When third parties are intentionally or unintentionally affected by the market activity of others, it is called a negative public good.
A) True
B) False
2.
Economic activity initiated by market participants imposes costs on free riders.
A) True
B) False
3.
Markets without externalities create pollution.
A) True
B) False
4.
Taxes and subsidies can be used to correct market failure.
A) True
B) False
5.
It is not possible to exclude people from consuming pure public goods.
A) True
B) False
6.
Government failure describes a situation where government activity creates negative externalities.
A) True
B) False
7.
A person whose house has declined in value as a result of a nearby factory's fumes is a third party to the market associated with the factory.
A) True
B) False
8.
Positive externalities can be an example of market failure.
A) True
B) False
9.
If whooping cranes generate benefits to some members of society by merely their continued existence, then economic markets will consider this in arriving at a level of their provision "as if by an invisible hand."
A) True
B) False
10.
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
11.
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.
12.
Who among the following is a free rider?
A) Butch breeds the feared pit bulls, and his neighbors now erect fences around their property.
B) Fred watches many public television programs, but he has never sent in a contribution.
C) Barry steals candy from the store where he works.
D) Betty regularly uses the local public library.
E) Joe drives 20,000 miles a year on public streets, but he pays no more in taxes than Sam, who only drives 1,000 miles.
13.
One policy the government can use to remedy the effects of pollution caused by the production of a good is to
A) lower the price of the good
B) create positive externalities to compensate for the negative ones
C) levy a tax on each unit of the good produced
D) create free riders
E) increase the production of the polluting good
14.
Pete throws leftover bread onto his front lawn because he enjoys watching the pigeons feeding. His neighbor John is not happy about the pigeons, since they leave a mess on his property. This is an example of a nice gesture causing a
A) negative externality
B) public good
C) positive externality
D) third-party benefit
E) free-rider outcome
15.
Dina drives to work on Interstate 294 at 90 MPH, well in excess of the 65 MPH speed limit. Sandy is behind her, going 85 MPH. A state trooper pulls Dina over and gives her a speeding ticket. Sandy continues driving. If Dina had not been speeding, the trooper would have ticketed Sandy. In terms of externalities, this story shows that
A) the 10 MPH difference defines the difference between a negative and positive externality
B) Sandy enjoys a positive externality
C) Dina suffers a negative externality
D) Dina's driving habits created a negative externality for Sandy
E) Sandy's driving habits created a negative externality for Dina
16.
The reason individual homeowners usually do not hire a private contractor to fill the potholes on their street is because
A) there are positive externalities associated with the potholes
B) the value to the neighborhood exceeds the cost of repair
C) it costs them more than the benefits they derive
D) they do not trust the government
E) there are negative externalities associated with the repair
17.
Denise is thinking about setting up a butterfly garden in her backyard. She estimates that it will cost her $2,000 to purchase and install special plants and an irrigation system to attract butterflies. The benefit she expects to receive is $1,800. In addition, neighbor Billy will receive a benefit of $150 and neighbor Sammy will receive a benefit of $100. From this, we can conclude that
A) butterflies are a negative externality for Billy and Sammy
B) Denise will set up the butterfly garden without any help from her free-rider neighbors
C) if Sammy refuses to contribute to the butterfly garden, he will be unable to enjoy its benefits if it is built
D) if Billy refuses to contribute to the butterfly garden, Denise will not have one
E) if Billy and Sammy contribute the amounts at which they value the butterfly garden, Denise will set it up. Otherwise, no garden.
18.
Albert, Betty, Christine, and David are all very good students. When they hold their study sessions, they often discuss very difficult concepts in great detail. Christine's roommate, Elizabeth, who takes completely different classes, still learns from the discussions of the others. This is the case of a(n) _______________ which _______________ a _______________.
A) public good; benefits; third party
B) externality; imposes a cost on; free rider
C) market failure; results from; third party
D) free rider; benefits from; third party
E) externality; benefits; third party
19.
Markets often generate negative externalities because
A) there are too many participants in the marketplace
B) property rights are sometimes poorly defined
C) identifying pollution sources isn't easy
D) free riders are hard to control
E) social benefits have not been internalized
20.
Imagine a 2,000-acre park with picnic benches, trees, and a pond. Suppose it is publicly owned, and people are invited to enjoy its beauty. Of course, when the weather is nice it is difficult to find parking, and the trash cans overflow with food wrappers on summer afternoons. Otherwise, it is a great place. The park is not a pure public good because
A) when trash cans overflow, a negative externality becomes a positive externality
B) it is not fenced to control access
C) weather is nice only in the summer, limiting optimal use
D) if too many people use it, one person's use can prevent others from using it as well
E) you have to drive to get there and the automobile is a private good