Which of the following best describes an economic externality?
A situation where market prices reflect the true costs and benefits of goods and services.
A situation where the production or consumption of a good or service affects the well-being of a third party who is not directly involved in the production or consumption.
A situation where the government intervenes in the market to regulate prices.
A situation where there is perfect competition in the market.
#2
Which of the following is an example of a negative externality?
A company investing in research and development to improve product quality.
A factory polluting a nearby river, affecting the fishing industry downstream.
A government subsidy to encourage the production of solar energy.
A consumer purchasing organic produce for personal health benefits.
#3
Which of the following is an example of a positive externality?
A homeowner installing solar panels, reducing carbon emissions for the neighborhood.
A factory emitting harmful pollutants into the air.
A person buying a luxury car for personal use.
A company reducing its workforce to cut costs.
#4
What is the main difference between a positive externality and a negative externality?
Positive externalities benefit third parties, while negative externalities harm third parties.
Positive externalities only occur in competitive markets, while negative externalities occur in monopolistic markets.
Positive externalities always lead to market inefficiency, while negative externalities do not.
There is no difference between positive and negative externalities.
#5
What is the tragedy of the commons?
A situation where private ownership leads to efficient resource allocation.
A situation where common resources are overused or depleted due to lack of property rights and incentives for conservation.
A situation where government intervention leads to market inefficiency.
A situation where externalities do not affect market outcomes.
#6
In the presence of negative externalities, what happens to the market equilibrium quantity and price?
Quantity and price increase.
Quantity decreases, price increases.
Quantity increases, price decreases.
Quantity and price decrease.
#7
Which of the following government policies can be used to address negative externalities?
Subsidies
Taxes
Regulations
All of the above
#8
In the presence of positive externalities, what happens to the market equilibrium quantity and price?
Quantity and price increase.
Quantity decreases, price increases.
Quantity increases, price decreases.
Quantity and price decrease.
#9
What is a common example of a positive externality in education?
Increased traffic congestion near schools.
Higher earnings for individuals with college degrees, leading to increased tax revenue for society.
Decreased funding for public schools.
Decreased job opportunities for educated individuals.
#10
What is the free rider problem?
A situation where individuals benefit from public goods without contributing to their provision.
A situation where individuals are forced to pay for goods they do not want.
A situation where government subsidies distort market outcomes.
A situation where externalities lead to market inefficiency.
#11
What is the Coase Theorem?
A theorem that states markets are always efficient in the presence of externalities.
A theorem that suggests private bargaining can result in an efficient solution to externalities if property rights are well-defined and transaction costs are low.
A theorem that advocates for government intervention in all market transactions.
A theorem that describes the relationship between supply and demand.
#12
Which of the following is NOT a characteristic of a public good?
Rivalry in consumption
Excludability
Non-rivalry in consumption
Non-excludability
#13
What is the difference between a positive externality and a public good?
Positive externalities are non-rivalrous while public goods are rivalrous.
Positive externalities can be provided by both the public and private sectors while public goods are exclusively provided by the government.
Positive externalities require government intervention while public goods do not.
There is no difference between positive externalities and public goods.
#14
What is the main criticism of the Coase Theorem?
It assumes that transaction costs are always low and bargaining is costless.
It ignores the role of property rights in resolving externalities.
It suggests that government intervention is always necessary to address externalities.
It assumes perfect information and rationality among all parties involved.