Practice Questions
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In the context of externality graphs, what do social costs represent?
Social costs show the total cost to everyone in society from a negative externality. Other options are incorrect because This option confuses private ...
In the context of positive externalities, how do supply and demand curves shift in a market for a good that provides additional benefits to society?
When a good has positive externalities, it means it helps society more than just the buyer. Other options are incorrect because Some might think that ...
How do taxes on goods that generate negative externalities impact the supply and demand curves in a market, and how do subsidies for goods that create positive externalities affect them?
Taxes on goods that harm society make it more expensive to produce them. Other options are incorrect because This answer confuses supply and demand; T...
In the context of externality graphs, which of the following scenarios best illustrates the need for government intervention to correct welfare loss due to a negative externality affecting third parties?
A factory that pollutes the air can harm the health of nearby people. Other options are incorrect because This option shows a farmer helping the envir...
In a market experiencing a negative externality, which of the following correctly describes the impact of government intervention aimed at aligning private costs with social costs?
Government intervention helps to lower the amount produced to a level that is better for society. Other options are incorrect because This answer sugg...
In a graph representing negative externalities, what happens to the social cost curve compared to the private cost curve?
The social cost curve shifts to the right. Other options are incorrect because Some might think the social cost decreases; It may seem like social cos...
Which of the following is an example of a positive externality in economics?
When a homeowner plants a garden, it makes the neighborhood look nicer. Other options are incorrect because Some might think pollution helps by creati...
What is the primary effect of a negative externality on a market graph?
A negative externality means that the costs of a product affect people who are not involved in the buying or selling. Other options are incorrect beca...
In an externality graph illustrating pollution from copper production, what is the primary reason for the divergence between marginal private cost and marginal social cost?
Producers often ignore the harm they cause to the environment. Other options are incorrect because This answer suggests that higher prices for copper ...
A city is facing significant air pollution due to a local factory's copper production. The factory's management argues that their private costs of production are low, but city residents are suffering health issues and decreased property values due to the pollution. Given this scenario, which of the following actions should the local government take to align the factory's production with social welfare?
The government should tax the factory's pollution. Other options are incorrect because Offering money to the factory might seem good for jobs, but it ...
Arrange the following steps in the correct order to analyze the impact of a negative externality, such as pollution from copper production, on market efficiency: A) Identify the marginal private cost, B) Determine the marginal social cost, C) Assess the welfare loss, D) Propose a corrective measure such as a tax.
First, we find the marginal private cost, which is what producers pay. Other options are incorrect because This option starts with social costs, which...
Marginal social cost : Marginal private cost :: Efficient market outcome : ?
The socially optimal production level happens when the total costs to society match the benefits. Other options are incorrect because Some think marke...
Which of the following statements accurately describe the implications of externality graphs in economics? Select all that apply.
Other options are incorrect because This statement suggests that externality graphs only show a gap between private and social costs; Not all external...
A factory producing copper emits pollution that affects local residents' health. Which of the following categories best describes the situation in terms of externality graphs?
This situation shows a negative externality. Other options are incorrect because Some might think pollution helps society, but it actually harms peopl...
In an externality graph representing pollution, what does the area between the marginal private cost and marginal social cost curves represent?
The area shows the loss to society from pollution. Other options are incorrect because Some might think this area shows profit; This area does not sho...
If the production of copper leads to increased pollution, which of the following best explains the underlying cause of the negative externality depicted in the externality graph?
Producers often do not pay for the pollution they create. Other options are incorrect because This option suggests that people don't want copper; This...
In externality graphs, the gap between the marginal private cost (MPC) and the marginal social cost (MSC) represents the degree of _______ caused by the production, highlighting the need for government intervention to correct market failure.
The gap shows how much private costs differ from social costs. Other options are incorrect because Efficiency means using resources well; Surplus refe...
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