Chapter 5 Externalities

question

externality
answer

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

example of negative externality
answer

pollution second hand smoke
question

example of positive externality
answer

college education medical advances
question

public goods
answer

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

private cost
answer

the cost created drom directly producing a good or service
question

social cost
answer

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

private benefit
answer

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

social benefit
answer

the total benefit from consuming a good or service
question

effiicent equilivrium
answer

where marginal SOCIAL cost and demand meet
question

market equiilibrium
answer

where marginal PRIVATE cost and demand meet
question

deadweight
answer

space between market equilibrium and efficient equilibrium
question

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

overproduction
question

marginal social benefit formula
answer

marginal private benefit + external benefit
question

market failiure
answer

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

property rights
answer

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

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

too little
question

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

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

net benefit formula
answer

total benefit – total cost
question

transactions costs
answer

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
question

coase therem
answer

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

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

the cost of the correction is split between producers and consumers
question

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

subsidy
question

pigovian taxes and subsidies
answer

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

command and control approach
answer

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
question

rival
answer

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

excludability
answer

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

private good
answer

a good that is both rival and excludable
question

examples of private good
answer

food, haircuts
question

public good
answer

a good that is both nonrival and nonexcludable
question

free riding
answer

benefiting from a good without paying for it
question

example of a public good
answer

national defense, court system
question

quasi public good
answer

a good that is exclusadable but not rival
question

example of quasi public good
answer

cable television, toll roads
question

common resource
answer

a good that is rival but not excludable
question

example of common resource
answer

forest land, tuna in the ocean
question

how to find marginal social benefit curve for a private good
answer

combine all consumer demand curves horizontally
question

how to find marginal social benefit curve for a public good
answer

combine all consumer demand curves vertically
question

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

the harder it is to find optimal quanity
question

tragedy of the commons
answer

the tendecncy for a common resource to be overused
question

government strategy to reduce tragedy of the commons
answer

to impose a tax or another form of obstacle
question

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

cap and trade
question

A marketable pollution permit is a permit:
answer

that allows a firm to sell the right to pollute
question

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

transaction costs
question

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

less expensive
question

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

overuse
question

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

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

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

external cost being borne by someone else
question

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
question

the vertical distance between S1 and S2
answer

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

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
question

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

greater than the private cost
question

a higher price and lower equilibrium quantity
answer

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

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
question

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

private costs
question

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
question

If polluters are charged to pollute, then:___________________
answer

less pollution is a probable result
question

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

help people make collective decisions
question

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
question

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.
question

Because producers do not bear the external cost of pollution
answer

private production exceeds the economically efficient level.
question

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
question

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.

Get instant access to
all materials

Become a Member