#1
Which of the following best defines an externality in economics?
A cost or benefit that affects a party who did not choose to incur that cost or benefit.
ExplanationUnintended cost or benefit impacting non-involved parties.
#2
What is an example of a negative externality?
A factory polluting a nearby river.
ExplanationHarmful impact imposed on others, like pollution.
#3
Which type of externality occurs when one party's actions impose costs on another party?
Negative externality
ExplanationCost imposition from one party to another.
#4
Which of the following is NOT a common method to address externalities?
Market intervention
ExplanationMarket intervention is not a common solution.
#5
What is the term used to describe the situation when a market fails to allocate resources efficiently due to externalities?
Market failure
ExplanationInefficient resource allocation due to externalities.
#6
In the context of externalities, what is the 'Coase theorem' primarily concerned with?
The negotiation between parties to internalize external costs or benefits.
ExplanationNegotiation for internalizing costs or benefits.
#7
What is a common example of a positive externality?
Education providing benefits to society beyond the individual.
ExplanationBenefits spreading to society from individual actions.
#8
What is the tragedy of the commons?
A situation where individuals overuse or deplete a shared resource.
ExplanationShared resource depletion due to individual overuse.
#9
Which of the following is an example of a public good?
A fireworks display in a public park.
ExplanationNon-excludable, beneficial to all, like a public display.
#10
What is the 'free-rider problem'?
A situation where individuals benefit from a public good without paying for it.
ExplanationBenefiting from public goods without contributing.
#11
In the presence of negative externalities, what typically happens to market equilibrium compared to the socially optimal outcome?
It shifts away from the socially optimal outcome.
ExplanationMarket equilibrium shifts from ideal due to externalities.