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externality

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a benefit or cost that affects someone who is not directly involved in the production of a good or service

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example of negative externality

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pollution second hand smoke

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example of positive externality

answer

college education medical advances

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public goods

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good that may not be produced at all unless the government produces it

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private cost

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the cost created drom directly producing a good or service

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social cost

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the total cost of producing a good or service, including private and external cost

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private benefit

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the benefit recieved just from a consumer for a good or service

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social benefit

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the total benefit from consuming a good or service

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effiicent equilivrium

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where marginal SOCIAL cost and demand meet

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market equiilibrium

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where marginal PRIVATE cost and demand meet

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deadweight

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space between market equilibrium and efficient equilibrium

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at market eqiuilibrium, negative externalities lead to ________________________ of a product

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overproduction

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marginal social benefit formula

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marginal private benefit + external benefit

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market failiure

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a situation in which the market fails to produce the effiecent level of outpiut

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property rights

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the rights individuals or businesses have to the exclusive use of their property, including the right to buy or sell it

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when there is a positive externality in consuming a good or service, ________________ of the good or service will be produced at market equilibrium

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too little

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to maximize net benefit to society, negative externalities should be reduced up to the point where ___________________

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the marginal benefit from another unit of reduction is equal to the marginal cost

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net benefit formula

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total benefit - total cost

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transactions costs

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the costs in time and other resources that parties incur in the process of agreeing to and carrying out an exchange of goods or services

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coase therem

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the argument that if transaction costs are low, private bargaining will result in an efficient solution to the problem of externalities

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when the government imposes a tax on producers to correct a negative externality, ________________________

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the cost of the correction is split between producers and consumers

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market equilibrium is found when a government imposes a ________________________ on a positive externality

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subsidy

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pigovian taxes and subsidies

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government taxes and subsidies intended to bring about an efficient level of output in the presence of externalities

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command and control approach

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a policy that involves the government imposing quantitative limits on the amount of pollution firms are allowed to emit or requiring firms to install specific pollution control devices

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rival

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the situation that occurs when one person consuming a unit of a good means no one else can consume it

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excludability

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the situation in which anyone who does not pay for a good cannot consumer it

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private good

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a good that is both rival and excludable

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examples of private good

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food, haircuts

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public good

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a good that is both nonrival and nonexcludable

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free riding

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benefiting from a good without paying for it

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example of a public good

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national defense, court system

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quasi public good

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a good that is exclusadable but not rival

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example of quasi public good

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cable television, toll roads

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common resource

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a good that is rival but not excludable

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example of common resource

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forest land, tuna in the ocean

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how to find marginal social benefit curve for a private good

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combine all consumer demand curves horizontally

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how to find marginal social benefit curve for a public good

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combine all consumer demand curves vertically

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the larger the amount of consumers of a public good, _____________________________________

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the harder it is to find optimal quanity

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tragedy of the commons

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the tendecncy for a common resource to be overused

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government strategy to reduce tragedy of the commons

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to impose a tax or another form of obstacle

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One idea often floated in the United States as a legislative response to global climate change is __________.

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cap and trade

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A marketable pollution permit is a permit:

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that allows a firm to sell the right to pollute

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The costs associated with engaging in a process to solve a particular pollution problem are referred to as:

answer

transaction costs

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The marginal cost of eliminating the first 20% of pollution is much __________ than the marginal cost of eliminating the last 20% of pollution.

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less expensive

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The lack of clearly assigned property rights contributes to __________ of common resources.

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overuse

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tax is 68 cents which causes an increase of 40 cents to equilibrium price

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According to the graph, how much is the gasoline tax and how much does the equilibrium price increase as a result of the tax?

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When a private cost is different than the social cost there is an: ____________

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external cost being borne by someone else

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Which of these is the preferred method to reduce the external cost (pollution) of traffic congestion according to an economist?

answer

levy a tax that varies with the level of congestion

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the vertical distance between S1 and S2

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Which of these best represents a tax equal to the value of the negative externality?

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The lack of private ownership of certain resources like public lands or water can contribute to overuse. This is known as:

answer

the tragedy of the commons

question

8 million tons

answer

what is the optinum level of pollution

question

The Coase theorem postulates that private solutions to the problem of negative externalities are possible if:

answer

transaction costs are low

question

Under a policy strategy in which a government imposes an emissions cap and issues tradable emissions-allowance permits to firms, the government:

answer

seeks to cap nationwide emissions by distributing emissions allowance permits across firms

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A negative externality causes the social cost of production to be:

answer

greater than the private cost

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a higher price and lower equilibrium quantity

answer

According to the graph, what is the impact of a pollution tax on this market?

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Which one of the following will NOT help to reduce the problem that exists when social costs exceed social benefits? charge polluters to pollute subsidize parties damaged by pollution subsidize polluters

answer

subsidize polluters

question

One reason pollution limits are difficult to implement is due to the __________.

answer

high cost to monitor compliance

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Costs that are only borne by the individuals that incur those costs are known as:

answer

private costs

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Social benefit is the total benefit from the consumption of a good or service that includes:

answer

both private and external benefits

question

When no one owns a specific resource, there is:______________

answer

no incentive to consider negative externalities that impact the resource

question

The idea of a pollution tax is the internalize the externality, which happens when the tax:_____________________

answer

equals the external costs

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If polluters are charged to pollute, then:___________________

answer

less pollution is a probable result

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Public choice theory indicates that one of government's purposes is to __________.

answer

help people make collective decisions

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The basic cause of deadweight losses from the existence of common resources and externalities is ____________

answer

a lack of clearly defined and enforceable property rights

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Conceptually, the efficient level of carbon emissions is the level for which ____________________________________

answer

the marginal benefit of reducing carbon emissions is equal to the marginal cost of reducing carbon emissions.

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Because producers do not bear the external cost of pollution

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private production exceeds the economically efficient level.

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Classifying a good as rival means

answer

that when one person consumes a unit of the good no one else can consume it.

question

Which of the following describes how a positive externality affects a competitive market?

answer

The externality causes a difference between the private benefit from consumption and the social benefit.

question

Which of the following is an example of a common resource?

answer

elephants in the wild

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If the social cost of producing a good or service exceeds the private cost

answer

a negative externality exists.

question

Economic incentives are designed to make individual self-interest coincide with social interest. According to economists, which of the following methods of pollution control best uses economic incentives to reduce pollution?

answer

instituting a system of tradable emission allowances

question

Which of the following displays these two characteristics: nonrivalry and nonexcludability in consumption? public goods private goods quasi-public goods common resources

answer

public goods

question

Which of the following is an example of a quasi-public good?

answer

cable television

question

because the marginal social benefit for each additional unit between Q1 and Q2 exceeds the marginal cost

answer

Figure 5-6 shows the market for measles vaccinations, a product whose use generates positive externalities. Why is there a deadweight loss?

question

A product is considered to be rival if

answer

your consumption of the product reduces the quantity available for others to consume.

question

Which of the following activities create a negative externality?

answer

keeping a junked car parked on your front lawn

question

Which of the following is an example of a product that is nonexcludable and rival?

answer

free concert (with limited seating) in a park

question

When production generates a negative externality, the true cost of production is the

answer

social cost of production.

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