WorksheetsNegative Externalities
Total questions: 25
Worksheet time: 25mins
Refer to the image. Given the position of the marginal social cost curve, one can conclude that
production of good X creates a negative externality.
private cost of producing good X exceeds the social cost of production at all levels of output.
market quantity, Q3, is the socially optimal quantity.
free market will produce too little of good X.
A ______ Externality occurs when a cost of production or consumption falls on a 3rd Party.
Negative
Neutral
Positive
If the production of a good generates a negative externality, which of the following is true at the market equilibrium?
The private market equilibrium quantity is equal to the socially optimal quantity.
The marginal private cost is greater than the marginal social cost.
The price of the product equals the marginal social cost.
The private market equilibrium quantity is greater than the socially optimal quantity.
Which of the following is true when there are negative externalities associated with the production of a good?
The market will adjust automatically to equate marginal social costs and marginal social benefits.
Marginal social costs will exceed marginal private costs unless businesses are forced to internalize the external costs.
Marginal private costs will exceed marginal social costs, but the government can correct the problem.
Producers should be subsidized so that they will produce more of the good.
Negative externalities can be best described as
When the consumption/production of a good or service has a negative impact on a third party
When the consumption/production of a good or service has any impact on a third party
When the consumption/production of a good or service has a positive impact on a third party
When the consumption/production of a good or service depletes the access for a third party
Driving a car on crowded highway produces
a negative externality.
a positive externality.
Marginal Social Cost minus Marginal Private Cost equals
internal cost.
external cost.
marginal cost.
marginal revenue.
A negative externality results due to firms
being very, very , bad.
not paying the full cost of production.
firms internalizing production costs.
firms not realizing they are polluting.
The shaded triangle on the diagram shows
the DWL of overproduction.
the impact of a positive externality.
the DWL of underproduction.
consumer surplus.
Which of the following statements is not true about negative externalities?
Society can experience a welfare loss because of them
Pollution from a factory often causes negative externalities
They result in an under-allocation of resources
MSC is greater than MSB at the market output
Which of the following goods or services is the most likely to lead to negative externalities of consumption?
Mobile phones
Solar panels
An art gallery
Organic vegetables
In the diagram, which of the following is not true?
Arrow A is the external cost
The consumer and producer surplus are not maximised at point C
Point D is the socially efficient output
Supply equals marginal private cost at B
Which of the following is untrue in the diagram?
There is an under allocation of resources
It shows negative consumption externalities
The consumer and producer surplus are maximised at output Q
The welfare loss is the yellow triangle
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
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
What is a negative externality?
A cost imposed on a third party not involved in the transaction
A benefit received by a third party not involved in the transaction
A cost that affects only the buyer and seller
A benefit that affects only the buyer and seller
Which of the following is an example of a negative externality?
A factory polluting a river
A person planting a tree
A company donating to charity
A student receiving a scholarship
How can governments address negative externalities?
By imposing taxes on activities that generate them
By providing subsidies to increase production
By ignoring them
By encouraging more consumption
What happens to the social cost when negative externalities are present?
Social cost exceeds private cost
Social cost is less than private cost
Social cost equals private cost
Social cost is irrelevant
Why do negative externalities lead to market failure?
Because they cause overproduction of goods
Because they cause underproduction of goods
Because they lead to perfect competition
Because they eliminate consumer choice
Which of the following is a characteristic of a negative externality?
It leads to a welfare loss in society
It results in a gain for all parties involved
It has no impact on third parties
It is always beneficial to the environment
What is the relationship between marginal social cost (MSC) and marginal private cost (MPC) in the presence of negative externalities?
MSC is greater than MPC
MSC is less than MPC
MSC equals MPC
MSC is unrelated to MPC
