Question 1

Albert and Betty hire Christine and David to play music at their wedding. Elizabeth, who lives behind the church, cannot study because of the loud music. The third party is:

Accepted Answer

Elizabeth is the third party affected by the loud music, as she is unable to study due to the noise. The other four individuals are directly involved in the hiring and performance of the musicians at the wedding.

Question 2

When there is a positive externality associated with the watering of one's lawn, the free market results in:

Accepted Answer

When there is a positive externality, the free market typically underprovides the good or service because individuals do not account for the external benefits to others, leading to less than the socially optimal level of the activity.

Question 3

A third party is a person, or persons, who:

Accepted Answer

A third party is typically someone who is affected by the actions or transactions of others, often without their consent or involvement, such as being impacted by externalities.

Question 4

A community in a Southeastern state passed a beautification ordinance (law) prohibiting the placement of indoor furniture outside of homes (i.e., no couches on the porch). The law represents a conflict between ____ and ____.

Accepted Answer

The answer of A community in a Southeastern state passed...

Question 5

One method of correcting for ____ externalities is to create a ____ to make sure the market accounts for all costs and benefits.

Accepted Answer

The answer of One method of correcting for ____ externalities...

Question 6

Albert, Betty, Christine and David are all very good students. When they hold their study sessions, they often discuss very difficult concepts in great detail. Christine's roommate, Elizabeth, who takes completely different classes, still learns from the discussions of the others. This is the case of a(n) ____, which ____ a ____.

Accepted Answer

Externalities occur when the actions of one party affect the well-being of another party without compensation. In this case, the discussions of Albert, Betty, Christine, and David benefit Elizabeth, who is not directly involved in their study sessions. This is an example of a positive externality, where the actions of one party benefit a third party.

Question 7

The existence of an externality is proof that there is a(n):

Accepted Answer

An externality occurs when the actions of one economic agent affect the well-being of another agent without any compensation or payment for that effect. This leads to a market failure as the market is unable to efficiently allocate resources to their highest valued uses. Therefore, the correct answer is A - market failure.

Question 8

Which of the following statements is not true?

Accepted Answer

The answer of Which of the following statements is not...

Question 9

When there are positive externalities associated with the consumption of a good, we can expect the market:

Accepted Answer

When there are positive externalities, the social demand curve is higher than the market demand curve because the social benefits exceed the private benefits.

Question 10

Voluntary recycling is available in many parts of the country. If citizens of these areas have collected recyclable material at home, they can bring it to a recycling center. These materials reduce landfill space, reduce the need for virgin material extraction, and provide an inexpensive input in many production processes. The information in this question suggests what about areas without voluntary recycling?

Accepted Answer

The answer of Voluntary recycling is available in many parts...

Question 11

Most economists believe that there are positive externalities in education. One can conclude that a free market would fail to give the socially optimal outcome because the equilibrium:

Accepted Answer

The answer of Most economists believe that there are positive...

Question 12

Much of the nation's coal is extracted by strip mining. This process leaves a huge barren hole in the ground when complete, and the cost of replanting the trees is approximately $10 per ton of coal. Burning the coal for electricity causes air pollution. No one knows how much damage the air pollution causes, but we know that for another $10 per ton the power plant can be outfitted with a pollution control device. What is one measure of the true social cost of coal fired electricity, in dollars per ton?

Accepted Answer

The true social cost of coal-fired electricity should include both the private marginal cost and external costs, such as the cost of replanting and pollution control. Therefore, the best choice is D, which adds the $20 of replanting and emission control charges to the private marginal cost. The other choices either ignore the cost of pollution or only include one of the external costs. Without knowing the dollar value of pollution, we cannot accurately calculate the true social cost of coal-fired electricity.

Question 13

Which of the following are not methods of dealing with externalities?

Accepted Answer

Relying on voluntary compliance is not a method of dealing with externalities as it involves leaving it up to individual firms and individuals to choose to act in an environmentally responsible way. This approach is often ineffective as firms may prioritize profit over environmental concerns. The other three options (taxing polluting industries, creating legal standards, and increasing public spending on cleanup/reduction) are all methods of dealing with externalities.

Question 14

When airplanes take off and land at Logan airport, residents of East Boston complain about the noise. The same planes make the same noise during the trip to Boston from Paris, but there are no ____ for most of the trip because ____.

Accepted Answer

The noise made by airplanes is an externality, which is a cost or benefit that is imposed on a third party who has no control over how much of the cost or benefit they receive. During the trip from Paris to Boston, there are no third parties who are affected by the noise, so there are no externalities. Therefore, there are no complaints from residents about airplane noise during the flight.

Question 15

Denise is thinking about setting up a butterfly garden in her backyard. She estimates that it will cost her $2,000 to purchase and install special plants and an irrigation system to attract butterflies. The benefit she expects to receive is $1,800. In addition, neighbor Billy will receive a benefit of $150 and neighbor Sammy will receive a benefit of $100. From this, we can conclude that:

Accepted Answer

This scenario is an example of a positive externality, where the benefits of Denise's butterfly garden extend beyond just her. Billy and Sammy receive benefits without paying for them. However, this does not necessarily make butterflies a negative externality for them. 
Since Denise will receive a net benefit from setting up the garden, she will likely proceed with it. If Billy and Sammy contribute the amounts they value the garden, it will be more likely for Denise to set it up as it will cover more of the costs. However, if they refuse to contribute, Denise may still set up the garden if she is willing to bear the additional costs. Therefore, the best choice is E.

Question 16

Nonsmoking sections in restaurants are designed to remove ____ from a market ____.

Accepted Answer

Nonsmoking sections in restaurants are designed to remove the negative externality (smoke) from the market that affects third parties (nonsmokers) who are not involved in the transaction between the smoker and the restaurant.

Question 17

Suppose the government imposes a per unit tax on an item whose production process creates a negative externality. Suppose the tax is exactly the value of the marginal externality cost. If the government now uses the tax revenue to clean up pollution from this process, the market will:

Accepted Answer

By imposing a tax equal to the marginal externality cost and using the revenue to clean up pollution, the government is effectively incentivizing producers to internalize the cost of the negative externality. This means that the market will now take into account all costs and benefits, leading to an efficient outcome.

Question 18

There are apartments in Chicago whose rooftops overlook Wrigley Field. On game day you can find free riders on the roof enjoying ____.

Accepted Answer

The activity on the rooftop is an externality because it is a side effect of the game day activity at Wrigley Field and affects the individuals on the rooftop. The rooftop dwellers are not paying for the benefits or costs of the game, and the fans at the stadium are not paying for the views from the rooftop apartments.

Question 19

An externality is an unintended ____ imposed on ____ as a result of the ____.

Accepted Answer

The answer of An externality is an unintended ____ imposed...

Question 20

Externalities are unintended costs or benefits that are imposed on unsuspecting people and that result from:

Accepted Answer

Externalities refer to the costs or benefits of economic activities that are imposed on parties that did not choose to incur them. These parties may be individuals or even the environment. As such, externalities arise from the economic activity of others.

Quiz 4: Markets in Action

Albert and Betty hire Christine and David to play music at their wedding. Elizabeth, who lives behind the church, cannot study because of the loud music. The third party is:

When there is a positive externality associated with the watering of one's lawn, the free market results in:

A third party is a person, or persons, who:

A community in a Southeastern state passed a beautification ordinance (law) prohibiting the placement of indoor furniture outside of homes (i.e., no couches on the porch) . The law represents a conflict between and .

One method of correcting for externalities is to create a to make sure the market accounts for all costs and benefits.

The existence of an externality is proof that there is a(n) :

Which of the following statements is not true?

When there are positive externalities associated with the consumption of a good, we can expect the market:

Most economists believe that there are positive externalities in education. One can conclude that a free market would fail to give the socially optimal outcome because the equilibrium:

Which of the following are not methods of dealing with externalities?

When airplanes take off and land at Logan airport, residents of East Boston complain about the noise. The same planes make the same noise during the trip to Boston from Paris, but there are no for most of the trip because .

Nonsmoking sections in restaurants are designed to remove from a market .

Suppose the government imposes a per unit tax on an item whose production process creates a negative externality. Suppose the tax is exactly the value of the marginal externality cost. If the government now uses the tax revenue to clean up pollution from this process, the market will:

There are apartments in Chicago whose rooftops overlook Wrigley Field. On game day you can find free riders on the roof enjoying ____.

An externality is an unintended imposed on as a result of the .

Externalities are unintended costs or benefits that are imposed on unsuspecting people and that result from:

Quiz 4: Markets in Action

Albert and Betty hire Christine and David to play music at their wedding. Elizabeth, who lives behind the church, cannot study because of the loud music. The third party is:

When there is a positive externality associated with the watering of one's lawn, the free market results in:

A third party is a person, or persons, who:

A community in a Southeastern state passed a beautification ordinance (law) prohibiting the placement of indoor furniture outside of homes (i.e., no couches on the porch) . The law represents a conflict between ____ and ____.

One method of correcting for ____ externalities is to create a ____ to make sure the market accounts for all costs and benefits.

The existence of an externality is proof that there is a(n) :

Which of the following statements is not true?

When there are positive externalities associated with the consumption of a good, we can expect the market:

Most economists believe that there are positive externalities in education. One can conclude that a free market would fail to give the socially optimal outcome because the equilibrium:

Which of the following are not methods of dealing with externalities?

When airplanes take off and land at Logan airport, residents of East Boston complain about the noise. The same planes make the same noise during the trip to Boston from Paris, but there are no ____ for most of the trip because ____.

Nonsmoking sections in restaurants are designed to remove ____ from a market ____.

Suppose the government imposes a per unit tax on an item whose production process creates a negative externality. Suppose the tax is exactly the value of the marginal externality cost. If the government now uses the tax revenue to clean up pollution from this process, the market will:

There are apartments in Chicago whose rooftops overlook Wrigley Field. On game day you can find free riders on the roof enjoying ____.

An externality is an unintended ____ imposed on ____ as a result of the ____.

Externalities are unintended costs or benefits that are imposed on unsuspecting people and that result from:

A community in a Southeastern state passed a beautification ordinance (law) prohibiting the placement of indoor furniture outside of homes (i.e., no couches on the porch) . The law represents a conflict between and .

One method of correcting for externalities is to create a to make sure the market accounts for all costs and benefits.

When airplanes take off and land at Logan airport, residents of East Boston complain about the noise. The same planes make the same noise during the trip to Boston from Paris, but there are no for most of the trip because .

Nonsmoking sections in restaurants are designed to remove from a market .

An externality is an unintended imposed on as a result of the .