Week 9 - Externalities

Refer to the image.  Given the position of the marginal social cost curve, one can conclude that the:

• 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 

Which of the following best represents a positive externality? 

• Purchasing a pass for an amusement park 
• Being disturbed by neighboring construction noise 
• Dumping waste on someone else’ s property 
• Enjoying watching birds at a neighbor’s bird feeder 

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. 

If the production of good X creates a positive externality, then from society’s perspective, the industry that produces good X tends to produce:

• less than the socially optimal amount of good X 
• greater than the socially optimal amount of good X 
• the socially optimal amount of good X 
• a shortage of good X, unless taxed 

Which of the following is true based on the graph shown? 

• Quantity of education in the private market is more than the socially optimal quantity 
• Producers of education could be taxed in order to achieve the socially optimal quantity 
• Consumption of education has a negative externality 
• Consumers of education could be subsidized in order to achieve the socially optimal quantity 

If the production of a good generates a negative externality, which of the following is true at the private 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.

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.

The market should produce the quantity where

• marginal social cost equals marginal social benefit.

• marginal private cost equals marginal social benefit.

• external cost equals external benefit.

• private cost is greater than social cost.

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.