Test Prep For AP® Courses
Which of the following is an example of a positive externality?
- Public higher education helps foster a society that is more informed about issues of law and public policy.
- A homeowner invests in home improvements to their house, increasing its market value.
- A local government imposes a tax on alcohol.
- A wildfire is sparked from a nearby railroad.
- A firm invests in new capital equipment.
From a social efficiency perspective, markets tend to ____________ goods with positive externalities, if left unregulated.
- produce the correct amount of
- charge not enough for
Which of the following issues primarily explains why societies sometimes allow governments to provide public goods such as roads and bridges, instead of private companies?
- Anti-trust law
- Profit maximization
- Negative externalities
- Free rider problem
- Inelastic demand