Quiz 7.2

An externality is NOT: a price change. an unintended impact on bystanders. positive or negative. a side effect.

A

Which of the following is an example of a negative externality? When Fazio parks his big truck at the grocery store, people in the cars on each side of his parking space have a hard time opening their car doors. Raul loses weight because he wants to feel better, but the weight loss means that he needs new clothes. Rita gains weight while she is on vacation because she eats more than normal. Bae's company has a decrease in profits when the demand for its product falls.

A

Which of the following statements supports the idea that price changes are not externalities? A price change redistributes costs and benefits but does not generate new costs or benefits. A drop in price is a clear signal that the market was negatively impacting buyers. A change in price adversely affects all suppliers in the market. Prices are a side effect of decisions making.

A

What is the net effect of a negative externality? It decreases both producer and consumer surpluses. only producer surplus. only consumer surplus. the market equilibrium output.

A

A negative externality exists when ________ exceed ________

social costs, private costs

Externalities tend to occur because decision makers consider _____ and do NOT consider _____. the welfare of others; their own welfare their own costs and benefits; the effects of their actions on others their own needs as most important; the fact that others also have needs their own income as limitless; their income as limited

B

Why are externalities considered a cause of market failure? Because they make markets so competitive that profits disappear. Because they lead to suboptimal outcomes. Because they always cause a net loss in welfare. Because decision makers become overly concerned about the impact of their actions on bystanders.

B

A market with negative externalities will tend to _____ compared to a market producing the socially optimal output. overproduce and sell at a higher price underproduce and sell at a lower price underproduce and sell at a higher price overproduce and sell at a lower price

D

A negative externality is: a change from a positive relationship between two variables to an inverse relationship. an unintended consequence of an action that harms the decision maker. a reduction in demand that occurs when agents outside a market influence market participants. a side effect of an activity when the side effect harms bystanders.

D

When externalities are present, the socially optimal outcome occurs where the _____ benefit equals the _____ cost. total social; total social marginal external; marginal external total external; total external marginal social; marginal social

D