#1
What is an economic externality?
An unintended side effect of an economic activity affecting third parties
ExplanationUnintended effects of economic activities on others.
#2
Which of the following is an example of a common-pool resource?
Fisheries in the open ocean
ExplanationShared resources prone to overuse.
#3
What is the concept of asymmetric information in the context of externalities?
Imbalance in information between buyers and sellers
ExplanationUnequal knowledge affecting decisions.
#4
What is the primary goal of internalizing externalities?
To make parties responsible for the full costs or benefits of their actions
ExplanationEnsuring accountability for effects.
#5
What is the purpose of a Pigovian subsidy in the context of externalities?
To provide financial assistance to industries producing positive externalities
ExplanationSupporting beneficial activities.
#6
Which of the following is an example of a negative externality?
A factory emitting pollution into a river
ExplanationHarmful side effects affecting third parties.
#7
What is the Coase Theorem related to economic externalities?
It argues that private parties can negotiate and solve externality problems without government intervention under certain conditions
ExplanationPrivate negotiation to solve externalities.
#8
What is the tragedy of the commons?
The overuse and depletion of a shared resource due to lack of property rights
ExplanationDepletion of shared resources without ownership.
#9
Which of the following is a potential solution to the tragedy of the commons?
Privatization of the common resource
ExplanationIndividual ownership to prevent depletion.
#10
Which of the following is an example of a positive externality?
Education benefiting society by creating an informed citizenry
ExplanationIndirect benefits to society.
#11
Which government policy is aimed at correcting positive externalities?
Subsidies
ExplanationFinancial aid to encourage beneficial activities.
#12
In the context of Pigovian taxes, what is the primary objective?
To discourage negative externalities by internalizing the cost
ExplanationTaxing to reduce harmful behavior.
#13
What is the concept of moral hazard in the context of externalities?
The tendency of individuals to underestimate the risks associated with their actions when they don't bear the full consequences
ExplanationReduced risk awareness due to limited consequences.
#14
How does the government address positive externalities through a subsidy?
By providing financial assistance to the producers
ExplanationSupporting activities with societal benefits.
#15
How does a Pigovian tax function in correcting negative externalities?
It increases the cost of the activity creating the negative externality
ExplanationRaising costs to discourage harmful behavior.