Ch. 5 Externalities (L6)
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Externality
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A benefit of cost that affects someone who is not directly involved in the production or consumption of a good or service
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Medical Research and Education
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What is a good example of a good or service having the effects of a positive externality?
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Cigarette smoking
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What is an example of a good or service having the effects of a negative externality?
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When there is an externality, such as acid rain generate by the production of electricity
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The private cost of producing a good will differ from the social cost
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When there is an externality, such as fewer diseases generated by the consumption of vaccines
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When will the private benefit from consuming a good differ from the social benefit?
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Economic Efficiency
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Consumer surplus and producer surplus are maximized
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The private cost of production and the private benefit of consumption
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Externalities affect the economic efficiency of a market equilibrium by causing a difference between
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Market failure
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When the market fails to produce the efficient level of output
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When it is difficult to enforce property rights and when property rights are incomplete
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When is market failure most likely to arise?
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It can create negative externalities by disrupting your sleep and can also create positive externalities by discouraging intruders
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Your neighbor has a barking dog. Which of the following statements are true?
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Negative externality for the bears because the food causes them to be aggressive and then it threats human safety, then are removed from park
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What externality does obtaining human food pose for a bear; when campers and hikers leave human food for bears to consume, that poses
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Negative externality for future campers since they may be attacked by aggressive bears wanting more food
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What externality does the bears obtaining human food pose for future campers and hikers?
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To increase the marginal private cost of producing dry cleaning to equal the marginal social cost
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Explain how a government can use a tax on dry cleaning to bring about the efficient level of production
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consumers to internalize the externality causing the equilibrium quantity of toilet paper consumed to decrease
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By imposing a tax on toilet paper, the government will cause
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reduce pollution or pay the tax, so those firms that can reduce pollution most efficiently will reduce the most
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A carbon tax forced producers to
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limit sulfur dioxide pollution to a particular quantity per year
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How could the government use a command and control approach to reduce pollution to the optimal level for society? The government could
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is not efficient because firms can have different costs of reducing pollution
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This command and control approach
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subsidies can increase output to achieve efficient outcomes
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When marginal social benefits exceed marginal private benefits
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True
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The government could subsidize new technology and pay for it with taxes or collect fees from those who use the new technology
