CH 17 HW REVIEW
An ITQ
results in an efficient outcome because no one has an incentive to cheat and exceed the quota
Littering while hiking is an example of a ______ externality. Building a light display on your front yard is an example of a ______ externality.
A negative externality imposes an external cost. An external cost is a cost that arises from production and falls on someone other than the producer, or a cost that arises from consumption and falls on someone other than the consumer. Littering while hiking is an example of a negative consumption externality. A positive externality provides an external benefit. An external benefit is a benefit that arises from production and falls on someone other than the producer, or a benefit that arises from consumption and falls on someone other than the consumer. Building a light display on your front yard is an example of a positive consumption externality.
Three production activities that create externality benefits are
An external benefit is a benefit from an action that falls on someone other than the person or firm choosing the action. Examples of production activities that create external benefits are locating beehives next to an orange grove, a new technology that is discovered as a by-product of other research and development, and the smell created by a bakery that is baking bread.
Betty is a cigarette smoker and her marginal benefit from smoking a pack of cigarettes a day is $40. Cigarettes are $6 a pack. Anna dislikes cigarette smoke, and her marginal benefit from a smoke-free environment is $50 a day. What is the outcome if a. Betty drives her car with Anna as a passenger? b. Anna drives her car with Betty as a passenger?
Anna will offer Betty an amount between $34 and $50 and Betty will not smoke; Betty does not smoke because Betty will not offer Anna a high enough price to be allowed to smoke
Which of the following is an example of a positive externality?
Compulsory flu shots for all students prevents the spread of illness in the general public.
Which of the following is an example of the tragedy of the commons?
Fishing technology allowed huge catches of cod in the Grand Banks fishing grounds that collapsed the fishing industry in the 1990s as cod populations fell to very low levels.
Choose the correct equation.
MSC = MC + Marginal external cost
Which of the following is an example of a negative externality?
The new factory in the area has increased children's respiratory ailments.
Which of the following is an example of an abatement technology?
The use of catalytic converters in US cars has improved air quality.
What are the key differences among public production, private subsidies, and vouchers?
With public production, a good or service is produced by a public authority. With a subsidy and with a voucher, a good or service is produced by a private producer.
Marginal private cost is the cost of producing _____ of a good or service that is borne by the _____ of that good or service.
an additional unit; producer an additional unit; producer
An increase in the number of people who are studying for graduate degrees creates ______. A person who wears strong perfume to class creates ______.
an external benefit arising from consumption; an external cost arising from consumption
Airplanes taking off from LaGuardia Airport during the U.S. Open tennis tournament nearby create ______ A sunset over the Pacific Ocean creates ___
an external cost arising from production; no externality
One reason that economists favor vouchers to achieve an efficient outcome is because
by giving the buying power to the final consumers, producers must compete for business and provide a high standard of service at the lowest attainable cost
An externality is a _____ that arises from production and that falls on someone other than the producer; or a _____ that arises from consumption and that falls on someone other than the consumer.
cost or benefit; cost or benefit
When a fire alarm goes off accidently in the middle of a lecture it creates an external ______. When your instructor offers a free tutorial after class he creates an external ______.
cost; benefit
A huge noisy crowd that gathers outside the lecture room creates an external __. When your neighbor grows beautiful flowers on his apartment deck he creates an external __.
cost; benefit
The Coase theorem is the proposition that if property rights _____, only a small number of parties are involved and transaction costs are _____, then private transactions are _____ and the outcome is not affected by who has been assigned the property rights.
exist; low; efficient
Property rights are legally established titles to the ownership, use, and disposal of _____ and goods and services that are enforceable in the courts.
factors of production
Taxes and pollution charges _______.
increase producers' costs so that they decrease production, which decreases pollution emissions
Setting a production quota does not always achieve the efficient use of a common resource because
marginal cost differs for each producer and it is in everyone's self-interest to cheat and produce more than the quota
When you smoke in a restaurant, you are creating a
negative consumption externality
What externalities arise from beautiful and ugly buildings and how do we deal with them? Ugly buildings create a __.
negative consumption externality, which we deal with by fining people who use their property as garbage dumps
Smoking creates a _______ externality, which we deal with by _______.
negative consumption; placing a relatively high tax on tobacco products
The four types of externality are
negative production, negative consumption, positive production, and positive consumption
External costs prevent a competitive market from allocating resources efficiently because firms consider ______ when they make their production decisions.
only the costs that they bear
Transactions costs are the ______ of conducting a transaction.
opportunity costs
Marginal external benefit is the benefit from an additional unit of a good or service that
people other than its consumer enjoy
A healthy person lowers the costs of a government-funded medical system. What type of externality results? This is an example of a _______ externality
positive consumption
What externalities arise from beautiful and ugly buildings and how do we deal with them? Beautiful buildings create a __.
positive consumption externality, which we deal with by having competitions that encourage beautiful design and landscaping
Marginal social cost is the marginal cost incurred by the entire society - by the producer and by everyone else on whom the cost falls. It is the sum of marginal _____ and marginal _____.
private cost; external cost
Pigovian taxes are taxes used by the government as an incentive for
producers to cut back the pollution they create
An externality is a cost or benefit that arises from
production or consumption
An individual transferable quota (ITQ), which is a _____ limit that is assigned to an individual who _____ to transfer (sell) the quota to someone else.
production; is then free
Assigning property rights does not always achieve the efficient use of a common resource because
property rights are sometimes difficult to assign and property rights are sometimes difficult to enforce
When a cap-and-trade is implemented _______
the government determines the efficient quantity of pollution and firms buy and sell the allocated pollution permits
A common resource is used efficiently when
the marginal social benefit equals the marginal social cost