Question

61. A positive externality ________.

a. gives rise to external benefits

b. imposes an additional cost on society

c. leads to a higher economic profit

d, leads to increasing returns to scale

62. If the production of a good involves positive externalities, ________.

a. the average cost of production of the good in the long run is zero

b. the variable cost of production of the good is zero

c. the market price of the good is higher than its optimal price

d. the market price of the good is lower than its optimal price

63. Government invention is required to solve externality problems if ________.

a. transaction costs associated with private negotiations are low

b. the number of people affected by the externality is small

c. property rights are clearly defined

d. the number of people affected by the externality is large

64. A government regulation that bans the use of a certain polluting technology in the production of a good is an example of a ________ used to solve an externality.

a. market-based approach

b. command-and-control approach

c. Coasian approach

d. social enforcement mechanism

Answer 1

a) "A"

A positive externality will lead to external benefits in the market.

b) "C"

The price of the goods are higher than optimal price and government will induce a higher production.

c) "D"

The number of people affected by externality is large.

d) "B"

This is an example of a command and control policy used by the government.