Externalities in Economic Transactions Quiz Test your knowledge on externalities with this quiz covering negative and positive externalities, Coase Theorem, Pigovian tax, free rider problem, and more.
#1
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 buyer and seller directly involved in a transaction.
A cost or benefit that is internalized by the market.
A cost or benefit that is fully reflected in the market price.
#2
An externality that causes harm to third parties.
An externality that benefits third parties.
An externality that has no impact on third parties.
An externality that is internalized by the market.
#3
Pollution from a factory affecting nearby residents' health.
Education leading to a more informed and productive workforce.
Second-hand smoke harming non-smokers.
Noise pollution from construction disturbing nearby businesses.
#4
A theorem that states that in the presence of externalities, parties can bargain and reach an efficient outcome regardless of who has property rights.
A theorem that states that government intervention is always required to address externalities.
A theorem that suggests externalities do not exist in free markets.
A theorem that advocates for the complete elimination of property rights.
#5
A tax levied on consumers to discourage the consumption of a good with negative externalities.
A tax levied on producers to encourage the production of a good with positive externalities.
A tax levied on firms to compensate them for the costs of producing positive externalities.
A tax levied on firms to discourage the production of a good with negative externalities.
#6
Private cost includes external costs while social cost does not.
Private cost includes all costs incurred by the producer while social cost includes only internal costs.
Social cost includes external costs while private cost does not.
Social cost includes both private and external costs while private cost includes only internal costs.
#7
A situation where individuals overuse or deplete a shared resource because they do not bear the full cost of their actions.
A situation where individuals conserve a shared resource effectively.
A situation where private ownership of resources leads to efficient allocation.
A situation where externalities are fully accounted for in market transactions.
#8
Government intervention through regulations and taxes.
Market participants bargaining to reach an efficient outcome.
Complete elimination of property rights.
Creation of a central authority to allocate resources.
#9
A situation where the market fails to allocate resources efficiently due to externalities.
A situation where it is impossible to make one person better off without making someone else worse off.
A situation where the market achieves an efficient allocation of resources without any externalities.
A situation where the government intervenes to correct market failures caused by externalities.
#10
A situation where resources are overused due to lack of property rights.
A situation where resources are underused due to excessive fragmentation of property rights.
A situation where private ownership leads to efficient allocation of resources.
A situation where externalities are fully internalized by the market.
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