Question

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

The noise created by an auto racetrack located near a residential area

Toxic chemicals dumped into a river that is used as a water supply

A neighbor who refuses to mow his yard or paint his house

A lower crime rate in a neighborhood patrolled by a security company

2. A tax levied on gasoline is predicted to:

reduce production and consumption, leading to more pollution.

reduce production and consumption, leading to less pollution.

increase production and reduce consumption and pollution.

reduce production, leading to more consumption and pollution. 3.All of the following are examples of public goods except: national defense. a lighthouse. a bagel with cream cheese. a fireworks display.

4.Goods that are both nonrival and nonexcludable are:

pure private goods.

free goods.

common resources.

pure public goods

Answer 1

1. Option D.

• A lower crime rate in a neighborhood patrolled by a security company is an example of positive externality.
• Positive externality is said to occur when any actions of any individual or a firm benefits the third party.
• When the security company patrolls the neighborhood, all the people staying in that neighborhood benefit against crimes.

2. Option B.

• A tax levied on gasoline is predicted to reduce production and consumption, leading to less pollution.
• When the government imposes tax on gasoline, the production costs for producers increases.
• The producer's then reduce the production of consumption and increase the price of gasoline which decreases the consumption.
• With decreased production and consumption, pollution also decreases.

3. Option C.

• All of the following are the examples of pure goods except a bagel with cream cheese.
• Public goods are those goods that are available to all and hence are non excludable and non rival.
• It means that no one can be denied from using these goods and the use of a public good by one does not decrease its availability for others.
• A bagel with cream cheese is hence not a public good as it is excludable and rivalrous in nature as it excludes those who do not pay for it and the consumption of cheese by one reduces it's availability for others.

4. Option D.

• Goods that are both non rival and non excludable are pure public goods.
• Public goods are those goods that are available to all and non rival and non excludable in nature.
• They are called as non excludable as no one can be denied from its use and non rival as the consumption by one individuaI does not prevent the simulatenous consumption by others.