AP Micro Externalities

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.

Driving a car on crowded highway produces

• a negative externality.

• a positive externality.

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. 

Which of the following would create a positive externality?

• Water pollution

• Congestion on city highways

• Flu vaccination

• The greenhouse effect and global warming

• A neighbor's loud music that wakes you up

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

Economic side effects that affect the economy in a positive or good way.

• Negative Externality 

• Positive Externality

• Externality

• NO Externality

Economic side effects that affect the economy in a positive or good way.

• Negative Externality 

• Positive Externality

• Externality

• NO Externality

Pollution taxes aim to

• make the polluter pay for the external costs of producing the good.

• ensure the polluter pays the private costs of producing the good.

• eliminate pollution.

Apartment dwellers who buy fire alarms or fire extinguishers generate a

• negative externality.

• positive externality.