18. When the benefits of an activity are received by those wbo are not directly

Question

18. When the benefits of an activity are received by those wbo are not directly involved in it a. a negative externality exists b. the government is producing a free good. c. the society has to bear the burden of that particular activity d. the government has to compensate for the loss in social welfare. e. a positive externality exists. 19. Which of the following is an example of a positive externality? a. b. c. d. e. Smoking a cigarette Driving a less fuel efficient vehicle Setting up a chemicals factory in a residential area Overuse of chemical fertilizers Beekeepers keeping bees for honey 20. Social cost is a. b. c. d e. the sum of fixed and variable costs the difference between the total cost and opportunity cost the sum of private and external costs the difference between the private and external cost sum of fixed costs and opportunity costs 21. When there exists a negative externality in case of a particular good and that is not reflected in the price: a too little of that good is produced and consumed b. too much of that good is produced and consumed. c. nothing of that is either produced or consumed. d. the government completely prohibits the production of such goods e. the resources are allocated to their highest-valued activity. Which of the following is not a problem with a public good? a. An incentive to free-ride b. A public good is often underconsumed c. An absence of private property rights d. An inability to limit consumption to those who purchase the good e. A publie good is usually underproduced 22.

Explanation / Answer

Ans18) e is the correct option. A positive externality exists. A positive externality a benefit that is derived by a third-party as a consequence of an economic transaction.

Ans19) e is the correct option. Beekeepers keeping bees for money. A beekeeper benefits when a neighboring farmer plants clover.

Ans20) c is the correct option. The sum of private and external costs. social cost is the full cost to society of producing a product

Ans21) b is the correct option. Too much of that good is produced and consumed. When there is negative externality there is overproduction and overconsumption.

Ans22) b is the correct option. A public good is often under consumed. Public good is a good which is non rival and non excludable.

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