Intermediate Microeconomics by Patrick M. Emerson

True or false

Module 20: Externalities

1. Externalities accrue to people other than the buyers & sellers of the corresponding product.

2. Negative externalities occur only through production, while positive externalities occur only through consumption.

3. Externalities result in nonzero social costs or benefits from production or consumption.

4. Externalities result in social costs or benefits being different than private costs or benefits.

5. Pollution generated as part of a production process is an example of a negative externality.

6. Getting vaccinated (though apparently not "immunized") against Covid has an associated positive externality of reducing the probability of infection for others who come in contact with the vaccinated individual.

7. In an unregulated market, neither producers nor consumers pay the costs or receive the benefits associated with externalities that arise from production or consumption of the corresponding good.

8. In the presence of a negative externality, the perfectly competitive equilibrium quantity is smaller than what would be socially optimal.

9. In the presence of a positive externality, the perfectly competitive equilibrium quantity is larger than what would be socially optimal.

10. For a consumption activity with an external cost of $0.50 per unit, perfectly competitive equilibrium results in a deadweight loss of $0.50 Q*.

11. For a production activity with an external benefit of $0.20 per unit, perfectly competitive equilibrium results in a deadweight loss of $0.10 (QSO - Q*).

12. In the presence of externalities, Pigouvian taxes & subsidies increase social efficiency by forcing buyers & sellers to internalize the associated external cost or benefit.

13. In the presence of a negative externality, a Pigouvian subsidy results in a market quantity that is closer to the socially optimal level.

14. In the presence of a positive externality, a Pigouvian tax results in a market quantity that is closer to the social optimal level.

15. In the presence of a negative externality, the socially optimal Pigouvian tax/subsidy equals the associated per unit social cost.

16. In the presence of a positive externality, the socially optimal Pigouvian tax/subsidy equals the associated per unit external benefit.

17. In the presence of an externality, at the socially optimal market quantity all external costs or benefits are eliminated.

18. The Coase Theorem recognizes that creating a market for the associated external costs or benefits can solve the externality problem.

19. The Coase Theorem recognizes that assigning property rights for the use of the affected scarce resource can solve the externality problem.

20. From the perspective of the Coase Theorem, the externality problem is solved only if negotiation eliminates the presence of the externality.

21. The Coase Theorem recognizes that the ability to achieve the socially optimal output level in the case of pollution emission is ultimately unaffected by whether the producer has the right to emit pollution or instead nearby residents have the right to clean air.

22. The Coase Theorem recognizes that the welfare of affected parties in the case of pollution emission is ultimately unaffected by whether the producer has the right to emit pollution or instead nearby residents have the right to clean air.

23. The externality-based justification for the proposed NYC ban on sweetened drinks above a certain size is that some costs associated with the negative impacts of consuming large sweetened drinks are borne by others beyond those who produce or consume them.

24. The outcome of the proposed NYC ban on sweetened drinks above a certain size would likely have been equally socially efficient to the alternative of imposing a Pigouvian tax on sweetened drinks.