Practice Questions
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Which of the following best describes a subsidy in relation to externalities?
A subsidy is money the government gives to help support good things, like clean energy. Other options are incorrect because Some might think a tax hel...
Which of the following is an example of a negative externality that leads to market failure?
When a factory pollutes the air, it harms the health of nearby people. Other options are incorrect because Some might think free training is bad for t...
What is a primary consequence of externalities in a market economy?
Externalities can lead to market failure. Other options are incorrect because Some might think externalities increase competition; It may seem that ex...
How do negative externalities contribute to market failure in the context of environmental impact?
Negative externalities happen when a product harms others, like pollution. Other options are incorrect because Some might think that negative effects ...
How can the provision of subsidies for public goods affect social welfare in the presence of positive externalities?
Subsidies help lower the cost of producing public goods. Other options are incorrect because Some might think subsidies raise costs for society; It's ...
What is an externality in economics?
An externality happens when someone not involved in a deal feels the effects. Other options are incorrect because This option confuses externalities w...
Which of the following is an example of a positive externality?
When someone plants a tree, it helps others by providing shade. Other options are incorrect because Pollution from a factory harms the environment; Tr...
Which of the following is a common example of a negative externality?
This is a negative externality because the factory's pollution harms people living nearby. Other options are incorrect because Some might think a park...
A new factory is built near a residential area, resulting in increased air pollution that affects the health of local residents. Which of the following actions would best address the negative externality created by the factory?
By taxing the factory's emissions, we make them pay for the pollution they cause. Other options are incorrect because Moving residents away doesn't so...
In economics, _____ are the unintended side effects of a transaction that impact third parties not involved in the exchange. They can be either positive, such as the societal benefits of education, or negative, like the environmental costs of pollution.
Externalities are effects that happen because of a transaction. Other options are incorrect because Market failures happen when the market does not wo...
Arrange the following steps in the correct order to understand how externalities affect economic decisions: A) Government intervenes with taxes or subsidies, B) Externalities impact third parties, C) Individuals and businesses make decisions based on personal costs and benefits, D) The market fails to allocate resources efficiently.
First, individuals and businesses make choices based on what they think is best for them. Other options are incorrect because This option suggests tha...
A local factory emits pollutants into a river, which negatively impacts the fishing industry downstream. How would you classify this externality, and why is it essential for the government to intervene in this situation?
This situation is a negative externality. Other options are incorrect because Some might think pollution helps the economy, but it actually hurts othe...
Which of the following best describes the role of government in addressing externalities?
The government can use taxes or subsidies to help fix problems caused by externalities. Other options are incorrect because Some think the goal is to ...
If a factory emits pollution that causes health issues in the local community, what is the underlying cause of this externality?
The factory is making products but not thinking about how its pollution affects people's health. Other options are incorrect because This answer sugge...
Negative externalities : Pollution :: Positive externalities : ?
Education creates benefits for everyone, not just the person learning. Other options are incorrect because Taxation is about collecting money for the ...
A factory emits pollution that affects nearby residents. Which response would best address this negative externality?
Implementing a tax on pollution makes the factory pay for the harm it causes. Other options are incorrect because Some might think giving money to the...
Which of the following statements accurately describe the implications of externalities in economics? Select all that apply.
Other options are incorrect because Some people think that positive effects always mean more production; It's a common belief that negative effects al...
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