Practice Questions
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If a new community center is built, which of the following scenarios best illustrates the positive externality associated with this project, while also considering the social costs involved?
Building the center makes nearby homes more attractive, so homeowners’ property prices rise. Other options are incorrect because Many think jobs creat...
When evaluating a new public park, which of the following best describes the Marginal Social Benefit (MSB) associated with its creation?
The MSB is the extra gain for society when a new park appears. Other options are incorrect because The cost to build the park is a private expense, no...
In the context of a new public transportation system, which scenario best demonstrates the relationship between Marginal Social Cost (MSC) and Marginal Social Benefit (MSB) while highlighting the overall social benefit to the community?
The new system lifts nearby property values, which is the social benefit. Other options are incorrect because This mixes a cost that is higher than a ...
Which of the following scenarios best illustrates a market failure due to external costs that affect the social cost of producing a particular good?
When the factory releases waste into the river, the bad water harms the health of people nearby. Other options are incorrect because A new phone does ...
Imagine a city plans to upgrade its recycling program. Which option best represents the Marginal Social Benefit (MSB) of this improvement, taking into account both individual and societal advantages?
When the city raises recycling, people learn more about the environment. Other options are incorrect because Higher costs for the city are a cost, not...
If a factory pollutes a river, leading to a decline in fish populations, what is the primary underlying cause of this environmental issue in economic terms?
The factory does not include the damage it causes to the river in its own costs. Other options are incorrect because If the factory’s costs were the s...
A factory produces widgets, and while its production increases profits for the owner, it also leads to pollution that affects nearby residents. If the factory management decides to increase production without considering the environmental impact, which of the following best describes the situation regarding social welfare?
The factory makes more widgets, but it also creates pollution that hurts people nearby. Other options are incorrect because People often think that ma...
When a market fails to account for externalities, the result is that the level of output is often not at the __________ level, leading to inefficiencies in social welfare.
When a firm ignores the impact its activity has on others, it does not consider all costs or benefits. Other options are incorrect because A level tha...
Which of the following statements accurately describe the implications of externalities on social optimum? Select all that apply.
A social optimum is reached when the extra benefit from a good equals the extra cost to society, so the marginal social benefit must equal the margina...
Which of the following scenarios best exemplifies a positive externality?
When the homeowner plants a garden, it looks nicer for everyone nearby. Other options are incorrect because The factory emits pollution that harms peo...
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