Externalities

To correct for positive externalities, the government should

• do nothing, since no harm is done by positive externalities

• levy a tax on the output of the good or service

• pay a subsidy equal to the marginal external benefit

• impose a price ceiling on the good to discourage its production

• impose a price floor on the good at which the marginal private benefit equals the marginal social cost

Which of the following actions is most likely to reduce the degree of income inequality within a society?

• lowering the tax rate on income from savings

• increasing regulations on labor unions

• increasing the cost of households of primary and secondary education

• introducing progressive inheritance tax on accumulated wealth

• eliminating taxes on corporate profits

The market inefficiency of a negative production externality will be eliminated if a policy is put in place that results in which of the following outcomes?

• the level of output produced is maximized

• the marginal benefit of production is maximized

• the marginal cost of production is minimized

• the marginal social benefit of production exceeds the marginal social cost

• the marginal social benefit of production is equal to the marginal social cost

The government can attempt to correct the externality by setting a:

• per-unit tax equal to (P4-P1)

• per-unit tax equal to (P4-P2)

• per-unit subsidy to (P4-P2)

• per-unit subsidy to (P2-P2)

• price ceiling at P2

Which of the follwoing describes the type of externality generated by the unregulated private market and the resulting deadweight loss?

• Positive Externality / Deadweight loss: egh

• Positive Externality / Deadweight loss: egf

• Negative Externality / Deadweight loss: egf

• Negative Externality / Deadweight loss: egh

• Negative Externality / Deadweight loss: P4 g h P2