Goods whose production is associated with positive externalities are a.under-priced and

 Goods whose production is associated with positive externalities are

a.under-priced and over-provided

b.under-priced and under-provided

c.over-priced and under-provided

d.over-priced and over-provided

e.not provided by private markets

12.              In the analysis of externalities and market failure, a third party is

a.the party a contractual agreement is meant to benefit

b.a person, or persons, who is unintentionally affected by the actions of others

c.the third person in a three-way contract

d.the person who owns the property right in a contract

e.the government attempting to mediate a dispute between the two other parties

13.              An externality is

a.always a benefit to the recipient

b.always a detriment to the recipient

c.an activity that occurs in a business that is unknown to management

d.an unintended benefit or cost imposed on third parties resulting from market activity

e.an act, caused by a firm located in this country, that has an effect on a person in a
foreign country

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

a.A Japanese company exports cars to the U.S., which causes American workers to
lose their jobs.

b.An employee of a chemical company spills acid on his arm, causing severe damage.

c.John plants fruit trees in his front yard, which attracts bees, which sting neighbor
Mary.

d.Sally buys coffee at McDonald’s, spills some and burns her hand.

e.Jack attempts to fix his roof, falls off, and breaks his leg.

15.              Which of the following is an example of a positive externality?

a.Nick spends $500 to landscape his yard and his property increases in value by
$1,000.

b.Mick spends $500 on a stereo, which he plays so loudly that his neighbors are
willing to pay him $1,000 not to play the stereo.

c.An increase in the demand for computers causes IBM to hire more workers.

d.Complaints of speeding cause police to increase surveillance.

e.Lisa puts new concrete on her driveway and now the neighboring kids use it for
skateboarding.

16.              A free rider is a person who

a.is harmed by another’s actions

b.is subject to a negative externality

c.receives benefits from someone else’s market activity but does not pay for them

d.pays less than the full value for a good

e.wins the state lottery on a ticket he found

17.              In the absence of externalities, the optimal distribution of resources occurs when
                            production is at

a.P = MC

b.P = ATC

c.TR = TC

d.MR = MC

e.P = AFC

18.              Supply and demand curves can only reflect

a.total social costs

b.private, or internal, costs and benefits

c.external costs and benefits

d.external benefits

e.external costs

19.              When externalities are present in market activity and production occurs at P = MC,

a.the market generates an optimal distribution of resources

b.the market does not generate an optimal distribution of resources

c.a free-rider condition always raises price

d.P = ATC as well

e.the firm suffers economic losses

20.              Producing where P = MC does not yield an optimal distribution of resources when
                            externalities are present because

a.neither price nor marginal cost reflect the social costs or social benefits of production
and consumption; that is, the costs and benefits to society

b.while price still accurately measures benefits, marginal cost no longer measures the
cost of resources to society

c.while marginal cost accurately measures cost, price no longer measures the true
social value of the goods produced

d.output would always be higher than optimal

e.output would always be lower than optimal