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Unformatted text preview: Name: ________________________ Class: ___________________ Date: __________ ID: A 1 Practice_Externalities_Public_goods Multiple Choice Identify the choice that best completes the statement or answers the question. ____ 1. The term market failure refers to a. a market that fails to allocate resources efficiently. b. an unsuccessful advertising campaign which reduces demand. c. ruthless competition among firms. d. a firm that is forced out of business because of losses. ____ 2. An externality is an example of a. a corrective tax. b. a tradable pollution permit. c. a market failure. d. Both a and b are correct. ____ 3. An externality a. results in an equilibrium that does not maximize the total benefits to society. b. causes demand to exceed supply. c. strengthens the role of the invisible hand in the marketplace. d. affects buyers but not sellers. ____ 4. An externality is a. the costs that parties incur in the process of agreeing and following through on a bargain. b. the uncompensated impact of one person's actions on the well-being of a bystander. c. the proposition that private parties can bargain without cost over the allocation of resources. d. a market equilibrium tax. ____ 5. When externalities are present in a market, the well-being of market participants a. and market bystanders are both directly affected. b. and market bystanders are both indirectly affected. c. is directly affected, and market bystanders are indirectly affected. d. is indirectly affected, and market bystanders are directly affected. ____ 6. Which of the following represents a way that a government can help the private market to internalize an externality? a. taxing goods that have negative externalities b. subsidizing goods that have positive externalities c. The government cannot improve upon the outcomes of private markets. d. Both a and b are correct. Name: ________________________ ID: A 2 ____ 7. A negative externality arises when a person engages in an activity that has a. an adverse effect on a bystander who is not compensated by the person who causes the effect. b. an adverse effect on a bystander who is compensated by the person who causes the effect. c. a beneficial effect on a bystander who pays the person who causes the effect. d. a beneficial effect on a bystander who does not pay the person who causes the effect. Figure 10-1 ____ 8. Refer to Figure 10-1 . This graph represents the tobacco industry. The industry creates a. positive externalities. b. negative externalities. c. no externalities. d. no equilibrium in the market. ____ 9. Refer to Figure 10-1 . This graph represents the tobacco industry. Without any government intervention, the equilibrium price and quantity are a. $1.90 and 38 units, respectively....
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