#1
What is a market externality?
An unintended side effect of an economic activity affecting parties not directly involved
ExplanationSide effect of economic activity impacting others.
#2
Which of the following is an example of a negative externality?
A factory emitting pollution into a river used by local communities
ExplanationPollution emitted harming local communities.
#3
What is the concept of 'internalizing' externalities?
The process of integrating external costs and benefits into market prices
ExplanationIncorporating external costs or benefits into prices.
#4
What is the concept of 'market failure'?
A situation where the market fails to allocate resources efficiently
ExplanationMarket inefficiency in resource allocation.
#5
Which of the following is an example of a positive externality?
A homeowner investing in home renovations, increasing property values in the neighborhood
ExplanationHome renovation benefits neighboring property values.
#6
Which of the following is an example of a common property resource?
Fish in the open ocean
ExplanationFish in open ocean shared by all.
#7
What is the Coase Theorem?
A theory stating that private parties can negotiate efficient solutions to externalities without government intervention
ExplanationPrivate parties negotiate solutions without government.
#8
Which market structure is most likely to result in inefficient outcomes due to externalities?
Monopoly
ExplanationMonopoly leads to inefficient outcomes.
#9
What is the tragedy of the commons?
A situation where individuals overexploit shared resources resulting in their depletion
ExplanationOveruse of shared resources leading to depletion.
#10
How do Pigovian taxes or subsidies aim to address externalities?
By internalizing external costs or benefits through taxes or subsidies
ExplanationTaxes or subsidies internalize costs or benefits.
#11
In the presence of externalities, what happens to the market equilibrium quantity and price compared to the socially optimal quantity and price?
Market equilibrium quantity and price are higher than socially optimal quantity and price
ExplanationMarket quantity and price exceed optimal.
#12
Which of the following is NOT a method for addressing negative externalities?
Subsidies to producers
ExplanationSubsidies exacerbate negative externalities.
#13
What is the concept of Pareto efficiency in the context of externalities?
An allocation of resources where no one can be made better off without making someone else worse off
ExplanationOptimal resource allocation benefiting all.
#14
What is the difference between a positive externality and a public good?
Positive externalities only benefit specific individuals, while public goods benefit everyone
ExplanationBenefit specific vs. benefit everyone.
#15
What is the difference between a pecuniary externality and a technological externality?
Pecuniary externalities involve changes in relative prices, while technological externalities involve changes in production methods.
ExplanationPrice vs. production method changes.
#16
Which of the following is an example of a positive feedback loop in environmental economics?
Increasing deforestation leading to soil erosion
ExplanationDeforestation causing soil erosion.
#17
What is the concept of 'externality trap'?
A situation where individuals or firms are locked into a pattern of negative externalities
ExplanationPattern of negative externalities.
#18
What is the tragedy of the anticommons?
A situation where the presence of multiple property rights holders leads to underuse of resources
ExplanationUnderuse due to multiple property rights.