chap 10

(Figure: Market 4) Use the graph to answer the question. The graph shows the marginal social benefit, demand, and supply curves in the milkshake market are in the graph. What are the socially optimal quantity and price?

12; $3

A nonexcludable good is a good in which:

it is difficult to prevent someone from using or having access to the good.

Sellers must cover _____ costs, but a market does not require them to cover _____ costs.

marginal private; marginal external

(Figure: MSC and Supply Curves) Use the graph answer the question. The graph shows the marginal social cost and supply curves in a market. When eight units are produced, the relevant marginal cost facing the community is:

$12

(Figure: MSC and Supply Curves) Use the graph to answer the question. The graph shows the marginal social cost curve and supply curve for Lin's business. When Lin produces eight units, what is the relevant marginal cost facing the community?

$12

(Figure: MSB and Demand Curves) Use the graph to answer the question.

$2

(Figure: MSC and MPC Curves) Use the graph to answer the question. The graph shows marginal social cost and marginal private cost curves. What is the marginal external cost?

$2

(Figure: Market) Use the graph to answer the question. The graph shows the marginal social cost, demand, and supply curves in the jigsaw puzzle market. If market forces prevail, this market will produce and sell _____ units of output at a price of _____.

6; $6

(Figure: Market 3) Use the graph to answer the question. The graph shows the marginal social cost, supply, and demand curves in the hand sanitizer market. At what quantity could the government set a quota to control this externality?

8

Which of the following statements supports the idea that price changes are not externalities?

A change in price adversely affects all suppliers in the market.

Which of the following describes a situation with a negative externality?

After a commercial poultry farm opens, neighbors on all sides complain of its smell.

Why are externalities considered a cause of market failure?

Because they lead to suboptimal outcomes.

Which of the following is NOT a problem that occurs when rules and regulations are used to control externalities?

Rules and regulations tend to focus on the most extreme cases of an externality rather than the most common.

For all economies, the extra external cost imposed on bystanders from one extra unit of production is:

the marginal external cost.

(Figure: MSB and Demand Curves) Use the graph to answer the question. The graph shows the marginal social benefit and demand curves in the shampoo market. What is the marginal external benefit?

$2

(Figure: Market 3) Use the graph to answer the question. The graph shows the marginal social cost, demand, and supply curves in the cinnamon roll market. A corrective tax of _____ per unit will move the cinnamon roll market to the socially optimal output of _____ units.

$2; 8

(Figure: MSB and Demand Curves 2) Use the graph to answer the question. The graph shows the marginal social benefit and demand curves in the dog food market. What is the marginal private benefit when four bags of dog food are bought?

$4

(Figure: MSB and Demand Curves 2) Use the graph to answer the question. The graph shows the marginal social benefit and demand curves in the hamburger market. What is the marginal external benefit when eight units are bought?

$4

(Figure: MSC and Supply Curves) Use the graph to answer the question. The graph shows the marginal social cost and supply curves in the market for shampoo. When four units are produced, the marginal external cost is:

$4

(Figure: Market 2) Use the graph to answer the question. The graph shows the marginal social cost, demand, and supply curves in the cinnamon roll market. A corrective tax of _____ per unit will move the cinnamon roll market to the socially optimal output of _____ units.

$4; 4

(Market 6) Use the graph to answer the question. The graph shows the marginal social benefit, marginal private benefit, and marginal private curves in the taco market. If market forces prevail, output will be _____, and the price will be _____.

4; $6

(Figure: Market) Use the graph to answer the question. The graph shows the marginal social cost, demand, and supply curves in the jigsaw puzzle market. What are the socially optimal quantity and price in this market?

4; $8

What determines whether a corrective tax or quantity regulation is a better choice for controlling an externality?

It depends on whether more is known about marginal external costs or about the socially optimal quantity.

The efficient rate of emissions occurs when:

MSB = MSC

Which statement illustrates a policy solution to an inefficiency caused by an externality?

The government offers free vaccines, since an immunized child cannot transmit disease to others.

Margarite opened a successful restaurant two years ago on a block of connecting row houses. All of the other businesses on the block are well-established accounting and law offices. Those businesses have complained that the garbage bins in back of the restaurant are attracting mice, rats, and stray cats and dogs and that they are spending more and more on exterminators. In economic terms, what is happening?

The other businesses on the block are dealing with an externality because Margarite considers only her marginal private costs as she makes decisions.

Which activity generates a negative externality?

Your neighbor starts his noisy construction project at 6:00 a.m. on weekends.

Which is a private good?

a Wendy's hamburger

A tax designed to induce people to take account of the negative externalities that they cause is referred to as _____ tax.

a corrective

The marginal social benefit received from pollution is less than its marginal social cost in the market for highly polished glass. In this situation:

a decrease in the quantity of pollution will be in society's best interest.

An externality is NOT:

a price change.

An externality is defined as:

a side-effect of an activity that affects bystanders whose interests are not taken into account.

Which of the following would be both nonrival and nonexcludable?

a siren tornado warning system

A cost imposed on bystanders is _____ cost.

an external

If the city government of Chicago decides to limit the total amount of municipal sewage that can be discharged into Lake Michigan by selling the rights to the total discharge level, then the government's environmental policy includes:

cap and trade.

Saleable licenses that permit bearers to emit limited quantities of pollutants are called:

cap and trade.

What type of good is nonrival and excludable?

club goods

(Figure: A Competitive Market in the Presence of Externalities) Use Figure: A Competitive Market in the Presence of Externalities. Given the figure, if there are external costs, a tax imposed on sellers will:

decrease the equilibrium quantity

If the number of available cap and trade permits increases, the equilibrium price of the permits _____ and the equilibrium quantity _____.

decreases; increases

(Figure: Market 4) Use the graph to answer the question. The graph show the marginal social benefit, demand, and supply curves in the milkshake market. Market forces would yield a quantity of _____ and a price of _____ in the milkshake market.

eight; $2

(Figure: Market 3) Use the graph to answer the question. The graph shows the marginal social cost, demand, and supply curves in the toothpaste market. What is the socially optimal quantity and price in this market?

eight; $4

(Figure: Market 3) Use the graph to answer the question. The graph shpws the marginal social cost, demand, and supply curves in the salad dressing market. In this market, the socially optimal output is _____, and the market-determined output is _____.

eight; 12

The Rational Rule for Society is to produce that amount of a good where the marginal social benefit of pollution is _____ the marginal social cost of pollution.

equal to

A marginal external benefit is the:

extra benefit accruing to bystanders as a result of one extra unit of output.

(Figure: Market 5) Use the graph to answer the question. The graph shows the marginal social benefit, demand, and supply curves in the toothbrush market are in the graph. Market forces would yield a quantity of _____ and a price of _____.

four; $4

(Figure: Market 2) Use the graph to answer the question. The graph shows the marginal social cost, demand, and supply curves in the shower gel market. In this market, the socially optimal output is _____, and the market-determined output is _____.

four; six

The Coase theorem states that the externality problem can be solved by private bargaining:

if bargaining is costless and property rights are clearly established.

(Figure: A Competitive Market in the Presence of Externalities) Use Figure: A Competitive Market in the Presence of Externalities. Given the figure, if there are external benefits, a subsidy given to sellers will:

increase the equilibrium quantity.

If the number of available cap and trade permits is decreased, the equilibrium price of the permits _____, and the equilibrium quantity of emissions _____.

increases; decreases

The socially optimal outcome occurs where the _____ benefit equals the _____ cost.

marginal social; marginal social

Which good is MOST likely to be a public good?

national defense

A good is _____ when it is difficult to prevent someone from using or having access to it.

nonexcludable

Which of the following is a positive externality?

not Researchers develop a new drug that effectively treats a devastating disease that previously had no cure.

An online movie download is similar to a Blu-ray disc movie in that it is _____, but it is also similar to national defense in that it is _____.

not nonrival and excludable

(Figure: Public Goods and Common Resources) Use Figure: Public Goods and Common Resources. The figure lists the goods available for consumption. Panel A depicts a good that is both rival in consumption and excludable. Such a good would be considered a:

private good

Quotas change _____, and taxes change _____ when they are used to deal with externalities.

quantity; price

If a product that generates a negative externality is priced so that the polluters bear the cost of the externality, the price of the product will likely:

rise, and output will likely fall.

The marginal social benefit of flu shots falls as the quantity of shots given:

rises

(Market 6) Use the graph to answer the question. The graph shows the marginal social benefit, marginal private benefit, and marginal private curves in the taco market. The socially optimal quantity is _____, and the price is ______.

six; $9

(Market 6) Use the graph to answer the question. The graph shows the marginal social benefit, marginal private benefit, and marginal private curves in the taco market. In this market, the socially optimal output would be _____, whereas the market-determined output would be _____.

six; four

(Figure: A Competitive Market in the Presence of Externalities) Use Figure: A Competitive Market in the Presence of Externalities. Given the figure, if there are no external benefits or costs, the output at Q will be:

socially optimum.

Each year, around Christmas, you decorate your home so elaborately that news crews come to film stories about your Christmas spirit. As a result, hundreds of people from all over the city drive by your house to see the "Christmas" home, creating noise and congestion that is a nuisance to your neighbors. As they have a right to not be bothered, you agree to pay your neighbors a modest sum to compensate them for the disturbance. This illustrates:

the Coase theorem

Your college roommate has the right to practice her tuba during the day. You, however, find that studying during the day is most conducive to good grades, and her tuba-playing makes it difficult for you to concentrate. You make a deal with your roommate: you will clean the dorm room once a week if she will practice her tuba at other times or elsewhere. This is an example of

the Coase theorem.

The Rational Rule for Society is that society should produce another unit of a good if:

the marginal social benefit exceeds the marginal social cost.

Suppose that the city of Cleveland has set an emissions tax to reduce the amount of pollution going into the Cuyahoga River. Assume that the optimal tax would be $700 but that government officials have set the tax at $1,200. At the equilibrium with the $1,200 tax:

the marginal social benefit of pollution will be $1,200.

The harvesting of corn generates external costs in the form of methane gas emissions. In equilibrium:

the price of a bushel of corn will be less than the marginal social cost of the last bushel of corn sold.

The marginal social cost is:

the sum of marginal private costs and marginal external costs.

An aluminum mining operation discharges waste products into a river, causing higher costs and discomfort for downstream users of the water for which they are not compensated. In this case:

there is overproduction of aluminum.

A paper manufacturing plant dumps pollution into the Salmon Arm. This pollution leads to higher costs and disruption for fishermen on the river, for which they are not compensated. In this situation:

too many of society's resources are being used to produce paper.

A positive externality is an activity:

whose side effects benefit bystanders.

(Figure: Market 3) Use the graph to answer the question. The graph shows the marginal social cost, demand, and supply curves in the toothpaste market. If market forces prevail, this market will produce and sell _____ tubes of toothpaste at a price of _____.

12; $3

(Figure: Market 5) Use the graph to answer the question. The graph shows the marginal social benefit, demand, and supply curves in the toothbrush market. Market forces would yield a quantity of _____, whereas the socially optimal quantity is _____.

four; six

(Figure: A Competitive Market in the Presence of Externalities) Use Figure: A Competitive Market in the Presence of Externalities. Given the figure, if a tax is imposed on sellers, the equilibrium price will _____, and the equilibrium quantity will _____.

increase; decrease

The supply curve of a firm is also its _____ cost curve.

marginal private

(Figure: Market 5) Use the graph to answer the question. The graph shows the marginal social benefit, demand, and supply curves in the toothbrush market. What are the socially optimal quantity and price?

six; $6

Suppose that the city of Cleveland has set an emissions tax to reduce the amount of pollution going into the Cuyahoga River. Assume that the optimal tax would be $2,500 but that city officials have set the tax at $1,000. At the equilibrium with the $1,000 tax:

there will be too much pollution.