimal quantity to exceed the equilibrium quantity.
- B. equilibrium quantity to be either above or below the optimal quantity
- C. equilibrium quantity to equal the optimal quantity
- D. equilibrium quantity to exceed the optimal quantity
Explanation: A negative externality makes social marginal cost greater than private marginal cost, so the unregulated market produces more than the…
Correct answer: equilibrium quantity to exceed the optimal quantity- A. Pigouvian taxes, command-and-control policies, tradable pollution permits.
- B. tradable pollution permits, Pigouvian taxes, command-and-control policies
- C. tradable pollution permits command-and-control policies, Pigovian taxes.
- D. command-and-control policies, tradable pollution permits, Pigovian taxes.
- E. They would all rank equally high because the same result can be obtained from any one of the policies
Explanation: Tradable permits combine an emissions limit with flexibility, allowing the lowest-cost firms to reduce pollution and preserving incentives…
Correct answer: tradable pollution permits, Pigouvian taxes, command-and-control policies- A. an attempt to internalize a positive externality
- B. an attempt to internalize a negative externality
- C. a Pigouvian tax
- D. a command-and-control policy
Explanation: University education can create benefits for others, such as a better-educated society, so contributions that expand access support a…
Correct answer: an attempt to internalize a positive externality- A. Sets the quantity of pollution
- B. reduces the incentive for technological innovations to further reduce pollution
- C. Sets the price of pollution
- D. determines the demand for pollution rights.
Explanation: A Pigouvian tax fixes the price of emitting pollution at a charge related to the marginal external cost, while firms choose the resulting…
Correct answer: Sets the price of pollution- A. All of these answers are true
- B. Pigouvian taxes and tradable pollution permits create an efficient market for pollution.
- C. Tradable pollution permits efficiently reduce pollution only if they are initially distributed to the firms that can regulator pollution at the lowest cost.
- D. To set the quantity of pollution with tradable pollution permits, the regulator must know everything about the demand for pollution rights.
- E. Pigovian taxes are more likely to reduce pollution to a targeted amount than tradable pollution permits.
Explanation: Both taxes and tradable permits can produce an efficient pollution outcome when properly designed, but permit allocation need not…
Correct answer: Pigouvian taxes and tradable pollution permits create an efficient market for pollution.- A. It is efficient for Roberto to stop playing loud music regardless of who has the property right to the level of sound
- B. it is efficient for Roberto to continue to play loud music
- C. It is efficient for Roberto to stop playing loud music only if Thomas has the property right to peace and quiet
- D. It is efficient for Roberto to stop playing loud music only if Roberto has the property right to play loud music
Explanation: Stopping the music creates €150 of benefit for Thomas while costing Roberto only €100, so quiet is the efficient outcome regardless of the…
Correct answer: It is efficient for Roberto to stop playing loud music regardless of who has the property right to the level of sound- A. ban the good creating the externality
- B. tax the good
- C. subsidize the good
- D. have the government produce the good until the value of an additional unit is zero
Explanation: A subsidy lowers the private cost or raises the private benefit of an activity with external benefits, moving market output toward the…
Correct answer: subsidize the good- A. the regulators decide how much each polluter should reduce its pollution.
- B. no pollution of the environment is tolerated
- C. each polluter reduces its pollution an equal amount
- D. the polluters with the lowest cost of reducing pollution reduce their pollution the greatest amount
Explanation: Efficiency requires pollution reductions to be made by firms that can reduce emissions at the lowest cost, rather than requiring equal…
Correct answer: the polluters with the lowest cost of reducing pollution reduce their pollution the greatest amount- A. by allocating tradable technology permits to high technology industry.
- B. to internalize the positive externality associated with technology-enhancing industries.
- C. to help stimulate private solution to the technology externality
- D. to internalize the negative externality associated with industrial pollution
Explanation: Technology-enhancing industries can create benefits for other firms and consumers that they do not receive payment for, a positive…
Correct answer: to internalize the positive externality associated with technology-enhancing industries.- A. equilibrium quantity to exceed the optimal quantity
- B. equilibrium quantity to equal the optimal quantity
- C. optimal quantity to exceed the equilibrium quantity
- D. equilibrium quantity to be either above or below the optimal quantity
Explanation: An uninternalized positive externality means social benefit exceeds private benefit, so the market produces less than the socially…
Correct answer: optimal quantity to exceed the equilibrium quantity- A. a social cost curve that is above the supply curve (private cost curve) for a good
- B. none of these answers
- C. a social value curve that is above the demand curve (private value curve) for good
- D. a social value curve that is below the demand curve (private value curve) for a good
Explanation: With a positive externality, the good provides benefits to third parties in addition to the buyer's private benefit.
Correct answer: a social value curve that is above the demand curve (private value curve) for good2538. An externality is ?
- A. the benefit that accrues to the buyer in a market
- B. the cost that accrues to the seller in a market
- C. none of these answers
- D. the compensation paid to a firm's external consultants.
- E. The uncompensated impact of one person's actions on the well-being of a bystander
Explanation: An externality is an uncompensated benefit or cost imposed by one person's actions on an uninvolved third party.
Correct answer: The uncompensated impact of one person's actions on the well-being of a bystander- A. relatively higher U.S labor productivity was associated with relatively higher U.K export ratios
- B. relatively high U.K labor productivity was associated with relatively higher U.K export ratios
- C. Labor productivity ratios and export ratios were not associated with each other
- D. None of the above
Explanation: MacDougall’s test supported the comparative-advantage link between relative labour productivity and export performance: industries with…
Correct answer: relatively high U.K labor productivity was associated with relatively higher U.K export ratios- A. The stimulus of additional investment spending as market open
- B. Economies of large scale production as markets open
- C. Additional competition made possible by the opening of markets
- D. All of the above
Explanation: Dynamic gains are longer-run benefits of trade, including stronger investment, economies of scale from larger markets, and increased…
Correct answer: All of the above