New Material 35%

Question 1

Externalities

Answer 1

An indirect cost or benefit to an uninvolved third party that arises as an effect of another party’s activity.

Question 2

Positive externality

Answer 2

A positive externality occurs when a benefit spills over. So, externalities occur when some of the costs or benefits of a transaction fall on someone other than the producer or the consumer.

Question 3

Negative externality

Answer 3

When the production or consumption of a product results in a cost to a third party. Air and noise pollution are commonly cited examples of negative externalities.

Question 4

Adverse selection

Answer 4

Occurs when one party in a negotiation has relevant information the other party lacks.

Question 5

Moral Hazard

Answer 5

A situation where an economic actor has an incentive to increase its exposure to risk because it does not bear the full costs of that risk.

Question 6

Property Rights

Answer 6

Constructs for determining how a resource or economic good is used and owned.

Question 7

Why are property rights important?

Answer 7

They give confidence to individuals and businesses to invest in land, allow private companies to borrow – using land as a collateral – to expand job opportunities, and enable governments to collect property taxes, which are necessary to finance the provision of infrastructure and services to citizens.

Without well-defined property rights, it is difficult for individuals and firms to make economic decisions because they do not know who has control over a given resource. This can lead to uncertainty and inefficiency in the allocation of resources.

Question 8

If property rights have not been established, economic resources may be

Answer 8

Negatively exploited

Question 9

The 3 ways to control activities that damage the environment?

Answer 9

Volunteerism
Direct Control
Taxation

Question 10

Sustainable Yield

Answer 10

the extraction level of the resource which does not exceed the growth. Ex. Fishing/over-fishing