WorksheetsMarket Failure and Externalities #1
Total questions: 12
Worksheet time: 8mins
An externality...
is a type of market failure.
causes markets to allocate resources efficiently.
strengthens the role of the “invisible hand” in the marketplace.
affects producers but not consumers.
Private markets fail to account for externalities because...
externalities don't occur in private markets.
sellers include costs associated with externalities in the price of their product.
decisionmakers in the market fail to include the costs of their behavior to third parties.
the government cannot easily estimate the optimal quantity of pollution.
When a market is characterized by an externality, the government...
can correct the market failure only in the case of positive externalities.
can correct the market failure only in the case of negative externalities.
can correct the market failure in the case of both positive and negative externalities
cannot correct for externalities due to the existence of patents.
Which of the graphs show a positive externality of production?
A
B
C
D
Which of the graphs show a positive externality of consumption?
A
B
C
D
Which of the graphs show a negative externality of consumption?
A
B
C
D
Which graph illustrates the benefits gained to the community when households put up xmas lights on their house?
A
B
C
D
Which graph illustrates the costs to society when production of a good leads to harmful air pollution?
A
B
C
D
Which graph illustrates the production of a new technology that can be used to improve other businesses?
A
B
C
D
A positive externality...
causes the product to be overproduced.
provides an additional benefit to market participants.
benefits consumers because it results in a lower equilibrium price.
provides benefits to a 3rd party not involved in the market transaction
All of the following are externalities from excessive cigarette consumption, except for?
The smoker's health declines
The smoker is less productive at work due to regular smoke breaks
The smoker has to spend lots of their income on cigarettes, leaving less money for the rest of the family
The public healthcare cost of looking after a smoker's illnesses means less government spending on other areas of the economy
Select the 2 externalities from choosing to take the tram instead of driving
Taking the tram is cheaper for the consumer
Less congestion for other car drivers
The consumer is able to send and reply to emails to other staff and clients
Taking the tram shortens the trip for the consumer
