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NR 326 final Questions and Correct Answers
externality Ans: any situation in which the utility of one
individual is influenced by an activity under the control of another
occurs when an economic activity causes external costs or benefits
to 3rd party stakeholders who cannot directly affect the economic
situation; producers and consumers don't bear all of the costs or
reap all of the benefits
what do externalities generally arise from? Ans: poorly defined
property rights
4 types of externalities Ans: 1. Relevant
2. Pareto-relevant
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3. Positive (external economy)
4. Negative (external diseconomy)
Relevant externality Ans: is it relevant? affected party has a
desire for acting party to modify behavior
Pareto-relevant externality Ans: when it is possible to make the
affected party better off without making the acting party worse off
Positive externality Ans: affected party made better off by
externality, affected party is called a free rider
negative externality Ans: affected party is worse off, the focus of
government policy and research
Pollution Ans: when the waste assimilating capacity of the
environment is exceeded; when the assimilation services of the
environment are free and unpriced
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2 basic categories of pollution Ans: point source and non-point
source
point source pollution Ans: a single identifiable source of air,
water, thermal, noise or light pollution (solution will require
coercive restrictions)
non-point source pollution Ans: pollution that cannot be traced
back to a single origin (solution will require assistive means)
6 criteria pollutants Ans: Sulfer dioxide, nitrogen dioxide, Ozone,
particulate matter (10-2.5 microns), carbon monoxide, lead
traditional solutions to point source pollution Ans: 1. emission
standards (laws with fines)
2. emission charges (laws with charges)
3. taxes
4. tradable emission permits
© 2025 All rights reserved
NR 326 final Questions and Correct Answers
externality Ans: any situation in which the utility of one
individual is influenced by an activity under the control of another
occurs when an economic activity causes external costs or benefits
to 3rd party stakeholders who cannot directly affect the economic
situation; producers and consumers don't bear all of the costs or
reap all of the benefits
what do externalities generally arise from? Ans: poorly defined
property rights
4 types of externalities Ans: 1. Relevant
2. Pareto-relevant
© 2025 All rights reserved
, 2 | Page
3. Positive (external economy)
4. Negative (external diseconomy)
Relevant externality Ans: is it relevant? affected party has a
desire for acting party to modify behavior
Pareto-relevant externality Ans: when it is possible to make the
affected party better off without making the acting party worse off
Positive externality Ans: affected party made better off by
externality, affected party is called a free rider
negative externality Ans: affected party is worse off, the focus of
government policy and research
Pollution Ans: when the waste assimilating capacity of the
environment is exceeded; when the assimilation services of the
environment are free and unpriced
© 2025 All rights reserved
, 3 | Page
2 basic categories of pollution Ans: point source and non-point
source
point source pollution Ans: a single identifiable source of air,
water, thermal, noise or light pollution (solution will require
coercive restrictions)
non-point source pollution Ans: pollution that cannot be traced
back to a single origin (solution will require assistive means)
6 criteria pollutants Ans: Sulfer dioxide, nitrogen dioxide, Ozone,
particulate matter (10-2.5 microns), carbon monoxide, lead
traditional solutions to point source pollution Ans: 1. emission
standards (laws with fines)
2. emission charges (laws with charges)
3. taxes
4. tradable emission permits
© 2025 All rights reserved
