Econ Test 3

Which one is stranger? (2)

Bananas

A positive externality arises when two people (say buyer and seller) engage in an activity that has

a beneficial effect on a bystander.

A negative externality arises when two people (say, buyer and seller) engage in an activity that has

an adverse effect on a bystander.

Which one is stranger (1)

cigarettes

One economically efficient way to eliminate the Tragedy of the Commons (over consumption of common resources) is to

establish private ownership of the resource.

All the goods and services have some sort of positive or negative externality.

false

In the presence of externality, market produces a good or service at the socially optimal level.

false

Without government intervention 'public goods' will be produced and 'common resources' will be consumed at the socially optimal level.

false

Because public goods are

not excludable, people have an incentive to be free riders (offering no price). As a result, market does not get proper signal about how much it needs to produce. This is why market does not produce these goods and services, or produces much less than the amount required by the society

The overuse (over-consumption) of a 'common resource' is called

the Tragedy of the Commons.

Without government intervention, public goods tend to be

underproduced and common resources tend to be overconsumed