External Costs and Benefits
Quiz by Koen De Mulder
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- Q1
True or False: A cigarette smoker creating air pollution when smoking in a restaurant is an example of an external costs of consumption
truefalseTrue or False30s - Q2
True or False: A airline that drops aviation fuel into the oceans is an example of an external benefit of production
falsetrueTrue or False30s - Q3
True or False: The monetary value of a human life can never be calculated
falsetrueTrue or False30s - Q4
Positive externalities exist when
Social costs exceed private costs
Private benefits are less than social benefits
Private benefits are greater than social costs
Production creates pollution
30s - Q5
Which of the following is an externality arising from an open-air music festival?
Revenue earned by bus operators running extra services to the venue
Damage caused by festival goers to nearby farmland and buildings
Bonuses paid to performers if attendances rise beyond a target figure
Payments made by the organisers to meet the cost of policing
30s - Q6
What is implied by the existence of a negative externality?
Producers decide not to maximise profits
There is a divergence between private and social costs
Individual consumers are not the best judges of their own well-being
Output is below the socially optimal level
30s - Q7
Under a pollution permits system
The government subsidises each unit of waste produced
The government imposes a tax on the pollution produced by a firm
The government imposes a quota on the amount of pollution a firm can produce using specific technology
The government assigns each firm the right to pollute a certain amount, and these rights are bought and sold between firms through the market
30s - Q8
Marketable pollution permits are likely to result in
An increase in the level of pollution
No effect on the level of pollution
A shift of pollution reduction towards higher cost firms
Severe pollution in some areas
30s - Q9
The main aim of the London Congestion Charge introduced in February 2003 was to
Reduce the demand for bus transport at peak times
Increase the level of congestion on the London Underground
Increase the private cost of motoring in the zone at certain times
Shift congested traffic to other parts of London
30s - Q10
If the production of output from the UK farming industry creates negative externalities:
Social benefits and costs are higher than private benefits and costs
Social costs are lower than private costs
Social benefits are higher than private benefits
Social costs are higher than private costs
30s - Q11
If the government imposes a pollution tax on a market where externalities are present
The supply curve will shift to the left
Private costs will move closer to social costs
Some of the tax may be shifted onto the consumer
All of the above
30s - Q12
Which one of the following is unlikely to be classified as an environmental tax?
The Landfill Tax
The London Congestion Charge
The Climate Change Levy
Income Tax
30s - Q13
Which one of the following is a cause of government failure when trying to deal with the effects of externalities?
The pollution tax has a damaging effect on the distribution of income
Producers who pollute pass on a tax to the consumer
The tax is set at the wrong level to achieve a social optimum
All of the above
30s - Q14
A pollution permit is a
Means of creating a market in the right to create externalities
License issued to producers in non-market economies
Tax levied on firms creating pollution
Government voucher allowing unlimited pollution
30s - Q15
The table shows the estimated costs and benefits of building a new factory in a town. From the data it can be concluded that
The social costs equal £15,000
Social costs exceed social benefits
Social benefits exceed social costs
The social benefits equal £37,000
30s
