Negative Externality of Production Quiz

What does a negative externality mean?

• The cost to the individual producer is higher than the cost to society.

• The cost to society is higher than the cost to the individual producer.

• The benefit to society is higher than the benefit to the individual producer.

• The benefit to the individual producer is higher than the benefit to society.

What is added to the producer's costs to find the total cost to society?

• Government tax

• Consumer surplus

• Spill-over costs

• Producer surplus

What would society prefer in terms of quantity and price?

• Lower quantity and higher price

• Higher quantity and higher price

• Lower quantity and lower price

• Higher quantity and lower price

What can the government do to achieve a lower quantity produced?

• Ban the product

• Subsidize the product

• Place a tax on the product

• Increase production incentives

What is the formula for MSC after tax?

• MSC = MC + tax

• MSC = MB + tax

• MSC = MC - tax

• MSC = MB - tax

What happens to consumer surplus after tax?

• It decreases

• It increases

• It becomes zero

• It remains the same

What is the deadweight loss at the private equilibrium?

• Area A

• Area F

• Area B

• Area E

What does government intervention bring about?

• Higher production costs

• Lower production costs

• A more efficient allocation of resources

• A less efficient allocation of resources

What is the equity efficiency trade-off in the context of a tax on dairy?

• Whether the tax is fair for everyone

• Whether the tax is high enough

• Whether the tax is low enough

• Whether the tax is enforceable

What is a concern for farmers who are already fencing waterways and using little irrigation?

• Receiving subsidies

• Decreasing production

• Paying the same tax as more polluting farmers

• Increasing production