Question

Match the related concepts.

• A. Underproduction
• B. Overproduction
• C. Public Goods
• D. Monopoly

Answer 1

(i) When the action of one party benefits another party, it is called a positive externality. In such cases, underproduction of a beneficial good happens.

(ii) When the action of one party poses a cost on another party, it is called a negative externality. In such cases, overproduction of a harmful good can happen.

(iii) Public goods can be freely used by anyone. Hence there is no fixed ownership in case of public goods.

(iv) When one firm has monopoly over production, they will be able to affect the market prices. This is called market power.