Question : 4.4   Externalities and Economic Efficiency 1) An externality is A) a benefit : 1245096

4.4   Externalities and Economic Efficiency

1) An externality is

A) a benefit realized by the purchaser of a good or service.

B) a cost paid for by the producer of a good or service.

C) a benefit or cost experienced by someone who is not a producer or consumer of a good or service.

D) anything that is external or not relevant to the production of a good or service.

2) Which of the following is a source of market failure?

A) unforeseen circumstances which leads to the bankruptcy of many firms

B) a lack of government intervention in a market

C) incomplete property rights or inability to enforce property rights

D) an inequitable income distribution

3) What is a market failure?

A) It refers to the inability of the market to allocate resources efficiently up to the point where marginal social benefit equals marginal social cost.

B) It refers to the inability of the market to allocate resources efficiently up to the point where marginal social benefit equals marginal private cost.

C) It refers to a situation where an entire sector of the economy (for example, the airline industry) collapses because of some unforeseen event.

D) It refers to a breakdown in a market economy because of widespread corruption in government.

4) What are property rights?

A) the title to ownership of any physical asset

B) a legal document verifying ownership of intangible assets

C) the rights individuals or firms have to the exclusive use of their property, including the right to buy or sell it

D) the right of the government to appropriate private assets for the good of society

5) Which of the following activities create a negative externality?

A) cleaning up the sidewalk on your block

B) graduating from college

C) repainting the house you live in to improve its appearance

D) keeping a junked car parked on your front lawn

6) A negative externality exists if

A) there are price controls in a market.

B) there are quantity controls in a market.

C) the marginal social cost of producing a good or service exceeds the private cost.

D) the marginal private cost of producing a good or service exceeds the social cost.

7) Which of the following represents the true economic cost of production when firms produce goods that cause negative externalities?

A) the private cost of production

B) the social cost of production

C) the external cost of production

D) the explicit cost of production

8) Private costs

A) are borne by producers of a good while social costs are borne by government.

B) are borne by consumers of a good while social costs are borne by government.

C) are borne by producers of a good while social costs are borne by society at large.

D) are borne by producers of a good while social costs are borne by those who cannot afford to purchase the good.

9) What is a “social cost” of production?

A) the cost of the natural resources used up in production

B) the total costs of producing a product, both implicit and explicit costs

C) the sum of all costs to individuals in society, regardless of whether the costs are borne by those who produce the products or consume the product

D) the cost of the environmental damage created by production

10) If you burn your trash in the back yard in spite of regulations against it, then you are

A) acting economically irrationally and creating a social cost.

B) avoiding the private costs associated with disposing your trash some other way and creating a social cost.

C) acting rationally and creating a positive externality.

D) saving landfill space and creating a social benefit.