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__172.20.40.61_Materials_jvazquez-0032_0.102-Practice-Externalities

__172.20.40.61_Materials_jvazquez-0032_0.102-Practice-Externalities

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1. Which of the following illustrates the concept of external cost? a) Margaret purchases all her food and clothing in the big city outside her residence. b) A small business owner frequently buys raw materials by using her bank's line of credit. c) Raymond cannot open his windows at times because he lives downwind from a mushroom farm. d) Felicia, an economics major, asks the most insightful questions in class. Answer: _____ 2. Antibiotics may be ________, since people only consider their ________. 3. An external cost: 4. A chemical bathroom cleaner has an ingredient X which allows the cleaner to lather well and removes stains. The cost of producing a bottle of this bathroom cleaner is $3.60, but the bottle retails for $5.50. When consumers use the bathroom cleaner, the lather that is washed down the drain escapes into the environment and releases allergens which cause respiratory problems for people. What is the social cost of a bottle of this cleaner?
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5. When patients or farmers choose whether to use more antibiotics, they compare: a) their private benefits with the social cost. b) their private benefits with the market price. c) the social benefits with the social cost. d) the social benefits with the market price. Answer: _____ 6. Since the price of antibiotics does not include all the costs of using antibiotics, the price is too: 7. Suppose that the private cost of using antibiotics is less than its social costówe would then expect people to ________ antibiotics, leading to an ________ market outcome.
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