Micro

Which of the following best represents a positive externality?

Enjoying watching birds at a neighbor's bird feeder

Which of the following is true when there are negative externalities associated with the production of a good?

Marginal social costs will exceed marginal private costs unless businesses are forced to internalize the external costs.

Which of the following is the best example of a negative externality?

Oil leakages from drilling platforms in the Gulf of Mexico

If an industry ignores the external costs it generates in its production, which of the following will be true at the competitive market equilibrium output?

Price will be less than the marginal social cost.

If the production of a good generates a negative externality, which of the following is true at the private market equilibrium?

The private market equilibrium quantity is greater than the socially optimal quantity.

Which of the following is true when the production of a good results in negative externalities?

The private market price will be too low.

An industry will produce more than the socially efficient level of output under which of the following conditions?

The production or consumption of a good generates a negative externality.

There are negative externalities associated with the use of a freeway in a major city at rush hour because during this time

drivers slow down other drivers because of the high traffic volume

Good X is produced in a perfectly competitive industry in long-run equilibrium. If the consumption of good X generates positive externalities, the private market will produce

less than the socially optimum amount of good X

Assume the demand curve for a good is perfectly inelastic and the production of each unit of this good generates external costs. A profit-maximizing firm producing the good in an unregulated free market will

not generate deadweight loss because the equilibrium quantity is socially optimal

To correct for positive externalities, the government should

pay a subsidy equal to the marginal external benefit

Whenever the production of a good creates negative externalities, an unregulated market will result in

society's marginal cost being higher than the firm's marginal cost

Social Optimal Level

where the marginal benefit is greater than marginal cost.