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Economics 202 Ch 27

Principles of Economics ch 27

Economic Effciency Rule Produce the quantity of output where marginal social benefits equals marginal social cost.
Market Failure Occurs when the market does not produce the optimal quantity of output.
One cause of market failure is: A lack of perfect competition.
Externality A benefit ot a cost of an activity that affects third parties.
Private Market Equilibrium (PME) Occurs where the private market demand curve intersects with the private market supply curve (where marginal private benefit equals marginal private cost).
Market Social Benefit (MSB) will be equal to: Marginal private benefit plus marginal external benefit.
Market Social Cost (MSC) will be equal to: Marginal private cost plus marginal external cost.
What are the four metods of controlling externalities? Persuasion, establishing private property rights and reaching voluntary agreements, taxes and subsidies, and government regulations.
Government regulation of externalities may result in costs that exceed benefits, because: Regulations are generally imposed on a blanket basis, they are sometimes imposed without careful comparison of costs and benefits, and they impose costs on the economy.
Pollution Control Any undesired byproduct of production.
The ideal level of pollution is usually: Not zero.
The MSB of pollution control will initially be high, and: Will decline as more pollution control is pursued.
The MSC of pollution control will initially be low, and: Will increase as more pollution control is pursued.
The government has relied primarily on what methods of pollution control? Regulatory standards and market environmentalism.
Regulatory Standrads The government mandates that certain types of pollution control control must be used, or that certain targets for pollution reduction must be met.
Market Environmentalism To achieve environmental goals through the use of the market.
Public Goods Nonrivalrous in comsumption and nonexcludable.
Private Goods Rivalrous in consumption and excludable.
A good is rivalrous in consumption if: Consumption by one person prevents or interferes with consumption by another person.
A good is nonrivalrous in consumption if: Consumption by one person does not hinder consumption by others.
A good is excludable if: Nonpayers can easily be excluded from consuming the good.
A good is nonexcludable if: Nonpayers cannot easily be excluded from consuming the good.
Common Goods Rivalrous in consumption and nonexcludable.
The tendency to overconsume common goods is called: Tragedy of the commons. Examples are hunting to extinction of the passenger pigeon and the American Bison, traffic congestion, overfishing the oceans, and environmental degradation.
Ways to solve the tragedy of the commons are: Turing the common good into a privately owned good or by government regulation or taxation to prevent overconsumption.
Asymmetric Information Another source of market failure.
Asymmetric Information may reult in: A market producing more or less than the optimal quantity, adverse selection or moral hazard.
Created by: dengler



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