Q: Which equation represents the relationship between private and social costs in the presence of a negative externality?

$$\text{Social Cost} = \text{Private Cost} + \text{External Cost}$$

Question 1

Which of the following best describes a negative externality in the context of electricity production?

Accepted Answer

The total cost to society is greater than the private cost incurred by producers due to pollution.

Question 2

Refer to the diagram showing the supply and demand for electricity. If the government imposes a tax equal to the cost of emissions, what happens to the supply curve?

Accepted Answer

The supply curve shifts upward from $$S_1 to$$ $$S_2$$, reflecting the marginal social cost.

Question 3

What is the deadweight loss associated with negative externalities in the electricity market?

Accepted Answer

The area between the efficient equilibrium and the market equilibrium, where the cost to society exceeds the benefit.

Question 4

Which equation represents the relationship between private and social costs in the presence of a negative externality?

Accepted Answer

$$	ext{Social Cost} = 	ext{Private Cost} + 	ext{External Cost}$$

Question 5

A college education is an example of a positive externality. What is the effect on market equilibrium?

Accepted Answer

The market produces fewer college educations than is socially optimal.

Question 6

Which policy is most effective for correcting positive externalities in the market for college education?

Accepted Answer

Providing a subsidy to consumers or producers of college education.

Question 7

According to the Coase theorem, private parties can solve externality problems if:

Accepted Answer

Property rights are assigned and enforceable, and transaction costs are low.

Question 8

In the context of pollution reduction, what is the economically efficient level of pollution reduction?

Accepted Answer

Where the marginal cost of pollution reduction equals the marginal benefit.

Question 9

What is a Pigovian tax?

Accepted Answer

A tax designed to correct the inefficiency caused by externalities.

Question 10

Which of the following is NOT a characteristic of a public good?

Accepted Answer

Rival and excludable consumption

Question 11

How is the market demand curve for a private good constructed?

Accepted Answer

By adding horizontally the quantities demanded by each consumer at each price.

Question 12

What is the tragedy of the commons?

Accepted Answer

A situation where common resources are overused due to lack of property rights.

Question 13

Which of the following is an example of a quasi-public good?

Accepted Answer

Cable TV

Question 14

What is the main criticism of cap-and-trade systems for pollution control?

Accepted Answer

They give firms 'licenses to pollute,' which some environmentalists object to.

Question 15

If the marginal benefit from pollution reduction is $$300 per ton and the marginal cost is 140 $$per ton, what should happen?

Accepted Answer

Reduce pollution by more units, since the benefit exceeds the cost.

Question 16

Which of the following best explains why common resources tend to be overconsumed?

Accepted Answer

They are rival but nonexcludable, leading to depletion by individual users.

Question 17

What is the effect of a subsidy in a market with a positive externality, such as college education?

Accepted Answer

The demand curve shifts upward, increasing equilibrium quantity to the efficient level.

Question 18

Which of the following is a real-world example of a negative externality?

Accepted Answer

Air pollution from a factory affecting nearby residents

Question 19

Why might the Coase theorem not apply in the case of pollution affecting a large population?

Accepted Answer

Transaction costs are too high for widespread bargaining.

Question 20

Which formula represents the efficient provision of a public good?

Accepted Answer

$$	ext{Efficient Quantity} = 	ext{Intersection of Supply and Demand Curves}$$

Externalities, Public Goods, and Economic Efficiency

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