Practice Questions
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What is a negative externality and how does it lead to market failure?
A negative externality happens when someone else pays a cost for something you do. Other options are incorrect because This answer confuses demand and...
How does pollution as a negative externality affect market efficiency according to economic theory?
Pollution is a cost that businesses do not pay for. Other options are incorrect because Some might think pollution helps by lowering costs for compani...
How do corrective taxes help address negative externalities in a market economy according to economic theory?
Corrective taxes make companies pay for the harm they cause. Other options are incorrect because Some might think these taxes boost demand; It's a com...
How does government intervention aim to correct negative externalities like pollution in a market economy?
Governments can charge taxes on companies that pollute. Other options are incorrect because Some think giving money to companies will help them produc...
In the context of negative externalities, how might regulations influence private incentives according to behavioral economics?
Regulations can change how people act. Other options are incorrect because Some might think regulations lower costs, but they often add rules that cha...
What is a negative externality in the context of market efficiency?
A negative externality happens when someone not involved in a deal suffers a cost. Other options are incorrect because This option confuses benefits w...
What is a negative externality, and how does it affect market efficiency?
A negative externality happens when someone suffers a cost without choosing it. Other options are incorrect because This option confuses benefits with...
What is the impact of negative externalities on social welfare in a market economy?
Negative externalities hurt social welfare. Other options are incorrect because Some might think negative externalities create jobs; It's a common bel...
Arrange the following steps to illustrate the process of addressing negative externalities in a market: A) Identify the external cost, B) Adjust market prices to reflect social costs, C) Achieve socially optimal production level, D) Implement regulations or taxes to reduce pollution.
First, we find the external cost, like pollution. Other options are incorrect because This order suggests we should implement taxes before identifying...
Negative externalities in production:Market efficiency :: Pollution from a factory:?
Pollution from a factory is a cost that affects people who are not involved in the production. Other options are incorrect because Some might think th...
A local factory produces goods but also releases waste into a nearby river, affecting the water quality for the community. Given this scenario, which of the following best describes the impact of this factory's production on market efficiency?
The factory's production is not efficient. Other options are incorrect because Some might think that making money means being efficient; It's easy to ...
A factory producing copper is discharging waste into a river, affecting local wildlife and residents. Classify the following implications of this behavior into the appropriate category: A) The factory's production level is socially optimal. B) The market price of copper reflects all societal costs. C) Local residents experience negative externalities from the factory's operations. D) The factory's profits will increase due to lower production costs. Which statement correctly identifies an implication of negative externalities?
Local residents are harmed by the factory's waste. Other options are incorrect because Some might think the factory is doing fine; People may believe ...
In the context of negative externalities, the point at which the marginal social cost equals the marginal social benefit is referred to as the __________ level of production, which is crucial for achieving market efficiency.
This term means that the total benefits to society match the total costs. Other options are incorrect because This term focuses only on individual ben...
Which of the following statements accurately describe the implications of negative externalities on market efficiency? Select all that apply.
All the statements provided misunderstand how negative externalities affect the market. Other options are incorrect because This option suggests that ...
A factory emits pollution affecting local communities. How should this negative externality impact the factory's production decisions to achieve market efficiency?
The factory should cut back on how much it makes. Other options are incorrect because Some might think making more products means more money; Ignoring...
If the production of copper leads to pollution that affects local water quality, what underlying cause contributes to the market failure observed in this scenario?
The market price of copper does not include the costs of pollution. Other options are incorrect because This suggests that the costs of making copper ...
In the context of negative externalities, why is it important for the market to account for social costs?
When the market includes social costs, it shows the true price of goods. Other options are incorrect because Some might think lower prices are better ...
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