Practice Questions
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In a market experiencing negative externalities, how do private costs differ from social costs?
Private costs only include what the buyer and seller pay. Other options are incorrect because This idea suggests private costs are always less, which ...
How do corrective taxes impact the market equilibrium when private costs do not reflect societal costs in the presence of negative externalities?
Corrective taxes make businesses pay for the harm they cause. Other options are incorrect because Some might think that higher costs always mean highe...
How can a government effectively address the negative externalities associated with pollution in a market equilibrium by using subsidies?
Subsidies help clean technology firms by lowering their costs. Other options are incorrect because This option suggests giving money to polluting firm...
How do corrective taxes aim to reduce deadweight loss in the market for public goods affected by negative externalities?
Corrective taxes help make sure that the costs of producing something include the harm it causes. Other options are incorrect because Some might think...
How do subsidies influence market equilibrium in the presence of positive externalities?
Subsidies help produce more goods that have benefits for everyone, like education. Other options are incorrect because This answer suggests that subsi...
What happens to market equilibrium when a negative externality, such as pollution, is introduced into the market?
When pollution is added to the market, it raises costs for everyone. Other options are incorrect because This option suggests both price and quantity ...
In a market experiencing negative externalities, such as pollution, which of the following scenarios is likely to occur in terms of supply and demand?
When pollution happens, it costs society more. Other options are incorrect because Some might think that more supply means lower prices; People might ...
What is the primary effect of negative externalities on market equilibrium?
Negative externalities happen when a product causes harm to others, like pollution. Other options are incorrect because Some might think that negative...
Which of the following statements accurately describe the implications of positive externalities in market equilibrium? Select all that apply.
Positive externalities mean that benefits spill over to others. Other options are incorrect because Some might think that positive externalities mean ...
In a market with positive externalities, which of the following outcomes is most likely if no government intervention occurs?
When there are positive externalities, like education, the benefits go beyond just the buyer. Other options are incorrect because Some people think th...
A local government is considering subsidizing a community park to encourage more residents to use it. They believe that the park's benefits extend beyond just the individuals using it, as it improves local property values and provides environmental benefits. Based on your understanding of externalities, which of the following best explains why this subsidy might be necessary?
The benefits of the park go beyond just the people who use it. Other options are incorrect because This answer suggests that everyone benefits equally...
If a market experiences underproduction due to a positive externality, what is the underlying cause of this market failure?
When a positive externality exists, the benefits to society are greater than what the producer sees. Other options are incorrect because Some might th...
In a market experiencing positive externalities, the equilibrium quantity is typically ______ than the socially optimal quantity due to underproduction.
When there are positive externalities, the benefits to society are greater than what the market shows. Other options are incorrect because Some might ...
How does a positive externality affect market equilibrium and what is a potential government response?
A positive externality means that a good or service benefits others who are not paying for it. Other options are incorrect because This option suggest...
A new public park is built in a neighborhood, leading to an increase in property values and local business revenues. How should this situation be classified in terms of market equilibrium and externalities?
A public park benefits everyone nearby. Other options are incorrect because Some might think the park causes problems, like noise; This choice suggest...
Positive externalities in a market can be compared to which of the following scenarios in terms of social benefit versus private benefit? A:B :: C:?
A public park helps everyone by making the area nicer. Other options are incorrect because This option confuses personal benefit with social benefit; ...
Arrange the following steps to analyze market equilibrium with positive externalities: A) Identify the marginal social benefit, B) Determine the equilibrium quantity, C) Assess the deadweight loss, D) Consider government intervention through subsidies.
First, we find the marginal social benefit, which shows the total benefit to society. Other options are incorrect because This option suggests startin...
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