Ch.10

All the following have negative externalities:

-having an outdoor party at your house. -driving a big SUV instead of a smaller hatchback. -smoking outside a restaurant.

_____ is important because it leads to market failure, producing _____.

An externality; inefficient outcomes

_____ goods provided by the government are public goods, _____ are nonexcludable.

Not all; and not all

When goods are rival and it's easy to exclude people who don't pay, _____.

there is no free-rider problem

An example of a rival good would be:

tickets to a concert.

Which of the following is true about the solutions to externality problems?

-Regulations can often blunt the forces of competition. -A corrective tax raises the direct financial cost of creating externalities. -A cap-and-trade system raises the opportunity cost of creating externalities.

Laws, rules, and regulations can be used to remove the externalities in all the following situations:

-school rules that require students to be up-to-date on their vaccines. -laws banning smoking in public places. -the law that makes unsolicited "spam" calls to your cell phone illegal.

Which of the following examples does NOT involve private bargaining to internalize an externality?

a electronic company replaces overhead wires with underground wires capable of carrying the same load

Goods that are excludable and nonrival are known as:

club goods.

A locked car is considered to be _____, and a city bus is _____.

excludable; nonexcludable

Negative externalities create problems because:

people fail to account for their actions that impose costs on others.

Cleaning up a roadside creates a _____ externality because your appreciation of the trash-free road _____ someone else's enjoyment of the clean roadside.

positive; does not reduce

To limit negative externalities, the government can eliminate the overproduction by using the quantity regulation of _____ to the socially optimal quantity.

setting a quota

Laws and regulations that tell businesses _____ can _____.

the goals to achieve; create an incentive to innovate

The Rational Rule for Society may be thought of as an application of the _____, when externalities are considered.

Rational Rule

When there are negative externalities, what is the role of bystanders in determining the equilibrium outcome?

They play no role in determining the equilibrium outcome.

People _____ be prevented from appreciating the beautiful exterior of St. Patrick's Cathedral in New York City, so the building is _____.

cannot; nonexcludable

The Kyoto Protocol set up a _____ by limiting the number of permits to emit harmful greenhouse gases like carbon dioxide and methane.

cap-and-trade system

Marginal social benefit equals:

marginal private benefit plus marginal external benefit.

The Rational Rule for Society tells you to produce more as long as the _____ is greater than or equal to the _____.

marginal social benefit; marginal social cost

Overfishing in lakes and oceans produces a(n) _____ benefit to those who consume or sell the fish, but this creates a _____ externality by reducing the number of fish left in those areas.

private; negative

By leasing or otherwise assigning ownership of nonexcludable, rival goods to a group, the _____ can be avoided because owners will _____.

tragedy of the commons; strive to improve their own economic surplus