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Despite the appealing logic of the Coase theorem, private actors often fail to resolve on their own the problem caused by externalities.
T
Private parties may choose not to solve an externality problem if the transaction costs are large enough
T
Even if possible, it would be inefficient to prohibit all polluting activity.
T
One advantage of regulation as a method for reducing pollution is that the government can determine the maximum quantity of pollution that is legally allowed.
T
When correcting for an externality, command and control policies are always preferable to market based policies.
F
Corrective taxes enhance efficiency, but the cost to administer them exceeds the revenue they raise for the government.
F
Most economists prefer regulation to taxation because regulation corrects market inefficiencies at a lower cost than taxation does.
T
A corrective tax places a price on the right to pollute.
T
One example of real-world market for tradable pollution permits is the market for carbon permits in Europe
T
The Environmental Protection Agency (EPA) cannot reach a target level of pollution through the use of pollution permits.
F
To enhance the well-being of society, a social planner will encourage firms to increase production when
technology spillovers are associated with production
When a beekeeper places his hives of bees in an orchard so that the bees can gather nectar to produce honey, the bees pollinate the orchard, which increases the yield of fruit. This benefits
both the beekeeper and the orchard owner
Internalizing a positive externality will cause the demand curve to
shift up
A positive externality will cause a market to produce
less than is socially desirable
If a market is characterized by a positive externality
that is not the result of a technology spillover,
the socially optimal level of output is less than the equilibrium level of output, and the optimal price is greater than the equilibrium price
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