AP Micro: Externalities

Front

When consumption of a good generates a positive externality, which of the following must be true at the market equilibrium? Options: Marginal social benefit is less than marginal private cost., Marginal social benefit is greater than marginal private benefit., Marginal social cost is greater than marginal social benefit., Marginal social cost is less than marginal private benefit.

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Marginal social benefit is greater than marginal private benefit.

Front

If the production of a good generates a negative externality, which of the following is true at the private market equilibrium? Options: The private market equilibrium quantity is equal to the socially optimal quantity. The marginal private cost is greater than the marginal social cost. The price of the product equals the marginal social cost. The private market equilibrium quantity is greater than the socially optimal quantity.

Back

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

Front

Refer to the image. The socially optimal quantity and the per-unit tax that will achieve the socially optimal quantity are which of the following? Quantity = Q1, Tax = P4-P2; Quantity = Q2, Tax = P3-P2; Quantity = Q2, Tax = P3-P1; Quantity = Q3, Tax = P4-P2

Back

Quantity = Q2; Tax = P3-P1

Front

Given the position of the marginal social cost curve, one can conclude that the:

Back

production of good X creates a negative externality

Front

Which of the following best represents a positive externality? Purchasing a pass for an amusement park, Being disturbed by neighboring construction noise, Dumping waste on someone else’s property, Enjoying watching birds at a neighbor’s bird feeder

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Enjoying watching birds at a neighbor’s bird feeder

Front

If the production of a good generates a positive externality, the government can increase allocative efficiency by:

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subsidizing the producer of the good

Front

The difference between what consumers are willing to pay for units of a good and the price consumers actually pay for units of the good is called:

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consumer surplus

Front

Which of the following is true when there are negative externalities associated with the production of a good? Options: The market will adjust automatically to equate marginal social costs and marginal social benefits., Marginal social costs will exceed marginal private costs unless businesses are forced to internalize the external costs., Marginal private costs will exceed marginal social costs, but the government can correct the problem., Producers should be subsidized so that they will produce more of the good.

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

Front

If the production of good X creates a positive externality, then from society’s perspective, the industry that produces good X tends to produce:

Back

less than the socially optimal amount of good X

Front

Which of the following is true based on the graph shown? Options: Quantity of education in the private market is more than the socially optimal quantity, Producers of education could be taxed in order to achieve the socially optimal quantity, Consumption of education has a negative externality, Consumers of education could be subsidized in order to achieve the socially optimal quantity

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Consumers of education could be subsidized in order to achieve the socially optimal quantity