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Grade 11 · Social studies

Identify costs and benefits outside a transaction

Identify a stated external cost or benefit and distinguish it from costs borne only by the buyer and seller.

6 authored questions + worked example

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Worked example

A workshop sells furniture while its noise disturbs nearby residents who are not part of the sale. Which is the stated external cost?

Answer & why

Answer: The disturbance to nearby residents.

The residents are affected outside the furniture transaction.

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All questions

All 6 authored questions for this skill.

Question 1

A delivery service pays for fuel from its own budget. No other effect is described. What kind of cost is that fuel payment?

  1. Automatically an external cost to every neighbor.
  2. A benefit that costs nothing.
  3. A private operating cost.
  4. A payment by someone outside the service.
A hint

Look for a third party affected by the activity but not included in its transaction.

Answer & why

Answer: A private operating cost.

The service itself bears the described payment.

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Question 2

A factory's runoff raises a downstream group's water-treatment expense. Which measurement most directly estimates the stated external cost?

  1. The downstream group's favorite color.
  2. The additional treatment cost attributable to the runoff.
  3. The number of words in the factory sign.
  4. The factory name's length.
A hint

Look for a third party affected by the activity but not included in its transaction.

Answer & why

Answer: The additional treatment cost attributable to the runoff.

The effect named is an added expense imposed outside the sale.

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Question 3

A report identifies an external cost. Does that fact alone select one uniquely correct policy response?

  1. Yes; all possible responses have identical effects.
  2. No; external effects cannot be studied.
  3. Yes; no comparison is ever needed.
  4. No; responses also require evidence about effectiveness, costs and goals.
A hint

Look for a third party affected by the activity but not included in its transaction.

Answer & why

Answer: No; responses also require evidence about effectiveness, costs and goals.

Recognizing a spillover is different from evaluating policy alternatives.

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Question 4

An activity benefits only the paying buyer in the facts provided. What evidence is needed before claiming an external benefit?

  1. The seller's preferred typeface.
  2. A second copy of the buyer's receipt.
  3. A larger price label alone.
  4. A benefit to a party outside that transaction.
A hint

Look for a third party affected by the activity but not included in its transaction.

Answer & why

Answer: A benefit to a party outside that transaction.

An external benefit must extend beyond the participants described in the transaction.

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Question 5

A workshop sells furniture while its noise disturbs nearby residents who are not part of the sale. Which is the stated external cost?

  1. The disturbance to nearby residents.
  2. The workshop's receipt for wood.
  3. The buyer's payment for furniture.
  4. The seller's advertised price.
A hint

Look for a third party affected by the activity but not included in its transaction.

Answer & why

Answer: The disturbance to nearby residents.

The residents are affected outside the furniture transaction.

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Question 6

A household plants flowers for its own enjoyment. The flowers also support pollinators used by a neighboring orchard, with no payment exchanged. Which is the stated external benefit?

  1. The orchard's pollinator benefit.
  2. The shop's flowerpot price.
  3. Only the household's seed purchase.
  4. The household's private enjoyment alone.
A hint

Look for a third party affected by the activity but not included in its transaction.

Answer & why

Answer: The orchard's pollinator benefit.

The neighboring orchard benefits outside the household's purchase.

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