Title: QUIZ: Externalities -- Economic Lowdown Video Series
Course: Andria Testing FRE2 > Section: Externalities -- Economic Lowdown Video Series

Q: When the cost of a transaction spills over to a third party, the effect is called a(n)
- positive externality.
- positional externality.
- negative externality.
- internal externality.
A: negative externality.

Q: Which of the following statements best illustrates a positive externality?
- A well-maintained yard increases the home’s market value.
- A well-maintained yard increases the property tax liability of the owner.
- A well-maintained yard makes other homeowners in the neighborhood jealous.
- A well-maintained yard increases the value of adjacent properties in the neighborhood.
A: A well-maintained yard increases the value of adjacent properties in the neighborhood.

Q: Emissions that result from the production of paper are a good example of a negative externality because
- there are fines for air pollution.
- air pollution is no longer an issue in our economy.
- paper-producing firms are generally unaware of environmental regulations.
- paper-producing firms will not include the cost of pollution in their production costs.
A: paper-producing firms will not include the cost of pollution in their production costs.

Q: When positive externalities are present in a market
- demand will be too high.
- overproduction will occur.
- underproduction will occur.
- producers will be affected, but not consumers.
A: underproduction will occur.

Q: When negative externalities are present in a market
- demand will be too high.
- overproduction will occur.
- underproduction will occur.
- producers will be affected, but not consumers.
A: overproduction will occur.

Q: Government can internalize a negative externality by
- taxing the activity that generates the externality.
- subsidizing the activity that generates the externality.
- outlawing the activity that generates the externality.
- fully funding the activity with taxpayer money.
A: taxing the activity that generates the externality.