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Questions and Answers
What happens when a positive externality occurs?
What happens when a positive externality occurs?
- The consumption or production of a good benefits a third party (correct)
- The consumption or production of a good harms a third party
- The consumption or production of a good has no effect on a third party
- The consumption or production of a good benefits only the producer
What is the result of positive externalities in the market?
What is the result of positive externalities in the market?
- Over-consumption and market success
- Under-consumption and market failure (correct)
- Over-consumption and market failure
- Under-consumption and market success
How can government intervention help increase demand for goods with positive externalities?
How can government intervention help increase demand for goods with positive externalities?
- By imposing taxes on the production of such goods
- By decreasing the supply of such goods
- By providing subsidies to the production of such goods (correct)
- By banning the production of such goods
What is the recommended diagram for representing positive externalities of consumption?
What is the recommended diagram for representing positive externalities of consumption?
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What is the benefit of switching from conventional to organic farming?
What is the benefit of switching from conventional to organic farming?
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Study Notes
- Positive externality occurs when the consumption or production of a good benefits a third party.
- It leads to under-consumption and market failure.
- Government intervention can be used to increase demand for goods with positive externalities.
- A subsidy can overcome market failure caused by positive externalities.
- The positive externality diagram of consumption is generally advised for simplicity.
- Positive externality can be defined as a decision by an individual that benefits others.
- Switching from conventional to organic farming can have positive externalities for society.
- The benefit of the switch to organic is not limited to the farmer himself.
- Positive externalities lead to a social benefit.
- Positive externalities can be dealt with through government policies.
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