Test Prep For AP® Courses


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

  1. A large computer company pays a settlement based on an anti-trust suit.
  2. Your neighbor adds a new patio to their house, slightly raising your home’s value.
  3. The government imposes a tariff on automobiles.
  4. The government decides to increase subsidies for higher education.
  5. A manufacturer pollutes the local river with waste generated from steel production.

From a social efficiency perspective, markets tend to ____________ goods that impose negative externalities if left unregulated.

  1. produce the correct amount of
  2. charge too much for
  3. overproduce
  4. underproduce
  5. monopolize

Cap-and-trade, clearer defined property rights, and pollution charges are examples of addressing negative externalities through ____________ reforms.

  1. monopolistic
  2. market-based
  3. command-and-control
  4. price
  5. international