Economic Concepts and Externalities

What is the primary characteristic of a "free rider" in economics?

• Someone who pays more than their fair share for a public good.

• Someone who benefits from a good or service without contributing to its cost.

• Someone who exclusively produces a public good.

• Someone who is excluded from a public good due to non-payment.

Which of the following characteristics defines a public good?

• It is excludable and rivalrous.

• It is non-excludable and rivalrous.

• It is excludable and non-rivalrous.

• It is non-excludable and non-rivalrous.

What economic concept describes the depletion of a shared resource due to individuals acting in their own self-interest, despite knowing it's against the group's long-term interest?

• Market equilibrium

• Tragedy of the Commons

• Supply and demand

• Comparative advantage

When the production or consumption of a good or service impacts a third party not directly involved in the transaction, this is known as a(n):

• Internal cost

• Market surplus

• Externality

• Public good

What is the main reason governments intervene in economic markets?

• Externalities are the primary justification for government intervention in the economy.

• Government intervention is primarily driven by the need to control monopolies.

• The free market is always capable of self-correction without government involvement.

• Politicians only intervene in markets to increase their personal wealth.

Which statement best describes regulatory policies used by governments to address externalities?

• They involve manipulating prices and incentives to correct market failures.

• They are primarily used to fund public education and infrastructure projects.

• They are rules established by government decree to control economic activities.

• They focus on voluntary agreements between private parties to resolve issues.

What is the primary characteristic of market-based policies designed to solve externalities?

• They involve direct government control over production quotas.

• They manipulate markets, prices, and incentives to correct market failures.

• They are policies that ban certain products or activities outright.

• They focus on providing free goods and services to all citizens.

How does a cap-and-trade program work to reduce pollution?

• It involves the government directly purchasing all polluting industries.

• It sets a fixed price for pollution, which companies must pay regardless of emissions.

• It allows companies to pollute as much as they want, as long as they pay a fine.

• It issues pollution permits that can be bought and sold, creating an incentive to reduce emissions.