Card 0 of 18
For years a factory has been producing waste that it dumps into a nearby river. This waste negatively affects fishermen nearby. What government policy is most likely to get the factory to produce at the socially optimum level?
A tax is the most efficient way to shift supply to the socially optimum level in a market with a negative externality such as this one. Regulations MAY have the desired effect, but they are likely to be inefficient.
Compare your answer with the correct one above
For years, producers in a perfectly competitive industry have been pumping waste into the air without penalty. If the government takes action to shift production to a more socially optimal level, what is the likely effect on equilibrium price and quantity in the market?
The pollution is a negative externality, or a cost of production that the supplier does not fully bear. Therefore, society's marginal cost, or supply, curve is shifted inward relative to the private marginal cost curve.
A policy that moves production toward this level would therefore result in a higher market price and lower market quantity.
Compare your answer with the correct one above
Which of the following policies is most likely designed to correct for a negative externality?
Smoking is associated with negative externalities such as second-hand smoke and costs to the healthcare system that are not fully borne by the smoker.
Higher education and vaccinations generally offer positive external benefits to society. Price minimums may be put in place for many reasons, but negative externalities are not likely one of them.
Compare your answer with the correct one above
Which of the following policies is most likely designed to address a positive externality?
Preventative healthcare can have positive external benefits such as reduced expenses in the healthcare system and fewer days of missed work for employees.
The sales tax is not necessarily related to any externality, and the other answers address negative externalities.
Compare your answer with the correct one above
In the absence of some public or private intervention, public goods will ____________ .
Public goods have a marginal social benefit that is higher than the private demand curve. Absent intervention, the equilibrium will be at a lower price and quantity than the socially optimum level.
Compare your answer with the correct one above
Which government policy is typically used to correct a negative externality?
When the government issues a limited number of licenses to produce a good, it typically aims to reduce the production of that good. This is usually due to some form of negative externality associated with the production of that good. The other actions tend to increase the production or consumption of a good, which are usually designed when there is a positive externality associated.
Compare your answer with the correct one above
Which of the following is true of public goods?
The two main characteristics of public goods are that they are non-rival and non-excludable. Non-rival means that its use by one person does not prevent its use by another person. Non-excludable means that no one can be prevented from using the good.
Answer choice "The price of public goods is determined by market factors" is incorrect because public goods actually represent examples of market failures. Public goods are not subject to market factors the same way that other goods are.
All of the other answer choices are distortions of the characteristics of public goods and are therefore incorrect.
Compare your answer with the correct one above
The Gini coefficient is a measure of ________.
The Gini coefficient measures the income distribution among a particular population. A Gini coefficient of 0 represents total income equality and a Gini coefficient of 1 represents total income inequality.
The other answer choices refer to other economic indicators unrelated to the Gini coefficient.
Compare your answer with the correct one above
To establish a socially optimal price for a natural monopoly, the government should select the price level at which ________________.
In an unregulated market, a monopolistic firm makes economic profits by producing goods only until the marginal cost of production equals marginal revenue. This allows the firm to absorb the difference between average revenue and average cost for each product. To correct this, the government should select the price at which average revenue equals average total cost. This is the point at which the firm makes zero economic profit, produces the socially optimal quantity of goods, and sells at the socially optimal price.
Compare your answer with the correct one above
For years a factory has been producing waste that it dumps into a nearby river. This waste negatively affects fishermen nearby. What government policy is most likely to get the factory to produce at the socially optimum level?
A tax is the most efficient way to shift supply to the socially optimum level in a market with a negative externality such as this one. Regulations MAY have the desired effect, but they are likely to be inefficient.
Compare your answer with the correct one above
For years, producers in a perfectly competitive industry have been pumping waste into the air without penalty. If the government takes action to shift production to a more socially optimal level, what is the likely effect on equilibrium price and quantity in the market?
The pollution is a negative externality, or a cost of production that the supplier does not fully bear. Therefore, society's marginal cost, or supply, curve is shifted inward relative to the private marginal cost curve.
A policy that moves production toward this level would therefore result in a higher market price and lower market quantity.
Compare your answer with the correct one above
Which of the following policies is most likely designed to correct for a negative externality?
Smoking is associated with negative externalities such as second-hand smoke and costs to the healthcare system that are not fully borne by the smoker.
Higher education and vaccinations generally offer positive external benefits to society. Price minimums may be put in place for many reasons, but negative externalities are not likely one of them.
Compare your answer with the correct one above
Which of the following policies is most likely designed to address a positive externality?
Preventative healthcare can have positive external benefits such as reduced expenses in the healthcare system and fewer days of missed work for employees.
The sales tax is not necessarily related to any externality, and the other answers address negative externalities.
Compare your answer with the correct one above
In the absence of some public or private intervention, public goods will ____________ .
Public goods have a marginal social benefit that is higher than the private demand curve. Absent intervention, the equilibrium will be at a lower price and quantity than the socially optimum level.
Compare your answer with the correct one above
Which government policy is typically used to correct a negative externality?
When the government issues a limited number of licenses to produce a good, it typically aims to reduce the production of that good. This is usually due to some form of negative externality associated with the production of that good. The other actions tend to increase the production or consumption of a good, which are usually designed when there is a positive externality associated.
Compare your answer with the correct one above
Which of the following is true of public goods?
The two main characteristics of public goods are that they are non-rival and non-excludable. Non-rival means that its use by one person does not prevent its use by another person. Non-excludable means that no one can be prevented from using the good.
Answer choice "The price of public goods is determined by market factors" is incorrect because public goods actually represent examples of market failures. Public goods are not subject to market factors the same way that other goods are.
All of the other answer choices are distortions of the characteristics of public goods and are therefore incorrect.
Compare your answer with the correct one above
The Gini coefficient is a measure of ________.
The Gini coefficient measures the income distribution among a particular population. A Gini coefficient of 0 represents total income equality and a Gini coefficient of 1 represents total income inequality.
The other answer choices refer to other economic indicators unrelated to the Gini coefficient.
Compare your answer with the correct one above
To establish a socially optimal price for a natural monopoly, the government should select the price level at which ________________.
In an unregulated market, a monopolistic firm makes economic profits by producing goods only until the marginal cost of production equals marginal revenue. This allows the firm to absorb the difference between average revenue and average cost for each product. To correct this, the government should select the price at which average revenue equals average total cost. This is the point at which the firm makes zero economic profit, produces the socially optimal quantity of goods, and sells at the socially optimal price.
Compare your answer with the correct one above