Benha University, Faculty of Commerce
Academic Year: 2025-2026
Level: Level 2
Benha and Obour Campus
ECO222: Economics of Natural Resources and Environment
Tutorial (4)
DR: Nanis Fekry
1. What is the purpose of a Pigovian tax?
a) To increase government revenue
b) To subsidize producers
c) To internalize negative externalities
d) To lower prices for consumers
2. In the context of Pigovian taxes, what is meant by "internalizing an
externality"?
a) Hiding the externality from the public
b) Including the external costs in market decisions
c) Ignoring externalities in production decisions
d) Transferring external costs to foreign producers
3. Who typically pays the Pigovian tax in the example of automobile pollution?
a) Consumers
b) Government
c) Environmental NGOs
d) Automobile manufacturers
4. What is the result of setting a Pigovian tax equal to the external damage per
unit?
a) Social marginal cost equals private marginal cost
b) Market price falls
c) Quantity of goods increases
d) Producers earn higher profits
1
Benha University, Faculty of Commerce
Academic Year: 2025-2026
Level: Level 2
Benha and Obour Campus
5. Why might Pigovian taxes not be applied to all products?
a) Most products have no environmental impact
b) Consumers would boycott taxed goods
c) Estimating the right tax is costly and complex
d) Producers prefer voluntary regulations
6. What determines how the tax burden is shared between producers and
consumers?
a) Tax type
b) Elasticities of supply and demand
c) Political decisions
d) Product popularity
7. What is a positive externality?
a) An unwanted side effect
b) A cost imposed on others
c) A government fine
d) A benefit received by third parties
8. What is the most common policy tool used to internalize positive
externalities?
a) Tariff
b) Quota
c) Subsidy
d) Pigovian tax
9. How does a subsidy affect the supply curve of a good?
a) Shifts it upward
b) Shifts it downward
c) Keeps it unchanged
d) Makes it vertical
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Benha University, Faculty of Commerce
Academic Year: 2025-2026
Level: Level 2
Benha and Obour Campus
10. In the example of solar panels, what does the distance between the demand
curve and the social benefit curve represent?
a) Tax amount
b) Private cost
c) Positive externality per unit
d) Producer profit
11. What is the result of imposing a Pigovian tax?
a) It eliminates the need for subsidies
b) It increases pollution
c) It reduces producer profits to zero
d) It shifts the equilibrium to a socially optimal level
12. After applying a Pigovian tax, which of the following is true about externality
damages and tax revenue?
a) They are unrelated
b) Tax revenue exceeds externality damages
c) Tax revenue equals externality damages
d) Tax revenue is less than externality damages
13. What is meant by "optimal pollution"?
a) The pollution level that causes zero damage
b) The lowest achievable pollution level
c) The amount of pollution that maximizes total production
d) The pollution level that maximizes net social benefit
14. Why can zero pollution be economically inefficient?
a) It implies zero production
b) It causes higher unemployment
c) It leads to monopoly power
d) It requires high subsidies
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Benha University, Faculty of Commerce
Academic Year: 2025-2026
Level: Level 2
Benha and Obour Campus
15. What does the Coase Theorem state?
a) Only governments can resolve externalities
b) Taxes are always needed to resolve externalities
c) Externalities can be ignored in efficient markets
d) If property rights are clear and transaction costs are zero, efficient outcomes are
possible without government intervention
16. What are transaction costs in the context of the Coase Theorem?
a) Prices paid at market equilibrium
b) Legal and administrative costs of negotiating agreements
c) Costs of producing goods
d) Hidden taxes on goods
17. According to the Coase Theorem, what determines the optimal level of
pollution?
a) Public opinion
b) Environmental laws
c) When marginal benefits equal marginal costs
d) Producer profitability
18. What is the "holdout effect"?
a) The failure of producers to reduce pollution
b) A single party blocking an agreement
c) Delays in pollution control technology
d) Unilateral government policy enforcement
19. Why might the Coase Theorem fail in real-world situations involving
pollution?
a) Pollution has no measurable costs
b) Only governments care about the environment
c) Transaction costs and large numbers of parties make negotiation impractical
d) Producers never agree to reduce pollution
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Benha University, Faculty of Commerce
Academic Year: 2025-2026
Level: Level 2
Benha and Obour Campus
20. One criticism of relying solely on property rights to solve pollution issues is
that:
a) Property rights are always ignored
b) Only government can own land
c) Pollution cannot be measured
d) It may disadvantage low-income communities