Question 1

Which of the following represents a way that a government can help the private market to internalize an externality?
A)taxing goods that have negative externalities
B)subsidizing goods that have positive externalities
C)The government cannot improve upon the outcomes of private markets.
D)Both a and b are correct.

Accepted Answer

By taxing goods that have negative externalities, the government can increase their costs and incentivize individuals to decrease consumption. By subsidizing goods that have positive externalities, the government can increase their benefits and incentivize individuals to increase consumption. These actions can help the private market to internalize the costs and benefits associated with externalities. It is important to note that while the government can improve the outcomes of private markets in some cases, there may be situations where intervention could worsen outcomes.

Question 2

Briefly explain how research into new technologies gives rise to a positive externality.

Accepted Answer

The answer of Briefly explain how research into new technologies...

Question 3

At any given quantity, the willingness to pay of the marginal buyer is the height of the __________.

Accepted Answer

The answer of At any given quantity, the willingness to...

Question 4

Which of the following is not correct?
A)Markets allocate scarce resources with the forces of supply and demand.
B)The equilibrium of supply and demand is typically an efficient allocation of resources.
C)Governments can sometimes improve market outcomes.
D)Externalities cannot be positive.

Accepted Answer

Externalities can be positive, negative or neutral.

Question 5

Does the phenomenon of externalities strengthen the argument that we should rely upon the "invisible hand" of the marketplace, or does it weaken that argument?

Accepted Answer

The answer of Does the phenomenon of externalities strengthen the...

Question 6

Scenario 10-2 The demand curve for restored historic buildings slopes downward and the supply curve for restored historic buildings slopes upward. The production of the 50S1U1P1thS1S1P0 restored historic building entails the following: • a private cost of $800,000; • a private value of $650,000; • a social value of $800,000. -Refer to Scenario 10-2. Is there an external cost associated with the restoration of the 50^th historic building, or is there an external benefit? What is the amount of that external cost or external benefit?

Accepted Answer

The answer of Scenario 10-2
The demand curve for restored historic...

Question 7

​Josiah installed a metal sculpture in his front yard. A negative externality arises if the sculpture
A)​increases the value of other properties in the neighborhood.
B)​decreases the value of Josiah's home.
C)​is visually appealing to Josiah's neighbors.
D)​creates a safety hazard for neighborhood children.

Accepted Answer

A negative externality arises when the sculpture creates negative effects on others who are not involved in the decision to install it. If the metal sculpture creates a safety hazard for neighborhood children, then it is imposing a negative externality on the neighborhood. Options A, B, and C do not create negative effects and are not considered negative externalities.

Question 8

Research into new technologies provides a
A)negative externality, and too few resources are devoted to research as a result.
B)negative externality, and too many resources are devoted to research as a result.
C)positive externality, and too few resources are devoted to research as a result.
D)positive externality, and too many resources are devoted to research as a result.

Accepted Answer

Research into new technologies provides positive externalities, as the benefits spill over to society as a whole beyond the individual or firm conducting the research. However, too few resources may be devoted to research as private firms may not capture all of the benefits (e.g. increased productivity, improved quality of life) that result from their research, leading to underinvestment. This is known as the "market failure" in research and development, which may require government intervention.

Question 9

Does research into new technologies create a positive externality or does it create a negative externality?

Accepted Answer

The answer of Does research into new technologies create a...

Question 10

Scenario 10-2
The demand curve for restored historic buildings slopes downward and the supply curve for restored historic buildings slopes upward. The production of the 50S1U1P1thS1S1P0 restored historic building entails the following:
• a private cost of $800,000;
• a private value of $650,000;
• a social value of $800,000.
-Refer to Scenario 10-2. Is the market equilibrium quantity of restored historic buildings less than, equal to, or greater than 50?

Accepted Answer

The answer of Scenario 10-2
The demand curve for restored historic...

Question 11

Bruce engages in an activity that diminishes the well-being of Shawna. Bruce pays no compensation to Shawna for her loss in well-being. What specific term do economists use to describe this situation?

Accepted Answer

The answer of Bruce engages in an activity that diminishes...

Question 12

​Josiah installed a metal sculpture in his front yard. A positive externality arises if the sculpture
A)​increases the value of other properties in the neighborhood.
B)​increases the value of Josiah's home.
C)​is visually unappealing to Josiah's neighbors.
D)​creates a safety hazard for neighborhood children.

Accepted Answer

A positive externality occurs when an action or decision creates benefits for third parties who are not directly involved in the action or decision. In this case, if Josiah's metal sculpture increases the value of other properties in the neighborhood, it is creating a positive externality.

Question 13

William engages in an activity that influences the well-being of a bystander. In which of the following instances does an externality arise?
A)The impact of William's activity on the bystander is adverse, and William compensates the bystander accordingly.
B)The impact of William's activity on the bystander is adverse, but William fails to compensate the bystander.
C)The impact of William's activity on the bystander is beneficial and the bystander compensates William accordingly.
D)Externalities arise in all of the above cases.

Accepted Answer

An externality arises when an activity of an individual or entity (such as a firm) has an impact on the well-being of a third-party bystander, and the individual/entity does not bear the full cost or receive the full benefit of that impact. In this case, William's activity has an adverse impact on the bystander, but William fails to compensate the bystander for that impact, therefore creating a negative externality. The other choices do not result in an externality, as in A William compensates the bystander, and in C the impact is beneficial and compensated for by the bystander.

Question 14

In a certain city, the local government regulates the destruction of historic buildings and provides tax breaks to owners of historic buildings who restore them. These government policies
A)reflect the fact that restored historic buildings convey a positive externality.
B)reflect the fact that the destruction of historic buildings conveys a positive externality.
C)are likely to worsen the market failure that is associated with historic buildings and the restoration of such buildings.
D)are likely to decrease the well-being of society as a whole.

Accepted Answer

The government policies of regulating the destruction of historic buildings and providing tax breaks to owners who restore them reflect the fact that restored historic buildings convey a positive externality. This means that the benefits of restoring historic buildings go beyond the private benefits enjoyed by individual property owners and spill over to the wider community. For example, restored historic buildings may enhance the aesthetic appeal of a neighborhood or city, create a sense of historical continuity, and attract tourism and business activity. Therefore, the government's policies aim to incentivize private property owners to undertake socially beneficial activities that they might not otherwise undertake due to the presence of a positive externality.

Question 15

Scenario 10-2
The demand curve for restored historic buildings slopes downward and the supply curve for restored historic buildings slopes upward. The production of the 50S1U1P1thS1S1P0 restored historic building entails the following:
• a private cost of $800,000;
• a private value of $650,000;
• a social value of $800,000.
-Refer to Scenario 10-2. Is there an externality associated with this market? If your answer is "Yes," is the externality positive or negative?

Accepted Answer

The answer of Scenario 10-2
The demand curve for restored historic...

Question 16

Does the restoration of historic buildings create a positive externality or does it create a negative externality?

Accepted Answer

The answer of Does the restoration of historic buildings create...

Question 17

Scenario 10-2
The demand curve for restored historic buildings slopes downward and the supply curve for restored historic buildings slopes upward. The production of the 50S1U1P1thS1S1P0 restored historic building entails the following:
• a private cost of $800,000;
• a private value of $650,000;
• a social value of $800,000.
-Refer to Scenario 10-2. Is the socially optimal quantity of restored historic buildings less than, equal to, or greater than 50?

Accepted Answer

The answer of Scenario 10-2
The demand curve for restored historic...

Question 18

At any given quantity, the cost of the marginal seller is the height of the __________.

Accepted Answer

The answer of At any given quantity, the cost of...

Question 19

Sheryl sits on her patio and plays her guitar while her neighbors are outside. Sheryl neither pays nor receives any compensation for playing her guitar. Under what condition does her guitar-playing give rise to a positive externality?

Accepted Answer

The answer of Sheryl sits on her patio and plays...

Question 20

Scenario 10-2
The demand curve for restored historic buildings slopes downward and the supply curve for restored historic buildings slopes upward. The production of the 50S1U1P1thS1S1P0 restored historic building entails the following:
• a private cost of $800,000;
• a private value of $650,000;
• a social value of $800,000.
-Refer to Scenario 10-2. Could the government impose a tax or provide a subsidy to move the market to the social optimum? If your answer is "Yes," should it be a tax or should it be a subsidy?

Accepted Answer

The answer of Scenario 10-2
The demand curve for restored historic...

Quiz 10: Externalities

Which of the following represents a way that a government can help the private market to internalize an externality?

Briefly explain how research into new technologies gives rise to a positive externality.

At any given quantity, the willingness to pay of the marginal buyer is the height of the __________.

Which of the following is not correct?

Does the phenomenon of externalities strengthen the argument that we should rely upon the "invisible hand" of the marketplace, or does it weaken that argument?

​Josiah installed a metal sculpture in his front yard. A negative externality arises if the sculpture

Research into new technologies provides a

Does research into new technologies create a positive externality or does it create a negative externality?

Bruce engages in an activity that diminishes the well-being of Shawna. Bruce pays no compensation to Shawna for her loss in well-being. What specific term do economists use to describe this situation?

​Josiah installed a metal sculpture in his front yard. A positive externality arises if the sculpture

William engages in an activity that influences the well-being of a bystander. In which of the following instances does an externality arise?

In a certain city, the local government regulates the destruction of historic buildings and provides tax breaks to owners of historic buildings who restore them. These government policies

Does the restoration of historic buildings create a positive externality or does it create a negative externality?

At any given quantity, the cost of the marginal seller is the height of the __________.

Sheryl sits on her patio and plays her guitar while her neighbors are outside. Sheryl neither pays nor receives any compensation for playing her guitar. Under what condition does her guitar-playing give rise to a positive externality?

Josiah installed a metal sculpture in his front yard. A negative externality arises if the sculpture

Josiah installed a metal sculpture in his front yard. A positive externality arises if the sculpture