Chapter 8 Word Scramble

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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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