666 Chapter 10/Externalities
32. Firms that can reduce pollution easily would be willing to sell their pollution permits.
ANS: T DIF: 2 REF: 10-2
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Tradable pollution permits MSC: Applicative
33. One example of a real-world market for tradable pollution permits is the market for carbon permits in Europe.
ANS: T DIF: 1 REF: 10-2
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Tradable pollution permits MSC: Applicative
34. Government can be used to solve externality problems that are too costly for private parties to solve.
ANS: T DIF: 1 REF: 10-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Externalities MSC: Interpretive
35. Government intervention is necessary to correct all externalities.
ANS: F DIF: 2 REF: 10-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Externalities MSC: Applicative
36. According to the Coase theorem, if private parties can bargain without cost, then the private market will solve
the problem of externalities.
ANS: T DIF: 1 REF: 10-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Coase theorem MSC: Definitional
37. According to the Coase theorem, the private market will need government intervention in order to reach an
efficient outcome.
ANS: F DIF: 1 REF: 10-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Coase theorem MSC: Definitional
38. Despite the appealing logic of the Coase theorem, private actors often fail to resolve on their own the problems
caused by externalities.
ANS: T DIF: 1 REF: 10-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Coase theorem MSC: Applicative
39. According to the Coase Theorem, individuals can always work out a mutually beneficial agreement to solve
the problems of externalities even when high transaction costs are involved.
ANS: F DIF: 2 REF: 10-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Coase Theorem MSC: Interpretive
40. According to the Coase theorem, whatever the initial distribution of rights, the interested parties can bargain to
an efficient outcome.
ANS: T DIF: 1 REF: 10-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Coase theorem MSC: Definitional
41. Private parties may choose not to solve an externality problem if the transaction costs are large enough.
ANS: T DIF: 2 REF: 10-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Coase theorem MSC: Interpretive
42. Many charities like the Sierra Club are established to deal with externalities.
ANS: T DIF: 2 REF: 10-3
NAT: Analytic LOC: Markets, market failure, and externalities
TOP: Coase Theorem MSC: Interpretive