Externalities and Social Costs Quiz

What are externalities in economics?

• Costs and benefits that are fully paid for by the producer

• Costs and benefits that affect people and communities not involved in the transaction

• Costs and benefits that have no impact on society

• Costs and benefits that affect only buyers and sellers

Which of the following is an example of a negative externality?

• Affordable healthcare for all citizens

• Increased public spending on education

• Reduced air pollution due to government regulations

• Congestion on roads due to excessive traffic

What do social costs include?

• Both private and external costs

• Only external costs

• Only private costs

• Neither private nor external costs

What are positive externalities also known as?

• Private benefits

• Economic costs

• Social benefits

• External costs

Why does over-consumption occur in the presence of negative externalities?

• Because the amounts produced and consumed are greater than they would be if all costs could be built into the price

• Because the polluter pays for the full costs to society

• Because the price fully reflects the external costs

• Because the government intervenes to reduce consumption

What is likely to involve prices that do not fully reflect the negative externalities and social costs?

• Energy consumption

• Education

• Healthcare

• Agriculture

What does this section look at in relation to markets?

• How to regulate prices for essential goods

• How to maximize profits for businesses

• How markets may fail and how the allocation of resources may change to provide optimum benefits to society

• How to minimize costs for consumers

What should students have a good understanding of in relation to externalities?

• Cost benefit analysis

• Market equilibrium

• Consumer surplus

• Positive and negative externalities

What are private, external, and social costs and benefits related to?

What are students not expected to use diagrams for?

• Market demand and supply

• Price elasticity of demand

• Consumer surplus

• Marginal social costs and benefits