True or False:
1. A negative externality is when the action of one party imposes a cost on another party.
2. A positive externality is when the action of one party benefits another party.
3. In the case of external costs, firms tend to produce too little from society’s standpoint, causing an efficiency loss due to an underallocation of scarce resources to the production of the good.
4. If government could impose a pollution tax equal to the exact size of the external costs imposed by a firm, then the firm would produce at the socially desired level of output.
5. The tax revenues raised by a pollution tax could be used to compensate those who have suffered damages from the pollution.
6. Alternatives to pollution taxes include the government prohibiting certain types of activities that cause pollution and forcing firms to clean up their emissions.
7. Because the decision makers involved ignore some of the real social benefits, the private market does not provide enough of goods that generate external benefits.
8. In the case of external benefits, if we could add the benefits that are derived by nonpaying consumers, the demand curve would shift to the right, increasing output.
9. In the case of external benefits, a tax equal to external benefits would result in an efficient level of output.
10. Externality problems always require the intervention of government.