Theme 1 Task 18

In the diagram below, the triangle HJK shows

• Producer surplus

• Total revenue

• Deadweight loss

• Consumer surplus

Which policy is consistent with the preservation of the natural environment?

• Lower taxes on imported cars with larger engine capacities

• Water prices that increase with the amount of water consumed

• Tax incentives that encourage increased coal production

• A subsidy to the forestry industries that is directly proportional to the number of trees felled

When dealing with externalities, the market equilibrium can be moved closer to the social equilibrium by

• Taxing negative externalities and subsidising positive externalities

• Taxing both positive and negative externalities

• Subsidising both positive and negative externalities

• None of the above are correct because government has no corrective policy with regards to externalities

Assuming that a government regulatory agency imposes standards on the production of a hazardous product, we would expect the

• Market price of the product to fall and its quantity demanded to rise since it is no longer dangerous

• Demand curve of the product to shift to the left

• Industry supply curve to shift to the left, market price to rise, and market quantity to fall

• Industry's supply curve to remain unchanged

Without government intervention, negative externalities are borne directly by the producer of a good or service, so they diminish profit.

• True

• False

Ideally, a pollution tax will exactly match the cost of a negative externality.

• True

• False

The social cost of an activity is equal to the private cost plus the cost of the negative externality.

• True

• False

The diagram shows the market for asparagus. The initial equilibrium position is indicated by point X. Following a successful advertising campaign for asparagus by the celebrity chef Jamie Oliver and a sustained period of rain which damaged the asparagus crop, what would be the new equilibrium point (A, B, C or D)?

• A

• B

• C

• D

The diagram shows the demand and supply of rugby balls in the United Kingdom. Following the publicity generated by the Rugby World Cup, the number of people playing rugby has increased. At the same time production of rugby balls has switched to a low-wage economy. If the initial point is X, which of the following points A, B, C, D shows the likely new equilibrium point for rugby balls?

• A

• B

• C

• D

Which of the diagrams labelled A,B,C and D best illustrates the effects of the increase in sales tax?

• A

• B

• C

• D