Externalities and Public Goods: Interactive Learning Quizzes

Question 1

Which of the following is a direct result of a negative externality in a market?

Accepted Answer

Reduced consumer surplus

Answer

Increased market surplus

Answer

Enhanced social welfare

Answer

Eliminated producer surplus

Question 2

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

Accepted Answer

Excludability

Answer

Non-excludability

Answer

Non-rivalry

Answer

Externality

Question 3

Which of these is a defining feature of a public good?

Accepted Answer

Non-rivalry

Answer

Excludability

Answer

Profitability

Question 4

Which of the following is NOT a government intervention typically used to address externalities?

Accepted Answer

Price controls

Answer

Pigouvian taxes

Answer

Property rights

Answer

Subsidies

Question 5

Which of the following is a unique characteristic of a public good?

Accepted Answer

Non-excludable

Answer

Profitability for producers

Answer

Scarcity

Answer

Rivalry in consumption

Question 6

A negative externality occurs when:

Accepted Answer

The actions of one individual impose a cost on another individual who is not involved in the transaction

Answer

The benefits of a good exceed the costs

Answer

The price of a good is too high

Answer

The government provides a subsidy for a good

Question 7

Which of the following is a potential policy tool to address a negative externality?

Accepted Answer

Pigouvian tax

Answer

Price floor

Answer

Subsidy

Answer

Import tariff

Question 8

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

Accepted Answer

Education

Answer

Traffic congestion

Answer

Smoking

Answer

Pollution

Question 9

The Coase Theorem suggests that:

Accepted Answer

Externalities can be resolved through private negotiation without government intervention if certain conditions are met

Answer

Government intervention is always necessary to address externalities

Answer

Negative externalities are always worse than positive externalities

Answer

Externalities can never be resolved without government intervention

Question 10

Which of the following is a feature of a market failure?

Accepted Answer

Inefficient allocation of resources

Answer

Stable prices

Answer

High levels of economic growth

Answer

Low unemployment

Question 11

The tragedy of the commons is a situation where:

Accepted Answer

Individuals overexploit a shared resource, leading to its depletion

Answer

Government intervention is necessary to ensure the efficient use of a shared resource

Answer

Individuals underuse a shared resource, leading to its underutilization

Answer

The government provides a subsidy for the use of a shared resource

Question 12

In a market with a positive externality, what is the likely impact on the production of the good or service?

Accepted Answer

Underproduction

Answer

Overproduction

Answer

No impact

Answer

Government intervention to reduce production

Question 13

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

Accepted Answer

Education

Answer

Pollution

Answer

Traffic congestion

Answer

Smoking

Question 14

Which characteristic ensures that a good can be enjoyed by multiple individuals simultaneously?

Accepted Answer

Non-rivalrous

Answer

Profitable

Answer

Excludable

Answer

Private

Question 15

What is a primary role of government in addressing externalities?

Accepted Answer

Implementing Pigouvian taxes or subsidies

Answer

Setting price controls

Answer

Reducing consumer demand

Answer

Providing public services

Question 16

Which of the following is a potential consequence of an uncorrected negative externality?

Accepted Answer

Market inefficiency

Answer

Reduced environmental damage

Answer

Improved social welfare

Answer

Increased economic growth

Question 17

What is the primary purpose of a Pigouvian tax?

Accepted Answer

To internalize the social cost of a negative externality

Answer

To discourage consumption of certain goods

Answer

To generate revenue for the government

Question 18

Which concept refers to individuals benefiting from a public good without contributing to its cost?

Accepted Answer

Free riding

Answer

Market failures

Answer

Externalities

Answer

Private goods

Question 19

How do positive and negative externalities differ in their impact on third parties?

Accepted Answer

Positive externalities benefit third parties, while negative externalities impose costs on them.

Answer

Positive externalities are caused by producers, while negative externalities are caused by consumers.

Question 20

Which of the following is a defining characteristic of non-excludable goods?

Accepted Answer

Individuals cannot be prevented from consuming the good

Answer

The supply of the good is determined by the marginal cost of production

Answer

The demand for the good is highly elastic

Question 21

Which of the following is an example of a negative externality in the production of a good or service?

Accepted Answer

Air pollution from a factory

Answer

Education provided by a school

Answer

Traffic congestion during rush hour for commuters

Answer

Fireworks display enjoyed by neighbors

Question 22

What is the primary role of government in addressing positive externalities?

Accepted Answer

Provide subsidies or tax breaks to encourage the production of the good or service

Answer

Ignore the externality and allow the market to determine the level of production

Answer

Impose taxes or regulations to limit the production of the good or service

Answer

Privatize the externality so that the producer takes full responsibility for its effects

Question 23

What is the Coase Theorem primarily concerned with?

Accepted Answer

The efficient allocation of resources in the presence of externalities

Answer

The role of government in regulating externalities

Answer

The impact of externalities on consumer welfare

Question 24

Which of the following is a policy instrument commonly used to address negative externalities?

Accepted Answer

Pigouvian tax

Answer

Subsidy

Answer

Price ceiling

Answer

Minimum wage

Question 25

What is the key difference between a pure public good and a common resource?

Accepted Answer

Pure public goods are non-excludable and non-rivalrous, while common resources are non-excludable but rivalrous.

Answer

Pure public goods are rivalrous and non-excludable, while common resources are non-rivalrous and excludable.

Question 26

What is the concept known as the tragedy of the commons primarily concerned with?

Accepted Answer

The tendency for individuals to overexploit a common resource

Answer

The tendency for individuals to protect and conserve a common resource

Answer

The tendency for individuals to equitably share the benefits of a common resource

Question 27

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

Accepted Answer

Education

Answer

Traffic congestion

Answer

Pollution

Answer

Smoking

Question 28

Which of the following is a distinguishing feature of a public good?

Accepted Answer

Non-rivalrous

Answer

Low marginal cost of provision

Answer

High average cost of production

Answer

Excludable

Question 29

Which of the following is a government policy tool that can be employed to address a positive externality?

Accepted Answer

Subsidy

Answer

Price ceiling

Answer

Tax

Answer

Import quota

Question 30

What is the primary objective of a Pigouvian tax?

Accepted Answer

To discourage activities that generate negative externalities

Answer

To encourage activities that generate positive externalities

Answer

To reduce government spending

Question 31

What key difference distinguishes a public good from a merit good?

Accepted Answer

Public goods are non-excludable, while merit goods are excludable

Answer

Public goods are rivalrous, while merit goods are non-rivalrous

Answer

Public goods are provided by the government, while merit goods are provided by the private sector

Question 32

Which of the following poses a potential challenge in the provision of public goods?

Accepted Answer

Free riding

Answer

Low demand

Answer

High marginal cost of production

Answer

Lack of technological feasibility

Question 33

What is the fundamental reason for government intervention in markets characterized by externalities?

Accepted Answer

To correct market failures and achieve an efficient allocation of resources

Answer

To generate revenue for the government

Answer

To protect certain industries from competition

Question 34

Which of the following government policies aims to promote the provision of a public good?

Accepted Answer

Subsidizing the production of a good that benefits society as a whole

Answer

Privatizing public utilities

Answer

Reducing government subsidies

Answer

Imposing tariffs on imported goods

Question 35

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

Accepted Answer

Education, as it benefits not only the individual but also society as a whole

Answer

Pollution, as it degrades the environment

Answer

Traffic congestion, as it imposes costs on other drivers

Answer

Smoking, as it harms the smoker and those around them

Question 36

Which of the following is an essential characteristic of a public good?

Accepted Answer

Non-excludability, meaning that it is difficult to prevent non-payers from consuming the good

Answer

Rivalrous consumption, meaning that one person's consumption reduces the availability for others

Answer

Profitability, as public goods are designed to generate profits

Answer

Private provision, as public goods are typically provided by private companies

Question 37

What is the government's primary role in addressing negative externalities?

Accepted Answer

Implementing policies that aim to correct the market failure, such as imposing corrective taxes or subsidies

Answer

Regulating prices, as price controls can help reduce negative externalities

Answer

Providing public goods, as public goods can help offset negative externalities

Answer

Investing in education, as education can help reduce negative externalities

Question 38

Which of the following is a policy tool that can be used to address market failures caused by public goods?

Accepted Answer

Government provision of the public good

Answer

Price floors, which set a minimum price for a good or service

Answer

Quotas, which limit the quantity of a good or service that can be imported or exported

Answer

Tariffs, which are taxes on imported goods

Question 39

What is the likely impact of a negative externality on market outcomes?

Accepted Answer

Market inefficiency, with an overproduction of the externality-generating activity

Answer

No impact on market outcomes

Answer

Market efficiency, with optimal levels of the externality-generating activity

Question 40

What is the main difference between a public good and a private good?

Accepted Answer

Excludability and rivalry in consumption

Answer

Marginal cost of production

Answer

Price elasticity of demand

Answer

Type of ownership

Question 41

Which of the following is an example of an externality that is challenging for the market to address effectively?

Accepted Answer

Climate change, as its effects are widespread and difficult to attribute to specific individuals or firms

Answer

Traffic congestion, as it can be addressed through measures such as road pricing

Answer

Noise pollution, as it can be mitigated through regulations and noise abatement technologies

Answer

Littering, as it is relatively easy to identify and penalize individuals who litter

Question 42

What is the Coase theorem?

Accepted Answer

Under certain conditions, such as well-defined property rights and low transaction costs, externalities can be efficiently resolved through private negotiations between the affected parties without government intervention

Answer

Public goods are always provided efficiently by the government

Question 43

Which of the following is a potential benefit of government intervention in markets with externalities?

Accepted Answer

Correcting market failures by internalizing the costs or benefits of the externality

Answer

Increasing market power of certain firms

Answer

Creating new externalities that were not previously present

Question 44

A negative externality occurs when:

Accepted Answer

Actions of a producer or consumer impose uncompensated costs on an unrelated third party.

Answer

Actions of a consumer benefit an unrelated third party.

Answer

Actions of a producer or consumer reduce costs for an unrelated third party.

Question 45

Which of the following policy tools could be used to address a positive externality and encourage its provision?

Accepted Answer

Subsidies (direct payments to producers or consumers)

Answer

Price ceilings (maximum prices set by the government)

Answer

Quotas (limits on production or consumption)

Answer

Taxes (levies on producers or consumers)

Question 46

The presence of a positive externality in a market typically leads to:

Accepted Answer

Underprovision of the good or service in the market, as private producers have no incentive to account for the external benefits their actions generate.

Answer

Optimal provision of the good or service in the market, as market forces naturally align incentives to account for both private and external benefits.

Answer

Overprovision of the good or service in the market, as producers overestimate the demand for their products due to the presence of external benefits.

Question 47

A lighthouse providing navigational aid to ships at sea is an example of:

Accepted Answer

A pure public good, as it is non-excludable (impossible to prevent ships from using the lighthouse) and non-rivalrous (one ship's use does not diminish the availability for others).

Answer

A private good, as it is both excludable and rivalrous.

Answer

A common-pool resource, as it is non-excludable but rivalrous.

Answer

A club good, as it is excludable but non-rivalrous.

Question 48

Government intervention to address externalities can yield which of the following benefits?

Accepted Answer

Improved market efficiency by correcting market failures and leading to a more optimal allocation of resources.

Answer

Reduced consumer surplus, as government intervention may impose costs on consumers through taxes or regulations.

Answer

Increased producer profits, as government intervention may provide subsidies or protection from competition.

Answer

Less consumer choice, as government intervention may restrict the availability of certain goods or services.

Question 49

The Coase Theorem suggests that:

Accepted Answer

Under certain conditions, such as well-defined property rights and low transaction costs, private negotiations between affected parties can resolve externality problems without the need for government intervention.

Answer

Government intervention is always necessary and superior to private negotiations in addressing externalities.

Question 50

A Pigouvian tax is designed to:

Accepted Answer

Correct for negative externalities by imposing a tax on the producer that equals the marginal external cost.

Answer

Subsidize producers who generate positive externalities.