Chapter 5/6 Economics Exam Questions
Government can correct for negative externalities by
Increasing taxes or regulation.
Refer to the above figures. Prior to the shift of the curves, which panel and which curve involve the existence of negative externality?
Panel 1 and S1
Market failures
Prevent the price system from attaining economic efficiency
Suppose that one firm produces a product that results in negative external costs to society. This information suggests that
Resources are over-allocated to the firm.
Markets tend to under-allocate resources to the production of a good when
There are positive externalities.
When the price system fails to generate an efficient allocation of resources
Too few or too many goods will be produced.
A negative externality is a situation in which
A cost associated with an economic activity is borne by a third party.
A situation in which a benefit or a cost associated with an economic activity spills over to third parties is called
An externality.
Pollution is caused by a market failure, in an industry in which there is
An over-allocation of resources in production.
Market failure occurs when
An unrestrained market economy leads to too few or too many resources going to a specific economic activity.
Which of the following leads to an under-allocation of resources to a specific economic activity?
External benefits.
Which of the following often involves positive external benefits?
Inoculation programs.
Unit excise taxes imposed on gasoline, alcohol, and cigarettes are
Largely paid by consumers because they are not very responsive to price changes.
The imposition of a unit excise tax on beer will
Lower equilibrium quantity and raise equilibrium price in the market.
FullSizeRender.jpg Refer to the above figures. Which of the panels would be consistent with the situation in which external benefits exist?
Panel 2.
IMG_8422.jpg According to the above figure, if steel mills ignore the cost of pollution, the equilibrium quantity of steel will most likely be
Q1.
According to the above figure, then the supply curve will
Shift from S1 to S2.
Assume the production of a good gives rise to external benefits. The government may increase efficiency by
Subsidizing consumption of the good.
When market failures occur
The government can step in to correct the market failure.
The price system allocates resources efficiently except when
The production of a good effects parties other than its buyers and sellers.