Economics Chapter on Externalities and Poverty

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Questions and Answers

Which of the following is an example of a positive externality?

A driver speeds through a residential neighborhood, causing noise pollution.
A person loses their job and has to reduce their spending, negatively impacting local businesses.
A factory pollutes a nearby river.
A homeowner plants a beautiful garden that increases the value of surrounding properties. (correct)

What is the primary goal of government intervention in markets with externalities?

To minimize negative externalities and maximize positive externalities. (correct)
To ensure equal distribution of wealth among citizens.
To regulate all economic activity and prevent market failures.
To maximize profits for businesses.

Which of the following is NOT a characteristic of safety nets?

Programs designed to increase the overall cost of living. (correct)
Support systems to help individuals navigate difficult economic situations.
Targeted towards those temporarily without income or at or below the poverty line.
Services and assistance provided by the government.

What is the purpose of redistribution programs in terms of economics and social welfare?

<p>To address income inequality and provide a safety net for those in need. (B)</p> Signup and view all the answers

How is poverty measured in the United States?

<p>By calculating the number of people living below the poverty line based on a relative measure adjusted annually. (B)</p> Signup and view all the answers

Flashcards

Externality

Cost or benefit from a good that affects others not involved.

Positive Externality

A beneficial effect on third parties from a product or service.

Negative Externality

A harmful effect on third parties from a product or service.

Poverty Threshold

The minimum income needed to support a household.

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Redistribution

Transferring taxes to welfare programs for the needy.

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Study Notes

Externalities

Externalities are costs or benefits of a good or service that affect someone who did not produce or consume that good or service.
Positive externality: a benefit. Example: renovating a run-down house increases the property value of surrounding properties.
Negative externality: a cost. Example: foreclosure of a house negatively affects the property value of surrounding properties.

Goals of Government

Increase positive externalities. Example: education benefits society, not just the student.
Decrease negative externalities. Example: regulations on factories to reduce greenhouse gases.

Safety Nets

Services and assistance offered by government, helping temporarily without income or below the poverty line.

Poverty

Poverty threshold - income level that is too low to support a household.
Relative figure - the U.S. Census reports on poverty, adjusting the threshold every year.