When External Benefits Are Present in a Market

question 34

Multiple Choice

When external benefits are present in a market:

• A) the market is more efficient than if the externalities were not present.
• B) the market outcome is inefficient.
• C) overall social surplus is maximized because others are gaining in addition to the market consumers.
• D) the external benefit must be offset by an external cost.

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Definitions:

Tariff

A tax imposed by a government on imported or exported goods, often used to restrict trade, as they increase the price of imported or exported goods, making them less attractive to consumers.

Consumer Surplus

The difference between the total amount consumers are willing to pay for a product or service and the total amount they actually pay.

Trade Restrictions

Regulations and policies that governments enact to control the free trade and exchange of goods and services across borders.

Import Quota

A restriction enforced by the government on the volume or price of merchandise that may be imported into a country.