Externalities in Economics Quiz

Negative externality involves harming third parties, like pollution.

Positive externality includes benefits to third parties, like herd immunity from vaccinations.

Solutions for negative externalities include taxation or regulation to internalize costs.

Negative externality reduces quantity and raises prices in the market.

Social cost includes all costs associated with producing a good or service, including external costs.

An externality involves an impact on a third party not involved in the transaction.

Positive externality increases demand, shifting the demand curve rightward.

Positive externality benefits third parties, while negative externality harms them.

Public goods are non-excludable and non-rivalrous, like national defense.

Consumption externality involves impacts on third parties from consumption, like secondhand smoke.

Market failure happens when the market doesn't allocate resources efficiently, often due to externalities.

Free-rider problem occurs when individuals enjoy public goods without contributing, leading to under-provision.

Production externality involves costs or benefits imposed on third parties during production, like pollution.

Network externality involves increased value or adoption of a product as more people use it, like social media platforms.

Ignoring externalities is not a solution and can lead to market inefficiencies.

Social benefit refers to the overall benefit to society from producing a good or service.

Common pool resources are rivalrous but non-excludable, like fishing grounds.

Government intervenes by internalizing external costs through taxes or regulations.

Coase theorem implies parties can negotiate to solve externalities with clear property rights.

Tragedy of the commons occurs when individuals exploit shared resources for personal gain, leading to depletion.

Pecuniary externalities involve monetary transactions, while technological externalities involve innovations.

Tragedy of the anticommons occurs when excessive rights to exclude others lead to underutilization of resources.

Pigouvian taxation involves government intervention, whereas the Coase theorem relies on private negotiations.

Positional externalities involve location impacts, while technological ones involve advancements in production.

Property rights enable negotiation and deals to internalize externalities under the Coase theorem.