10.11 Economics & SocSci

Which of the following goods is MOST likely to produce externalities?

• heating

• trams

• education

• electricity

Answer explanation

Education is likely to produce externalities because it benefits society beyond the individual receiving it, such as increased civic participation and reduced crime, unlike the other options which primarily affect the user.

What change occurs if a market internalizes a negative externality?

• lower price, lower quantity

• lower price, higher quantity

• higher price, higher quantity

• higher price, lower quantity

Answer explanation

When a market internalizes a negative externality, it raises the price to reflect the true cost of production, leading to a decrease in quantity supplied. Thus, the correct change is higher price, lower quantity.

Which of the following externalities would be MOST effectively managed with a quota?

• unquantifiable effects

• sociopolitical implications

• positive welfare outcomes

• negative effects

Answer explanation

Quotas are effective for managing unquantifiable effects by setting limits on activities that produce these effects, allowing for better control and assessment compared to sociopolitical implications, positive welfare outcomes, or negative effects.

Which of the following conditions does the Coase Theorem require?

• a functional government

• comparative advantage

• diminishing marginal returns

• clearly defined property rights

Answer explanation

The Coase Theorem requires clearly defined property rights to ensure that parties can negotiate and resolve externalities efficiently without government intervention.

What shift occurs if a market internalizes a positive externality?

• upwards shift of supply curve

• upwards shift of demand curve

• ambiguous shift of demand and supply curves

• downwards shift of demand curve

Answer explanation

When a market internalizes a positive externality, it recognizes the additional benefits to society, leading to an increased willingness to pay. This results in an upwards shift of the demand curve.

Which of the following statements is NOT true of negative externalities?

• The optimal level of production can be zero.

• They are extremely rare.

• They increase overall welfare.

• They result in too little production.

Answer explanation

Negative externalities decrease overall welfare, as they impose costs on third parties not involved in the transaction. Therefore, the statement 'They increase overall welfare' is NOT true.

Which of the following phenomena exemplifies negative externalities?

• personal dietary choices

• infant vaccination

• government taxation

• water pollution

Answer explanation

Water pollution exemplifies negative externalities as it imposes costs on society and the environment that are not reflected in the market price, affecting the health and well-being of others without compensation.

Which of the following goods is a common resource?

• websites

• tornado siren

• haircuts

• city streets

Answer explanation

City streets are a common resource because they are available for public use without exclusion, allowing everyone to access them freely, unlike the other options which are either private or not universally accessible.

What type of good is at greatest risk of overconsumption?

• common resource

• public good

• excludable good

• collective good

Answer explanation

Common resources, like fisheries or forests, are non-excludable and rivalrous, leading to overconsumption as individuals exploit them without considering the collective impact. This makes them the most at risk of depletion.

Which of the following goods is least rival?

• gasoline

• a share-size bag of chips

• a news website

• radio broadcasts

Answer explanation

Radio broadcasts are least rival because they can be consumed by many people simultaneously without diminishing the availability for others, unlike gasoline or chips, which are limited in quantity.