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Chapter 5 Review Questions

Chapter 5 Review Questions - Principles of Microeconomics...

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Principles of Microeconomics Chapter 5 Review Questions 1. Negative externalities arise: A) when firms pay more than the opportunity cost of resources. B) when the demand curve for a product is located too far to the left. C) when firms "use" resources without being compelled to pay for their full costs. D) only in capitalistic societies. Answer: C 2. Positive externalities benefits refer to: A) benefits that accrue to parties other than the producer and buyer of a good. B) the benefits that resource suppliers obtain from the production and sale of a good. C) the benefit that a consumer receives from buying a good. D) the combined benefits that buyer and seller receive from a voluntary market transaction. Answer: A 3. An external cost or external benefit is also known as a(n): A) marginal benefit. B) principal-agent problem. C) transfer payment. D) externality. Answer: D 4. When externalities cause substantial positive benefits for third parties, a competitive market: 5. Suppose the production of a certain good creates substantial positive externalities. If government adopts a policy that adjusts demand to take these benefits into account, then:
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