Externalities, Public Goods & Policy Responses — Practice · Grade 12 Social Studies

Chapter: Economic Foundations & Market Decisions

What this practice covers

By the end of Externalities, Public Goods & Policy Responses you should be able to:

8 questions, written answer, each with a worked explanation.

Vocabulary used: externality, social cost, nonrival, nonexcludable, free rider.

Problem 1

Why can a transaction’s price omit a relevant cost?
Answer and explanation

An effect on people outside the exchange may not enter the buyer’s or seller’s decision. Under the supplied model, the $4 external harm raises social cost beyond the $10 private cost. Identify and measure the effect rather than assuming every price includes it.

Problem 2

Why is publicly funded not the definition of a public good?
Answer and explanation

Funding describes who pays. The economic category concerns rivalry and exclusion. A publicly funded service can have scarce places or exclude users; evaluate its use characteristics separately from its financing.

Problem 3

Why must an incentive model be compared with actual institutions?
Answer and explanation

Rules, cooperation, information, and enforcement can change behavior. The model identifies a possible pathway, while evidence establishes whether it operates and how strongly in the particular setting.

Problem 4

Why does identifying an externality not establish a complete policy solution?
Answer and explanation

A response still needs reliable measurement, authority, administration, incentives, and comparison with alternatives. Explain its mechanism and limits, including who bears costs. The original problem does not guarantee every proposed remedy works.

Problem 5

Invented model: private cost $10 per unit and separately measured external harm $4 per unit; proposed charge $4. No demand curve or enforcement data are supplied. Calculate modeled social cost and explain the proposal’s limits.
Answer and explanation

Modeled social cost is $14 per unit. A $4 charge could make the measured external effect enter the producer’s decision under the assumptions. The packet lacks demand, damage variation, enforcement, and distributional evidence, so it cannot establish optimal output or universal effectiveness. It illustrates a mechanism rather than resolving a real policy dispute.

Add distinct costs.

Identify the incentive mechanism.

State missing information for broader conclusions.

Response criteria

  • Explain the relevant institution or economic concept accurately; show correct calculations where needed.
  • Connect supplied evidence and stated assumptions to an explained conclusion.
  • Compare feasible options and their effects on different people without stereotypes.
  • Identify a limitation, tradeoff, uncertainty, or condition that qualifies the conclusion.

Problem 6

Is every government-provided service nonrival and nonexcludable?
Answer and explanation

No. Some have limited places, congestion, or eligibility restrictions. Public provision and the technical public-good category answer different questions. Classify the use and exclusion conditions rather than the payer alone.

Response criteria

  • Explain the relevant institution or economic concept accurately; show correct calculations where needed.
  • Connect supplied evidence and stated assumptions to an explained conclusion.
  • Compare feasible options and their effects on different people without stereotypes.
  • Identify a limitation, tradeoff, uncertainty, or condition that qualifies the conclusion.

Problem 7

Invented private cost is $8 and separately measured external harm $3 per unit. Calculate modeled social cost and identify an excluded question.
Answer and explanation

Social cost is $11 per unit if the measures are distinct and additive. Demand, harm variation, distribution, authority, and enforcement are not supplied, so the total does not establish optimal output or the best instrument.

Response criteria

  • Explain the relevant institution or economic concept accurately; show correct calculations where needed.
  • Connect supplied evidence and stated assumptions to an explained conclusion.
  • Compare feasible options and their effects on different people without stereotypes.
  • Identify a limitation, tradeoff, uncertainty, or condition that qualifies the conclusion.

Problem 8

A publicly financed classroom has only 20 places. Why is funding insufficient to call the service nonrival?
Answer and explanation

A place used by one student can reduce the places available to others at capacity. Rivalry concerns use, while public funding concerns payment. Define exclusion and conditions separately before assigning the technical category.

Response criteria

  • Explain the relevant institution or economic concept accurately; show correct calculations where needed.
  • Connect supplied evidence and stated assumptions to an explained conclusion.
  • Compare feasible options and their effects on different people without stereotypes.
  • Identify a limitation, tradeoff, uncertainty, or condition that qualifies the conclusion.

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