#1
What is an externality in economics?
A benefit or cost that affects a party who did not choose to incur that benefit or cost
ExplanationUnintended side effects of economic activities.
#2
In the context of externalities, what is a technological externality?
An externality affecting the production process of goods or services
ExplanationEffects on production methods or technology that affect parties not directly involved in the production.
#3
What is the difference between a pecuniary externality and a technological externality?
Pecuniary externalities involve changes in income distribution, while technological externalities involve advancements in technology.
ExplanationPecuniary effects involve changes in prices or incomes, whereas technological effects relate to changes in production methods or technology.
#4
In the context of externalities, what is a positional externality?
An externality caused by one's social position or status
ExplanationEffects based on relative positions in society.
#5
What is the concept of a public bad in the context of externalities?
A harmful effect resulting from the consumption or production of a good that is non-excludable and non-rivalrous
ExplanationNegative effects shared by all, regardless of consumption.
#6
Which of the following is an example of a positive externality?
Education benefiting society as a whole
ExplanationSituations where the value of a good or service spills over to benefit others.
#7
What is the Coase Theorem in economics?
A theorem about the efficiency of bargaining and negotiation
ExplanationIt asserts that under certain conditions, parties can negotiate solutions to externalities without government intervention.
#8
What is the difference between a positive externality and a public good?
Positive externalities are benefits enjoyed by individuals who did not choose to incur them, while public goods are goods that are non-excludable and non-rivalrous.
ExplanationPositive externalities benefit third parties while public goods are non-excludable and non-rivalrous.
#9
What is the tragedy of the anticommons?
A situation where too many property rights make resources underused
ExplanationUnderutilization of resources due to excessive ownership claims.
#10
What is the concept of internalizing externalities in the context of market solutions?
It involves incorporating external costs or benefits into the decision-making of economic agents.
ExplanationAdjusting incentives to reflect the true costs or benefits of actions.
#11
How do property rights contribute to solving the tragedy of the commons?
Clear and well-defined property rights can prevent overuse and depletion of shared resources.
ExplanationProperty rights incentivize responsible resource use and management.
#12
How do Pigovian taxes and subsidies address externalities?
By discouraging the production of negative externalities and encouraging positive externalities
ExplanationTaxing harmful activities and subsidizing beneficial ones to internalize external costs and benefits.
#13
What is the tragedy of the commons?
A situation where individuals, acting in their self-interest, deplete shared resources
ExplanationOveruse or depletion of resources when individuals act independently and in their own interest.
#14
How does the presence of externalities impact the efficiency of a competitive market?
Externalities may lead to market failure and reduced efficiency.
ExplanationExternalities can distort incentives and cause market inefficiencies.
#15
What is the free rider problem, and how does it relate to externalities?
It is a situation where individuals benefit from a public good without paying for it, leading to underprovision of the good.
ExplanationPeople benefiting from a good without paying, causing market failure.
#16
What is the difference between externalities and public goods?
Externalities are side effects of economic activities, while public goods are goods with positive externalities.
ExplanationExternalities are unintended effects, while public goods have non-excludable and non-rivalrous properties.
#17
How does the Coase Theorem propose resolving externalities?
Through voluntary negotiations and bargaining between affected parties.
ExplanationAllowing parties to negotiate solutions without government intervention.