Chapter 6: Externalities and Types of Goods

Question 1

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

Answer 1

Hillary’s newly cut lawn makes her neighborhood more attractive.

Question 2

If the production of a good yields a negative externality, then the social-cost curve lies ________ the supply curve, and the socially optimal quantity is ________ than the equilibrium quantity.

Answer 2

above; less

Question 3

When the government levies a tax on a good equal to the external cost associated with the good’s production, it ________ the price paid by consumers and makes the market outcome ________ efficient.

Answer 3

increases; more

Question 4

Which of the following statements about corrective taxes is generally not true?

Answer 4

They cause deadweight losses

Question 5

Public goods are ______ and ______ in consumption. They leave a role for the government due to _______ issues.

Answer 5

non-excludable; non-rival; free rider

Question 6

Common Resources are ______ and ______ in consumption. They leave a role for the government due to _______ issues.

Answer 6

non-excludable; rival; sustainability