Question 1

A negative externality occurs when marginal social costs exceed marginal private costs.

Accepted Answer

This is the definition of a negative externality, where the costs of a decision or action are imposed on individuals or society as a whole, beyond the individual or private costs incurred by the decision maker.

Question 2

A negative global externality occurs when one country does research and others benefit.

Accepted Answer

A negative global externality occurs when the actions of one country have adverse effects on other countries, not when others benefit. Research that benefits other countries would be considered a positive global externality.

Question 3

Marginal external benefit equals

Accepted Answer

Marginal external benefit is the additional benefit received by individuals outside of the market transaction. It is calculated by subtracting the marginal private benefit from the marginal social benefit. Therefore, the correct option is B) marginal social benefit minus marginal private benefit.

Question 4

When the external benefits in a market are taken into account, the good's price is higher and the amount bought and sold is greater.

Accepted Answer

When external benefits are considered, the social value of the good is higher than its private value. This leads to a higher market price and quantity exchanged, as more people are willing to pay the higher price with the added benefit.

Question 5

An example of an international negative externality is when

Accepted Answer

The U.S. firm causing acid rain that falls in Canada is an example of an international negative externality because the pollution created in one country has negative effects on individuals or businesses in another country.

Question 6

The private market is said to underproduce a good that causes a negative externality.

Accepted Answer

The private market tends to overproduce goods that cause negative externalality, as it does not account for the external costs imposed on society.

Question 7

Education

Accepted Answer

Education provides a positive externality because it benefits not only the individual receiving the education but also society as a whole, through higher levels of productivity, better health outcomes, and more informed citizenship.

Question 8

Which of the following is least likely to involve a positive externality?

Accepted Answer

A can of soda is unlikely to involve a positive externality as it is a private good that only provides direct benefits to the consumer who purchased it. In contrast, research, universities, interstate highways, and hospitals all have the potential to create positive externalities by providing benefits to society beyond the individuals who directly use or fund them.

Question 9

Externalities have become international in recent years, paralleling the growth of international trade and finance.

Accepted Answer

Externalities are the costs or benefits that affect individuals or groups who are not directly involved in the production or consumption of a good or service. In recent years, with the growth of international trade and finance, externalities have become international in the sense that they can have effects across borders and on a global scale. For example, pollution from one country can affect the health and well-being of people in another country.

Question 10

Explain why, in the case of negative externalities, a competitive market produces a greater-than-economically-efficient quantity.

Accepted Answer

The answer of Explain why, in the case of negative...

Question 11

When a positive externality exists, the equilibrium quantity that emerges from a competitive market is

Accepted Answer

In the presence of a positive externality, the marginal social benefit (MSB) is greater than the private marginal benefit (MPB) of consumers. This means that the demand curve does not fully reflect the value of the externality and so the quantity demanded at the market price is below the socially optimum level. Therefore, the equilibrium quantity is too low.

Question 12

In the case of negative externalities, a competitive market may not generate an efficient amount of production.

Accepted Answer

In the presence of negative externalities, the market fails to take into account the full social cost of production, resulting in overproduction and an inefficient allocation of resources.

Question 13

Suppose that the production of a good causes positive externalities. What will happen if the good is produced at the level at which the marginal private benefit curve meets the supply curve?

Accepted Answer

When a good causes positive externalities, the social benefit curve is above the marginal private benefit curve. Therefore, the production level at which the marginal private benefit curve meets the supply curve is lower than the socially desirable production level. Producing at this level results in a net social benefit as the external benefits are not accounted for in the market price, and society gains from the additional benefits.

Question 14

The marginal benefit from consumption of a good as viewed by a private individual is called marginal

Accepted Answer

Marginal private benefit refers to the benefit a private individual receives from consuming an additional unit of a good. It does not take into account any external benefits or costs that may be incurred by society as a whole.

Question 15

A positive externality occurs when the marginal social benefits are less than the marginal private benefits.

Accepted Answer

A positive externality occurs when the marginal social benefits are greater than the marginal private benefits.

Question 16

If output is produced at the level at which the marginal social benefit curve and the supply curve intersect, then

Accepted Answer

At the intersection of the marginal social benefit curve and the supply curve, the marginal social benefit equals the marginal social cost. This means that producing the output level at this point results in maximum social welfare and is considered socially desirable.

Question 17

A positive externality occurs when one person's activity makes another person better off.

Accepted Answer

A positive externality is a benefit that a person or a group of people receive as a result of the actions of another person or group, without paying for it. For example, a well-maintained garden in a neighbourhood can improve the property values of nearby houses, benefitting their owners even though they did not contribute to the upkeep of the garden.

Question 18

A positive externality raises

Accepted Answer

A positive externality means that there are benefits to society outside of what the individual or firm experiences. This means that the marginal social benefits are higher than the marginal private benefits, as society as a whole benefits from the positive externality.

Question 19

Marginal social cost equals the sum of marginal costs of producers.

Accepted Answer

Marginal social cost includes the marginal private cost of production as well as any external costs or negative externalities imposed on society. Therefore, the marginal social cost is typically greater than the sum of marginal costs of producers.

Question 20

Marginal private cost refers to the marginal cost of production as viewed by society as a whole.

Accepted Answer

Marginal private cost refers to the marginal cost of production as viewed by the individual firm or producer, not society as a whole.

Quiz 15: Public Goods, Externalities, and Government Behavior