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Progress: 1 / 20

Give two examples of government regulation to correct externalities.

Emissions limits for factories and bans on plastic bags.

How do subsidies address positive externalities?

They reduce the cost of producing or consuming merit goods, increasing their use.

What does MSB = MSC represent?

Allocative efficiency, where social/community surplus is maximized.

What are Pigouvian taxes?

Indirect taxes imposed to internalize negative externalities, aligning private and social costs.

What is a common pool resource?

A resource that is rivalrous but non-excludable, like fisheries or forests.

How do carbon taxes address market failure?

They increase the cost of emitting CO₂, discouraging pollution and internalizing the external cost.

What are negative externalities of consumption?

Costs imposed on third parties by consumption, such as secondhand smoke from cigarettes.

What are demerit goods?

Goods that are over-consumed if left to the market, often with negative externalities, like alcohol or cigarettes.

What are merit goods?

Goods that are under-consumed if left to the market, often with positive externalities, like education or healthcare.

What are the limitations of government intervention in externalities?

Measurement difficulties, effectiveness concerns, and stakeholder conflicts.

What is the socially optimum output?

The output where marginal social benefit (MSB) equals marginal social cost (MSC), achieving allocative efficiency.

What is collective self-governance in managing common resources?

When communities manage resources collectively without external regulation.

How can governments intervene in the provision of public goods?

Through direct provision or contracting private firms to supply them.

What is the free rider problem?

People can benefit from a good without paying, leading to under-provision by the market.

What are positive externalities of production?

Benefits to third parties from the production of a good, such as improved public health from vaccine production.

What is the 'tragedy of the commons'?

The overuse and depletion of common resources due to individual incentives.

What are tradable permits?

Market-based instruments that cap total pollution and allow firms to trade emission rights.

What is the role of international agreements in managing externalities?

They coordinate global responses to sustainability challenges, e.g., the Paris Climate Accord.

What diagram shows market failure due to negative externalities of production?

A diagram with marginal private cost (MPC) lower than marginal social cost (MSC), showing overproduction.

What are public goods?

Goods that are non-rivalrous and non-excludable, like street lighting or national defense.

[marketfailure_quiz]

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Externality diagrams

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an image of plastic bags in an overfilled bin

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