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A market demand curve reflects the
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When a negative externality exists, the private market produces
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Chapter 8
Economics
| Question | Answer |
|---|---|
| A market demand curve reflects the | private benefits of consuming a product |
| When a negative externality exists, the private market produces | more than the economically efficient output level |
| A ________ occurs when an economic activity has a spillover cost that does not affect those directly engaged in the activity | negative externality |
| Conceptually, the efficient level of carbon emissions is the level for which | the marginal benefit of reducing carbon emissions is equal to the marginal cost of reducing carbon emissions |
| Which of the following describes how a negative externality affects a competitive market? | The externality causes a difference between the private cost of production and the social cost |
| If you burn your trash in the back yard in spite of regulations against it, then you are | avoiding the private costs associated with disposing your trash some other way and creating a social cost |
| An externality occurs when ________. | an economic activity affects third parties not engaged in the activity |
| Which of the following activities create a negative externality? | keeping a junked car parked on your front lawn |
| The marginal social cost curve ________ when production involves negative externalities | lies above the supply curve |
| If there is pollution in producing a product, then the market equilibrium price | is too low and equilibrium quantity is too high |
| Which of the following gives rise to a positive externality? | Consumption of a drug to cure a communicable disease |
| A positive externality causes | the marginal social benefit to exceed the marginal private cost of the last unit produced |
| The production of a certain fertilizer emits a gas that keeps away mosquitoes and other insects from the surrounding community. This is an example of a ________. | positive externality |
| If positive externalities are present in a free market, ________ at any output level | the marginal social benefit of production exceeds marginal private benefit |
| The marginal social benefit from the production of the last unit of a good is $4,800. If the willingness to pay for that unit is $3,900, what is the external benefit from its production? | $900 |
| Which of the following activities can give rise to a positive externality | Getting a flu vaccination |
| Which of the following is true if the production of a good gives rise to a positive externality | The marginal social benefit from each level of output exceeds the consumers' willingness to pay |
| Which of the following describes how a positive externality affects a competitive market | The externality causes a difference between the private benefit from consumption and the social benefit |
| When products that create positive externalities are produced, at the market equilibrium output, the social benefit generated by consuming the product exceeds the private benefit | True |
| When there is a positive externality | the social benefit received by consumers is greater than the private benefit |
| Consider the following characteristics: a. low transactions costs b. small levels of pollution c. high levels of pollution d. clear assignment of property rights Which of the above are assumptions behind the Coase Theorem | a and d |
| If the paint on your house was eaten away by the fumes from a factory nearby and you hired a lawyer to sue the polluting firm, your legal fees would be considered | transactions costs |
| Which of the following is an implication of the Coase Theorem | Government intervention is not always necessary to solve externality problems |
| The costs in time and other resources that parties incur in the process of facilitating an exchange of goods and services are called | transactions costs |
| For the Coase theorem to work there must be clear assignment of property rights | True |
| Offering to pay the passenger in front of you to keep her from reclining her airplane seat is an example of | a Coasian solution to an externality situation |
| Suppose a negative externality exists in a market. If transactions costs are low and parties are willing to bargain then, according to the Coase theorem | an efficient solution can be reached regardless of the initial assignment of property rights |
| If transactions costs are low, private bargaining will always result in an efficient solution to the problem of externalities | False |
| The Coase Theorem states that ________. | negotiation between economic agents leads to an efficient allocation of resources |
| When the federal government orders firms to use particular methods to reduce pollution, it is said to be using | command-and-control policies |
| Assume that production from an electric utility caused acid rain. If the government imposed a tax on the utility equal to the cost of the acid rain, the government's action would | internalize the externality |
| A carbon tax which is designed to reduce pollution is an example of a | market-based policy |
| A Pigouvian tax is a tax designed to ________. | induce producers generating negative externalities to reduce production |
| Governments can increase the consumption of a product that creates positive externalities by | subsidizing the production of the product so that the supply is increased and market price is reduced |
| If production of a good gives rise to a negative externality, it can be internalized by taxing the producers of the good | True |
| A government regulation that bans the use of a certain polluting technology in the production of a good is an example of a ________ to solve an externality | command and control approach |
| Which of the following happens when a Pigouvian subsidy is provided | The marginal private benefit curve shifts upward |
| Assume that production from an electric utility caused acid rain and that the government imposed a tax on the utility equal to the cost of the acid rain. This is an example of | a Pigovian tax |
| The U.S. government has frequently used a "command-and-control" approach in dealing with pollution. Which of the following describes this approach? | The government imposes quantitative limits on the amount of pollution firms are allowed to generate |
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