question

Market failure can be caused by

answer

externalities

question

The difference between social cost and private cost is a measure of the

answer

cost of an externality

question

Internalizing a positive externality will cause the demand curve to

answer

shift to the right

question

The term market failure refers to

answer

a market that fails to allocate resources efficiently.

question

Positive externalities

answer

result in smaller than efficient equilibrium quantity.

question

An externality arises when a person engages in an activity that influences the well-being of

answer

bystanders in the market for that activity and yet neither pays nor receives any compensation for that effect.

question

An externality is an example of

answer

a market failure.

question

Which of the following represents a way that a government can help the private market to internalize an externality?

answer

taxing goods that have negative externalities & subsidizing goods that have positive externalities

question

A negative externality arises when a person engages in an activity that has

answer

an adverse effect on a bystander who is not compensated by the person who causes the effect

question

Private markets fail to reach a socially optimal equilibrium when positive externalities are present because the

answer

social value exceeds the private value at the private market solution.

question

When the government intervenes in markets with externalities, it does so in order to

answer

protect the interests of bystanders

question

If education produces positive externalities, we would expect

answer

the government to subsidize education.

question

If a sawmill creates too much noise for local residents,

answer

the government can raise economic well-being through noise-control regulations.

question

Which of the following is an example of a positive externality?

answer

The mayor of a small town plants flowers in the city park.

question

When externalities exist, buyers and sellers

answer

neglect the external effects of their actions, and the market equilibrium is not efficient.

question

If the government were to limit the release of air-pollution produced by a steel mill to 75 parts per million, the policy would be considered a

answer

regulation

question

A corrective tax is also known as:

answer

a Pigovian tax.

question

Corrective taxes

answer

give factory owners an economic incentive to reduce pollution.

question

If the government were to impose a fine of $1,000 for each unit of air-pollution released by a steel mill, the policy would be considered

answer

a corrective tax.

question

A command-and-control policy is another term for a

answer

government regulation.

question

Corrective taxes are unlike most other taxes because they

answer

move the allocation of resources closer to the social optimum.

question

The best remedy for market failure is often

answer

a market-based solution.

question

With a corrective tax, the supply curve for pollution is

answer

perfectly elastic.

question

Which of the following suggests that private markets can be effective in dealing with externalities?

answer

the Coase theorem

question

The proposition that if private parties can bargain without cost over the allocation of resources, they can solve the problem of externalities on their own, is called

answer

the Coase theorem.

question

Since externalities tend to keep markets from reaching a socially optimal equilibrium, government action

answer

is needed when private solutions fail to arise.

question

The Golden Rule is an example of a private solution for

answer

internalizing externalities.

question

If only a few people are affected by an externality, then it is likely that

answer

a private solution to the inefficiency will occur.

question

Private contracts between parties with mutual interests

answer

can solve some inefficiencies associated with positive externalities.

question

Two types of private solutions to the problem of externalities are

answer

charities and the Golden Rule

question

Which of the following statements about a well-maintained yard best conveys the general nature of the externality?

answer

a well-maintained yard conveys a positive externality because it increases the value of the adjacent properties in the neighborhood

question

Dioxin emission that results from the production of paper is a good example of a negative externality because

answer

self-interested paper producers will not consider the full cost of the dioxin pollution they create

question

Which of the following policies is the government most inclined to use when faced with a positive externality?

answer

subsidies

question

A positive externality arises when a person engages in an activity that has

answer

a beneficial effect on a bystander who does not pay the person who causes the effect

question

All externalities

answer

cause markets to fail to allocate resources efficiently

question

The supply curve for a product reflects the

answer

cost to sellers of producing the product

question

If an externality is present in the market, economic efficiency may be enhanced by

answer

government intervention

question

When externalities are present in the market, the well-being of market participants

answer

is DIRECTLY affected, and market bystanders are INDIRECTLY affected

question

When a market is characterized by an externality, the government

answer

can correct the market failure in the case of both positive and negative externalities by inducing market participants to internalize the externality

question

Research into new technologies provides a

answer

positive externality, and too few resources are devoted to research as a result

question

If a market is characterized by a positive externality that is not the result of a technology spillover,

answer

the socially optimal level of output is greater than the equilibrium level of output, and the socially optimal price is greater than the equilibrium price

question

Which of the following is NOT an advantage of corrective taxes?

answer

they subsidize the production of goods with positive externalities

question

Corrective taxes are typically advocated to correct for the effects of

answer

negative externalities

question

Emission controls on automobiles are an example of a

answer

command-and-control policy to increase social efficiency

question

When the government uses a command and control policy to solve an externality, it

answer

creates policies that directly regulate behavior

Microeconomics chapter 10 – Flashcards

Unlock all answers in this set

Haven't found what you were looking for?

Search for samples, answers to your questions and flashcards