Ch 10 Micro
Since restored historic buildings convey a positive externality, local governments may choose to
Provide tax break downs and regulate the demolition of them
If a sawmill creates too much noise for local residents
The government can raise economic well being through noise control regulations
What statement about a well maintained yard best conveys the general nature of the externality?
A well maintained yard conveys a positive externality because it increases the value of adjacent properties in the neighborhood
The difference between social cost and private cost is a measure of the
Cost of an externality
The supply curve for a product reflects the
Cost to sellers of producing the product
All externalities...
Cause markets to fail to allocate resources efficiently
Private Markets fail to account for externalities because
Decisionmakers in the market fail to include the costs of their behavior to third parties
Market failures can be caused by
Externalities
Negative externalities lead markets to produce
Greater than efficient output levels and positive externalities lead markets to produce smaller than efficient output levels
What is an example of a positive externality?
Mary not catching the flu from Sue because Sue got a flu vaccine
In a market economy, government intervention
May improve market outcomes in the presence of externalities
All remedies for externalities share the goal of
Moving the allocation of resources toward the socially optimal equilibrium
A cost imposed on someone who is neither the consumer nor the producer is called
Negative externality
Assume that your roommate is very messy. Suppose she gets a $50 benefit from being messy but imposes a $100 cost on you. The coase theorem would suggest that an efficient solution would be for you to
Pay your roommate at least $50 but no more than $100 to clean up after herself
An optimal tax on pollution would result in what
Producers will internalize the cost of pollution
Since almost all forms of transportation produce some type of pollution...
Society has to weigh the cost and benefits when deciding how much pollution to allow
The government should _____ goods with negative externalities and ____ goods with positive externalities
Tax, Subsidize
Honey producers provide a positive externality to orchards because
The orchard owner does not have to purchase bees to pollinate his flowers
Since externalities tend to keep markets from reaching a socially optimal equilibrium, government action
is needed when private solutions fail to rise