Government Policies on Externalities

What is the main goal of government intervention in externalities?

• Increase private profits

• Eliminate competition

• Achieve allocative efficiency

• Encourage monopolies

Which of the following is an example of a negative externality?

• Planting trees in public parks

• Loud music disturbing neighbors

• Getting vaccinated

• Learning a new skill

Which policy is most suitable to correct a negative production externality?

• Subsidy

• Price floor

• Indirect tax

• Minimum wage

Which tool is used to internalize a positive externality?

• Indirect tax

• Ban

• Price ceiling

• Subsidy

Direct government provision is most commonly used in:

• Providing private goods

• Ensuring efficient monopolies

• Delivering merit goods

• Limiting consumption

What is the effect of a carbon tax?

• Reduces external cost by discouraging emissions

• Increases external benefits

• Causes firms to increase pollution

• Subsidizes polluting firms

Which of the following is not a method to reduce negative externalities?

• Tradable permits

• Government subsidy

• Regulation

• Pollution tax

What does a subsidy do in the case of a positive externality?

• Increases the private cost

• Reduces the marginal social benefit

• Lowers price and increases consumption

• Raises the market equilibrium price

Tradable pollution permits allow firms to:

• Pollute without limits

• Avoid taxes entirely

• Trade the right to emit within a capped total

• Ignore environmental laws

Why might information campaigns be used by the government?

• To punish firms

• To change consumer behavior

• To tax luxury goods

• To monitor private firms