When the consumption of a good or service imposes costs to society that are not

Question

When the consumption of a good or service imposes costs to society that are not reflected in the market price of the good, A. a positive externality arises B. it implies that a renewable resource has been used in the production of the good C. a negative externality arises D. it implies that the good is a public good The common-pool problem arises: A. when property rights are well defined. B. when renewable resources are overused. C. in the presence of asymmetric information. D. when goods are not rival in consumption. The socially optimal level of output of a good that generates an externality occurs when: A. the firm maximizes its profits. B. the marginal private cost of production equal marginal private revenue. C. the marginal private cost of production exceeds the marginal social cost of production. D. the marginal social cost of production equals the marginal social benefit of production. Which of the following reasons explains why many countries with relatively small populations import automobiles from Japan, U.S., and Germany rather than produce them domestically? A. Differences in resource endowments B. Differences in tastes C. Economies of scale D. Import quota

Explanation / Answer

Externalities is a situations when the effect of production or consumption of goods and services imposes costs or benefits on others which are not reflected in the prices charged for the goods and services being provided.

Renewable resources are a resource that regenerates itself and can be used indefinitely if used conservatively.

Endowment is commonly understood as the amount of land, labor, capital, and entrepreneurship that a country possesses and can exploit for manufacturing.

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