Question

Question 10 (1 point)

Which of the following statements is true?

a	Since social benefits are greater than the private benefits, the government must either aid the producer to encourage more output, or engage in its own production of the good with positive externalities.
b	Positive externalities occur when a third party is affected by the transaction in a negative way.
c	In a market with positive externalities, the good is “underproduced” because the producer is not bearing the full cost of production but receiving all the benefits from the production of the good.
d	All of the above.
e	Only a) and c)

Question 11 (1 point)

Which of the following statements is true?

a	Since for goods with positive externalities social costs are greater than the private costs, the government must make the producer reduce the output of these goods.
b	The government can correct negative externalities through direct controls/regulations or specific taxes.
c	Excise taxes are those imposed on a specific good or service.
d	All of the above.
e	Only b) and c)

Question 12 (1 point)

Which of the following statements is true?

a	Negative externalities result in an underallocation of resources.
b	The government can correct positive externalities by using subsidies or by producing the good itself.
c	The Coase theorem suggests that under some conditions private bargaining can solve externality problems.
d	All of the above.
e	Only b) and c)

Answer 1

Q10 Answer is A.

Positive externality means activities of one affect the other in positive way. For example park maintained by one affect the neighborhood positive because neighbours also receive good air quality due to park.

Q11 Answer is E. b and c.

Negative externalities are corrected by having taxes.

In case of positive externality social cost are lower then private cost.

Q12 Answer is E. b and c

Negative externality have over allocation. Positive externality have under allocation.

Positive externality are corrected by giving subsidies.

Coase theorem says private bargaining could solve the problem if there few party involved, transactions cost are low and property rights are well defined.

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