AP Microeconomics Externalities

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.

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. 

Markets exhibiting negative externalities will

• under produce.

• over produce.

• be optimal.

Driving a car on crowded highway produces

• a negative externality.

• a positive externality.

Apartment dwellers who buy fire alarms or fire extinguishers generate a

• negative externality.

• positive externality.

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.

A ______ Externality occurs when a cost of production or consumption falls on a 3rd Party.

• Negative
• Neutral
• Positive