ENVR 210CLICKER QUESTIONS

Chapter 4 (F & F) – Question Set #1

The term market failure refers to

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1. a market that fails to allocate resources efficiently.

2. an unsuccessful advertising campaign which reduces demand.

3. ruthless competition among firms.

4. a firm that is forced out of business because of losses.

Response

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An externality arises when a person engages in an activity that influences the well-being of

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1. buyers in the market for that activity and yet neither pays nor receives any compensation for that effect.

2. sellers in the market for that activity and yet neither pays nor receives any compensation for that effect.

3. bystanders in the market for that activity and yet neither pays nor receives any compensation for that effect

4. Both (a) and (b) are correct.Respons

e Counter

A positive externality arises when a person engages in an activity that has

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1. an adverse effect on a bystander who is not compensated by the person who causes the effect.

2. an adverse effect on a bystander who is compensated by the person who causes the effect.

3. a beneficial effect on a bystander who pays the person who causes the effect.

4. a beneficial effect on a bystander who does not pay the person who causes the effect.

Response

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