The Yankee Candle Company, in Hatfield, Massachusetts, makes scented candles

The Yankee Candle Company, in Hatfield, Massachusetts, makes scented candles. When
                            strawberry-scented candles are made, townspeople enjoy the scent that covers the town.
                            When potpourri-scented candles are made, people stay indoors to avoid the scent. We can
                            infer that if the scented-candle markets are in equilibrium

a.neither strawberry nor potpourri scented candles will be produced

b.strawberry candles’ prices are higher than the socially optimum

c.potpourri candles’ prices are higher than the socially optimum

d.candle production generates only negative externalities

e.candle production technologies are inefficient

122.              Externalities are unintended costs or benefits imposed on third parties. Who creates these
                            externalities?

a.the government

b.the market

c.the third parties themselves

d.buyers create the costs, sellers create the benefits

e.the economic activity of others that affects third parties

123.              Externalities get their name from the fact that they are

a.of no value

b.valued above the market price

c.short lived

d.outcomes created by markets that take no account of these outcomes

e.outcomes created by markets that take these outcomes into account

124.              Negative externalities, such as air pollution, pose a social problem because they

a.benefit buyers but not sellers

b.are intended and are market derived

c.have a positive value for those who create them

d.have a negative value for those who create them

e.are difficult to internalize

125.              The existence of a positive externality demonstrates that

a.prices are too low

b.there are third party costs

c.the source is costly to identify

d.the value society derives from a good may be greater than the value the person who
buys it receives

e.benefits are included in price, but not quantity

126.              Free ridership is associated with what kind of externality, and why?

a.positive, because costs are identified but not internalized

b.negative, because costs are identified but not internalized

c.positive, because many who benefit are not always identified or accounted for

d.negative, because many who benefit are not always identified or accounted for

e.positive, because social value equals private value

127.              Markets often generate negative externalities because

a.there are too many participants in the marketplace

b.property rights are sometimes poorly defined

c.identifying pollution sources isn’t easy

d.free riders are hard to control

e.social benefits have not been internalized

128.              The presence of positive and negative externalities associated with many economic
                            activities generates __________ in our economy.

a.extra values

b.market failure

c.incompleteness

d.illegality

e.free and unfree riders

129.              The existence of an externality is proof that there is a

a.market failure

b.undervaluation of a good

c.overvaluation of a cost

d.property dispute

e.free-rider problem

130.              Althea is a student in your class. Althea wears a perfume called Essence of Efficiency.
                            Bob really likes the scent of this perfume, and is disappointed on days when Althea
                            doesn’t wear it. Cathy is mildly allergic to this perfume. Her eyes water and her nose
                            becomes runny when Althea comes to class wearing this perfume. Cathy is fine
                            otherwise. This is a story about

a.too much perfume being produced

b.too little perfume being produced

c.an incomplete market

d.inadequate allocation of responsibility