1.When negative externalities are present, it means that: a.All of these stateme

Question

1.When negative externalities are present, it means that: a.All of these statements are true. production and consumption is above the socially optimal level. b.society bears part of the cost borne of private transactions. c.individuals don't take into account d.all the costs associated with their market choice. 2All externalities: a.are harmful to society and create costs external to the decision maker. b.are addressed by the government through taxation. c.are beneficial to society and create benefits external to the decision maker. d.create either a cost or benefit to a person other than the person who caused it. 3The distribution of surplus received from a subsidy offered in a market where a positive externality is present depends on: a.if those who are affected receive their true value of the externality. b.None of these statements is true. c.where the government gets the money to pay for the subsidy. d.how the subsidy is distributed among those affected by the externality. 4Entitlement spending: a.All of these statements are true. b.rises and falls with the number of people who are eligible recipients. c.is public expenditure that is mandated and regulated by permanent laws. d.cannot be reduced without changing the laws outlining eligibility. 5.Who actually benefits from a subsidy to sellers? a.Only sellers benefit, since it is their subsidy. b.Only consumers benefit from any kind of subsidy. c.The benefit is shared depending on elasticity of the supply and demand curves. d.None of these statements is true.

Explanation / Answer

1. When negative externalities are present, it means that society bears part of the cost bome of private transactions. It gives an adverse effect on the market.

2. All externalities create either a cost or benefit to a person other than the person who caused it. It gives profit to firm. It levy tax and charges on customers.

3. The distribution of surplus received from a subsidy offered on a market where a positive externality is present depends on those who are affected receivetheir true value of externality. It gives benefit to the consumers by the government.

4. Entitlement spending is public expenditure that is mandated and regulated by permanent laws.

5. The person who is actually benefitted from a subsidy to sellers is only seller benefit, since it is their subsidy. The consumer is given benefit by the government on subsidy.

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