(Legacy) - Externalities and Cost-Benefit Analysis
21 questions· page 1 of 3
Which is the most appropriate reason for the continued government ownership of a natural monopoly?
Options
A The government will guarantee competitive behaviour.
B The government will ignore any losses made by the monopoly.
C The government will maximise profits.
D The government will take account of external benefits.
What is an economic reason why hospitals are often built and funded by the government?
Options
A Hospitals are a public good.
B Hospitals are very expensive to build and run.
C Hospitals cannot use price to allocate demand.
D Hospital treatments may benefit many apart from those who use them.
The diagrams show the costs and benefits in four markets.
Which pair of diagrams show the existence of a positive consumption externality and a negative production externality?
Options
| positive consumption externality | negative production externality | |
|---|---|---|
| A | 1 | 2 |
| B | 2 | 3 |
| C | 3 | 4 |
| D | 4 | 1 |
Which statement about costs is correct?
Options
A External cost only affects consumers.
B Opportunity cost affects all transactions.
C Private cost only affects producers.
D Social cost affects all members of society equally.
A government is considering building a high-speed rail link.
Why would it not proceed with the project?
Options
A The external benefit is greater than the external cost.
B The private cost is greater than the private benefit.
C The social benefit is greater than the social cost.
D The social cost is greater than the social benefit.
The production of a product generates a negative externality that increases as output rises.
Which form of government intervention in the market is most suitable to tackle this externality?
Options
A a direct income tax
B a specific indirect tax
C a subsidy
D an ad valorem indirect tax
What is an example of an externality?
Options
A Production of good X directly affects the cost of producing good Y.
B The entry of a new firm reduces the profits of existing firms producing good X.
C The introduction of bus-only lanes reduces the travel times of bus passengers.
D The opening of a new underground railway reduces the revenue of bus operators.
The table gives the estimated costs and benefits of a proposed new leisure complex.
| $000s | |
|---|---|
| private benefits | 120 |
| external benefits | 80 |
| private costs | 140 |
| external costs | 20 |
What is the estimated value of the social benefits of the project?
Options
A $40 000
B $60 000
C $80 000
D $200 000
The production of what is most likely to require a government cost-benefit analysis?
Options
A houses
B medicines
C roads
D schools
James grows fruit trees in his garden. They attract butterflies and bees.
What is not an externality of this situation?
Options
A Neighbours may be stung by the bees that pollinate the trees.
B Neighbours may buy fruit more cheaply from James than from the local supermarket.
C Neighbours may enjoy better air quality as the trees naturally improve the atmosphere.
D Neighbours may like to watch the activity of the wildlife at no cost.