ECON 110 ZIRLOTT PRACTICE SET 2026
COMPLETE SOLUTIONS GRADED A+
◉ what type of externalities are these?
-being vaccinated against contagious diseases protects not only you,
but people who sit next to you in class
-vaccinating your pets
-R&D creates knowledge others can use
-people going to college raise the population's education level, which
reduces crime and improves government. Answer: Positive
◉ what type of externalities are these?
-air pollution from a factory -> Most Common
-the neighbor's barking dog
-late-night stereo blasting from the dorm room next to yours
-noise pollution from construction projects
-health risk to others from second-hand smoke
-texting on cell phones while driving makes the roads less safe for
others. Answer: Negative
◉ private costs. Answer: supply curve, cost directly incurred by
sellers
,◉ private value. Answer: demand curve, the value to buyers (the
prices they are willing to pay)
◉ social cost. Answer: private + external cost
◉ external cost. Answer: value of the negative impact on bystanders
◉ in the presence of a positive externality, the social value of a good
includes... Answer: private value and external benefit
◉ external benefit. Answer: the value of the positive impact on
bystanders
◉ internalizing the externality. Answer: altering incentives so that
people take account of the external effects of their actions
◉ command and control policies. Answer: -regulate behavior
directly
-Examples: limits on quantity of pollution emitted; requirements that
firms adopt a particular technology to reduce emissions
◉ market based policies. Answer: -provide incentives so that private
decision-makers will choose to solve the problem of their own.
-Examples:corrective taxes and subsidies; tradable pollution permits
, ◉ corrective tax. Answer: a tax designed to induce private decision-
makers to take account of the social costs that arise from a negative
externality (also called a Pigouvian tax after Arthur Pigou)
◉ tradable pollution permits system. Answer: reduces pollution at
lower cost than regulation
◉ private solutions to externalities (4). Answer: -moral codes and
social sanctions, e.g. the "Golden Rule"
-charities, e.g. the Sierra Club
-contracts between market participants and the affected bystanders
-the coase thereom
◉ Coase Theorem. Answer: if private parties can costlessly bargain
over the allocation of resources, they can solve the externalities
problem on their own
◉ why do private solutions not always work? (3). Answer:
transaction costs, stubbornness, and coordination problems
◉ excludable. Answer: a person CAN be prevented from using it
◉ starbucks, wireless internet acces, your U of A education. Answer:
excludable
COMPLETE SOLUTIONS GRADED A+
◉ what type of externalities are these?
-being vaccinated against contagious diseases protects not only you,
but people who sit next to you in class
-vaccinating your pets
-R&D creates knowledge others can use
-people going to college raise the population's education level, which
reduces crime and improves government. Answer: Positive
◉ what type of externalities are these?
-air pollution from a factory -> Most Common
-the neighbor's barking dog
-late-night stereo blasting from the dorm room next to yours
-noise pollution from construction projects
-health risk to others from second-hand smoke
-texting on cell phones while driving makes the roads less safe for
others. Answer: Negative
◉ private costs. Answer: supply curve, cost directly incurred by
sellers
,◉ private value. Answer: demand curve, the value to buyers (the
prices they are willing to pay)
◉ social cost. Answer: private + external cost
◉ external cost. Answer: value of the negative impact on bystanders
◉ in the presence of a positive externality, the social value of a good
includes... Answer: private value and external benefit
◉ external benefit. Answer: the value of the positive impact on
bystanders
◉ internalizing the externality. Answer: altering incentives so that
people take account of the external effects of their actions
◉ command and control policies. Answer: -regulate behavior
directly
-Examples: limits on quantity of pollution emitted; requirements that
firms adopt a particular technology to reduce emissions
◉ market based policies. Answer: -provide incentives so that private
decision-makers will choose to solve the problem of their own.
-Examples:corrective taxes and subsidies; tradable pollution permits
, ◉ corrective tax. Answer: a tax designed to induce private decision-
makers to take account of the social costs that arise from a negative
externality (also called a Pigouvian tax after Arthur Pigou)
◉ tradable pollution permits system. Answer: reduces pollution at
lower cost than regulation
◉ private solutions to externalities (4). Answer: -moral codes and
social sanctions, e.g. the "Golden Rule"
-charities, e.g. the Sierra Club
-contracts between market participants and the affected bystanders
-the coase thereom
◉ Coase Theorem. Answer: if private parties can costlessly bargain
over the allocation of resources, they can solve the externalities
problem on their own
◉ why do private solutions not always work? (3). Answer:
transaction costs, stubbornness, and coordination problems
◉ excludable. Answer: a person CAN be prevented from using it
◉ starbucks, wireless internet acces, your U of A education. Answer:
excludable
