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WorksheetsNegative Externalities and Common Pool Resources
Total questions: 20
Worksheet time: 21mins
Society achieves allocative efficiency when
marginal social benefits > marginal social costs
marginal social benefits < marginal social costs
marginal social benefits = marginal social costs
marginal private benefits = marginal private costs
An externality is present when
there is an efficient allocation of resources
the economy reaches an equilibrium where MSB = MSC
activities of producers and consumers prevent the economy from reaching an equilibrium
activities of producers and consumers affect the well-being of third parties whose interests are not taken into account
A negative externality arising from the production of good Z leads to
an overallocation of resources to the production and consumption of good Z
an underallocation of resources to the production and consumption of good Z
higher costs of production for good Z
lower demand for good Z
Negative production externalities due to the use of fossil fuels arise because
the private costs of production are greater than the social costs
environmental regulations are strongly enforced
firms are not aware of environmental regulations
firms ignore the costs they impose on bystanders
Market-based policies to reduce the external costs arising from the use of fossil fuels do not include
tradable permits
carbon taxes
direct taxes
collective self-governance
The use of cars usually leads to _____________________ because _____________________.
negative production externalities / MSC < MPC
negative consumption externalities / MSC > MPC
positive consumption externalities / MSB > MPB
negative consumption externalities / MPB > MSB
Demerit goods are often _____________________ due to _____________________.
non-excludable / their high prices
underprovided by the market / positive consumption externalities
overprovided by the market / negative consumption externalities
underprovided by the market / negative production externalities
Negative consumption externalities are unlikely to be dealt with through the use of
indirect taxes
legislation
advertising
tradable permits
Common pool resources are resources that
having no ownership, are not sold in markets
are subject to overuse therefore leading to unsustainable development
are non-excludable therefore freely available for anyone to use
all of the above
Sustainability refers to the idea that
economic activity is not subject to ups and downs
future generations will have fewer resources with which to satisfy their needs
future generations will not have fewer resources with which to satisfy their needs
resources are used at a rate that leads to their depletion
Which of the following does not pose a threat to sustainability?
use of fossil fuels
poverty and efforts to survive on very low incomes
positive environmental externalities
negative environmental externalities
The ‘tragedy of the commons’ describes
overuse of common pool resources
overuse of public goods
overuse of private goods
overuse of free goods
A consumption externality occurs when
marginal private benefits diverge from marginal social costs
marginal private benefits diverge from marginal social benefits
marginal private costs diverge from marginal social costs
marginal private benefits diverge from marginal private costs
A production externality occurs when
marginal private benefits diverge from marginal social costs
marginal private benefits diverge from marginal social benefits
marginal private costs diverge from marginal social costs
marginal private costs diverge from marginal private costs
Pigouvian taxes can be used to correct
positive consumption externalities
negative production externalities
positive production externalities
Any kind of externality
Market-based policies used to correct externalities
rely on the command approach
are based on the idea of collective self-governance
use advertising to create awareness
are based on the idea of changing incentives
Tradable permits have
perfectly inelastic supply
perfectly inelastic demand
perfectly elastic supply
perfectly elastic demand
Which of the following is not an example of government legislation or regulation?
a requirement for firms to use cleaner technologies
issuing licenses to fish and hunt
restrictions on the amount of firms' emissions
increased direct taxes on firms that pollute
Elinor Ostrom’s work regarding collective self-governance challenged the assumption that
taxes are effective at reducing the harm of negative externalities
people are driven primarily by self-interest
government regulations can help correct the tragedy of the commons
cooperative solutions are sustainable
Assume marginal social costs are higher than marginal private costs by $3 per unit produced, the optimal quantity is 8,000 units but the market produces 11,000 units. The welfare loss is (you can skip this if you're SL)
$4,500
$9,000
$33,000
$24,000
