#1
Which of the following best describes an externality in economic decision-making?
A cost or benefit that affects a party who did not choose to incur that cost or benefit.
A cost or benefit that only affects the decision-maker.
A cost or benefit that is equal for all parties involved.
A cost or benefit that is predictable and accounted for in advance.
#2
What type of externality occurs when the consumption or production decisions of one party lead to unintended costs or benefits for another party?
Positive externality
Negative externality
Internalized externality
Market equilibrium
#3
Which of the following is an example of a negative externality?
A beekeeper's bees pollinating neighboring farms' crops.
A factory polluting a nearby river.
A company offering discounts to loyal customers.
A government providing public education.
#4
How can governments address negative externalities?
By imposing taxes or regulations.
By providing subsidies.
By increasing demand for the product.
By privatizing the industry.
#5
In the context of externalities, what does 'internalizing' mean?
External costs or benefits are disregarded in decision-making.
External costs or benefits are accounted for by those involved in the activity.
External costs or benefits are eliminated completely.
External costs or benefits are shifted to third parties.
#6
Which of the following is NOT a potential solution to externalities?
Taxes
Regulations
Subsidies
Free market
#7
Which concept is related to the idea that individuals in a market economy pursuing their own self-interest can unintentionally promote the social interest?
Tragedy of the Commons
Market equilibrium
Laissez-faire economics
Invisible hand
#8
What is a Pigovian tax?
A tax imposed on the producers of goods with positive externalities.
A tax imposed on the consumers of goods with negative externalities.
A tax imposed on all economic transactions.
A tax imposed on the government to fund public goods.
#9
Which of the following is an example of a positive consumption externality?
A smoker negatively affecting the health of non-smokers nearby.
A homeowner investing in home security, reducing crime in the neighborhood.
A company polluting a river, harming local wildlife.
A neighbor hosting a loud party disturbing others.
#10
What is an example of a positive externality?
A company's research and development efforts leading to technological advancements.
A car dealership offering discounts to clear inventory.
A factory emitting pollutants into the air.
A restaurant serving free appetizers during happy hour.
#11
What is the Coase theorem?
It states that externalities can always be efficiently resolved through government intervention.
It suggests that parties can bargain and reach an efficient solution to externalities, regardless of who holds property rights, under certain conditions.
It proposes that externalities can only be internalized through market competition.
It argues that externalities are unavoidable and should not be addressed.
#12
What is a common critique of relying solely on government intervention to address externalities?
It may lead to inefficient allocation of resources.
It ensures quick resolution of externalities.
It always guarantees fair outcomes for all parties involved.
It reduces government control over the economy.
#13
What is an example of a solution to the tragedy of the commons?
Privatization of the shared resource.
Increasing government regulations.
Imposing heavy taxes on users of the shared resource.
Ignoring the issue and letting individuals self-regulate.
#14
What is the tragedy of the anticommons?
A situation where individuals exploit shared resources to the point of depletion due to self-interest.
A situation where individuals underuse resources because too many people have the right to exclude others from using them.
A situation where government regulations prevent individuals from using shared resources.
A situation where individuals benefit equally from shared resources without any negative consequences.
#15
How does the presence of externalities affect market efficiency?
Externalities have no impact on market efficiency.
Externalities always lead to higher market efficiency.
Externalities can lead to market inefficiencies due to divergence between private and social costs or benefits.
Externalities increase government control over market transactions.
#16
What is a positional externality?
A type of externality that arises from the relative positions of individuals or firms in a market.
A type of externality that only affects the decision-maker.
A type of externality that is predictable and accounted for in advance.
A type of externality that can be resolved through government intervention.