Externalities

Market failure is said to occur whenever

• . private markets do not allocate resources in the way that best satisfies society's wants

• prices rise

• some consumers who want a good do not obtain it because the price is higher than they are willing to pay

• government intervenes in the functioning of private markets

A positive externality or spillover benefit occurs when

• product differentiation increases the variety of products available to consumers

• the benefits associated with a product exceed those accruing to people who consume it

• a firm produces at the P = MC output

• economic profits are zero in the long run

A negative externality or spillover cost occurs when

• firms fail to achieve allocative efficiency

• firms fail to achieve productive efficiency

• price exceeds marginal cost

• the total cost of producing a good exceeds the costs borne by the producer

The market should produce the quantity where?

• Marginal social cost equals marginal social benefit

• Marginal private cost equals marginal social benefit

• external cost equals external benefit

• Private cost is greater than social cost

Economists do not like externalities, because it means the market is ?

• not operating efficiently

• being efficient

• allocating resources correctly

• operating where supply equals demand

A negative externality indicates that a good or service is being:

• over produced

• underproduced

The graph of a negative externality will have:

• 2 supply curves

• 2 demand curves

When a negative externality is present:

• firms overproduce because they don't face true costs of production

• underproduce because they don't face true costs of production

Which is an example of a negative externality

• firm dumping garbage into the river

• free flu shots

• you cut yourself with knife you purchased

• your tree falls on your house

Marginal Social Cost minus Marginal Private Cost equals?

• internal cost

• external cost

• marginal cost

• marginal revenue