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Externalities Questions 2026

The document discusses externalities, defining them as costs or benefits affecting third parties not involved in a transaction. It differentiates between positive externalities, such as education, and negative externalities, like pollution, and explores methods for addressing these issues, including taxation and subsidies. Additionally, it highlights the implications of market failure due to externalities and the rationale behind government interventions.

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80 views2 pages

Externalities Questions 2026

The document discusses externalities, defining them as costs or benefits affecting third parties not involved in a transaction. It differentiates between positive externalities, such as education, and negative externalities, like pollution, and explores methods for addressing these issues, including taxation and subsidies. Additionally, it highlights the implications of market failure due to externalities and the rationale behind government interventions.

Uploaded by

hk2010.ghost2.0
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Externalities

1. What is meant by the term externality?


a) A cost or benefit that affects a third party not involved in the transaction
b) The total cost of producing a good
c) The profit made by a producer
d) A government-imposed tax on goods
2. Which of the following is an example of a positive externality?
a) Air pollution from a factory
b) Education leading to a more skilled workforce
c) Noise pollution from construction
d) Traffic congestion during rush hour
3. Which of the following is a method to address negative externalities?
a) Subsidies
b) Imposing a tax on the producer
c) Setting a minimum price for goods
d) Increasing demand for the good
4. A vaccination program provides benefits beyond the vaccinated individuals
because it:
a) Increases profits for pharmaceutical companies
b) Reduces the spread of disease in society
c) Lowers healthcare costs for the vaccinated
d) Provides a monopoly for vaccine manufacturers
5. What is the result of a market with significant positive externalities?
a) Overproduction of the good
b) Underproduction of the good
c) Efficient allocation of resources
d) Elimination of consumer surplus

6. What is meant by a positive externality? (2 marks)

7. What is meant by a negative externality? (2 marks)

8. What is meant by market failure caused by externalities? (2 marks)


9. Explain one reason why governments impose taxes on goods that cause negative
externalities, such as cigarettes or alcohol. (3 marks)

10. Explain one reason why governments provide subsidies for goods or services
that have positive externalities, such as renewable energy or public education. (3
marks)

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