Chapter 10(sample exercise)

Chapter 10(sample exercise) - Chapter 10Externalities 1. An...

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Chapter 10—Externalities 1. An externality exists when a. the government intercedes in the operation of private markets by forcing the market to adjust to the balance of supply and demand. b. markets are not able to reach equilibrium. c. a firm sells its product in a foreign market. d. a person engages in an activity that influences the well-being of a bystander and yet neither pays nor receives payment for that effect. 2. When negative externalities are present in a market a. producers will be affected, but not consumers. b. overproduction will occur. c. demand will be too high. d. the market will still maximize total benefits. 3. If a sawmill creates too much noise for local residents a. it will be up to the residents to either adapt or move. b. a sense of social responsibility will cause owners of the mill to reduce noise levels. c. the government can raise economic well-being through noise-control regulations. d. the government can raise economic well-being by providing free hearing screening for residents who live closest to the sawmill. 4. Which of the following is an example of a positive externality? a. A college student buys a new car when she graduates. b. The mayor of a small town plants flowers in the city park. c. Local high school teachers have pizza delivered every Friday for lunch. d. An avid fisherman buys new fishing gear for his next fishing trip. 5. When a beekeeper places his hives of bees in an orchard so that the bees can gather nectar to produce honey, the bees pollinate the orchard, which increases the yield of fruit. This benefits a. only the beekeeper. b. the beekeeper, but creates a negative externality because the bees are a hazard to the orchard owner. c. only the owner of the orchard. d.
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This note was uploaded on 01/07/2010 for the course ECO eco1104 taught by Professor Davidgray during the Fall '09 term at University of Ottawa.

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Chapter 10(sample exercise) - Chapter 10Externalities 1. An...

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