4. The term \"externalities\" refers to: a. Black-market activity b. Illegal eco

Question

4. The term "externalities" refers to: a. Black-market activity b. Illegal economic activity. c. All costs and benefits of a market activity borne by a third party d. The impact on markets of goods imported from foreign countries 5. When a firm or economy is operating inefficiently, it is operating at the intersection of the production possibilities frontier with the vertical axis. inside its production possibilities frontier at the intersection of the production possibilities frontier with the horizontal axis. outside its production possibilities frontier. on its production possibilities frontier a. b. c. d. e.

Explanation / Answer

4) An externality is a positive or negative effect of economic activity suffered by the third party who is not involved in these activities. Option c is correct

5) An economy is operating inefficiently when it does not uses its scarce resources fully. This type of economy has the opportunity to use its resources fully and produce more on the production possibility frontier. So if an economy is producing below PPF then it is operating inefficiently. Option b is correct.

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