Econ 201: Homework - Ch. 13: Positive Externalities and Public Good

In economics, what is the meaning of the phrase 'the tragedy of the commons?'

People will overuse or misuse a common resource that is not excludable but is rivalrous.

Which scenario is the best example of the "tragedy of the commons?"

Users of a shared shower in a dorm allow the shower to get nasty by failing to clean it often enough.

Which of the following statements describes the occurance of a positive externality resulting from the production of a good by a new technology?

When people who neither paid for developing the technology nor the good produced by the new technology are better off from the advancement

Determine whether each activity will increase a worker's human capital.

Will increase human capital: * completing an on‑the‑job training program * earning a college degree * participating in an apprenticeship * learning a new programming language Will not increase human capital: * building a new factory * buying a share of stock * saving money for down payment on a new car

Policymakers are provided data about the private and social benefits of a good being sold in the market. QuantityPrivate: 4 6 7 5 MB ($): 6 4 2 0 Social MB ($): 7 5 3 1 a. What is the size of the externality? If the externality is positive, enter a positive number. If negative, make it a negative number. b. Given this data, policymakers must decide whether to address the associated externality with a subsidy or a tax. As their economic consultant, which of the two policy tools would you recommend?

a. $1 b. a subsidy

Match the inventor and their listed invention to the reason that they did not receive large profits for their innovations. a. No government wanted to buy it. b. Waited too long to patent it because the inventor thought it had to be working first c. Courts in the southern states would not uphold the patent rights orpunish patent infringements.

a. Thomas Edison - automatic vote counter b. Gordon Gould ‑ laser c. Eli Whitney - cotton gin

National defense is a good that is nonexcludable and nonrival in consumption. Suppose that instead of national defense being paid for with tax dollars national defense is paid for by voluntary contributions from (potentially) all individuals within Latvia. Alan, who is a Latvian citizen, must decide whether he wants to contribute to the national-defense budget. Further, suppose that there are a total of 10 citizens, including Alan. For the optimal amount of safety, each citizen should pay $10. Every $1 contributed (by anyone) to the national defense leads to increased security, which each person values at $0.25. This means that every dollar spent on defense is worth $2.50 to Latvia as a whole. a. How much does Alan personally value the increase in national defense when he contributes $10 to the defense fund? b. If contributions are voluntary, and assuming people rationally maximize their utility, what is the total contributed to national defense? c. Suppose that instead of relying on voluntary contributions the government simply levies a tax of $10 on each person to pay for national defense. How much better or worse off would Alan be if everyone (including himself) were taxed $10 instead of contributing voluntarily? If Alan is worse off, be sure to put a negative sign in front of the number.

a. Alan's personal value: $250 b. total contributed voluntarily: $0 c. Alan's gain or loss under tax: $15

A _____ is a person who _____ a public good that other _____.

a. free rider b. enjoys c. pay for

Which of the scenarios are examples of free riding? a. Bob can pay to support his local public radio station, which depends on donations to be as effective as possible. Bob listens to the radio station several hours per day but never donates since he suspects that other people will donate enough to keep the station on the air. b. Drew always buys the lunch special for $5 at the restaurant across the street from where he works. If he decided to eat at the restaurant after 3:00 p.m., however, he would be unable to get the lunch special, and would instead have to pay $10 for the same food. c. Jim is working on a group project for a class in which he wants a high grade. However, since the grades are assigned to the group as a whole and he knows that the other group members will pick up most of the extra work, Jim calls in sick and plays video games on his Dream Station 64. d. Karl never drives at night, and gets no benefit from street lamps at all. Street lamps are nonexcludable and nonrival in consumption. When the community group tries to collect money to build street lamps, Karl does not donate any money.

a. free-riding b. not free-riding c. free-riding d. not free-riding

Each of the scenarios describes a situation that results in a positive or negative externality. Please determine which action an economist might recommend in response to each externality. a. MongoCorp, a producer of industrial plastics, textiles, and chemical products, releases harmful levels of nitrogen dioxide into the air, contributing significantly to air pollution in nearby cities. An economist might recommend _____ MongoCorp. b. Omnicrom, a pharmaceutical research and development firm, has developed a new treatment for halitosis—the medical term for chronic bad breath—that promises to treat both the bad taste in patients' mouths and the foul odor that bothers those close to them. An economist might recommend _____ Omnicrom. c. A new report is released by the American Society for Rural Dwellings, concluding that living in the countryside has positive health benefits. As a result, many homeowners decide to build new homes in the country, which stimulates the local economy of many small towns. An economist might recommend _____ homeowners. d. Myploy Fish Sauce produces some of the most in-demand fish sauce in the world, prized for its pungent aroma and lingering taste. However, every year, as part of the production process for its fish sauce, Myploy produces millions of tons of potentially toxic fish sludge, which is drained into local rivers and streams. An economist might recommend _____ Myploy Fish Sauce. e. Espalda, a manufacturer of ergonomic furniture, has created a new chair with a unique design shown to improve posture and increase productivity while also leading to a better mood for the person using the chair. An economist might recommend _____ to Espalda.

a. levying at tax on b. issuing a patent to c. subsidizing d. levying a tax on d. issuing a patent to

Suppose that solar-powered car technology advances to the point that solar-powered cars become affordable for the average consumer. Which type of externality is likely to result from a consumer's decision to purchase a solar-powered vehicle instead of a gas-powered vehicle, and how does it arise? a. This decision generates a b. Suppose the government is interested in moving the market closer to the socially optimal quantity. Which policy would likely result in the desired outcome?

a. positive externality because the replacement of gas-powered vehicles with solar-powered vehicles will result in less environmental pollution. b. a subsidy to consumers who choose to purchase solar-powered vehicles

Suppose Turing Inc. creates the first ever solar powered cell phone battery that absorbs ambient light and converts it into electrical power. Furthermore, the battery stores excess absorbed light as an internal battery that lasts up to 10 hours in the dark. At a conference, a Turing Inc. representative presents the battery to representatives from many other companies, proclaiming the invention will revolutionize the cell phone industry. A few months later, Algos creates a solar powered cell phone battery that lasts 12 hours in the dark. a. This example of the spreading of knowledge is known as [a(n)] b. This example of the spreading of knowledge is also a

a. technology spillover. b. positive externality.

Acquiring skills is thought of as an investment because it involves _____ today in anticipation of _____ in the future. Firms invest in their workers to increase _____ in the future.

costs; benefits; productivity

Investment in human capital is best described as

investing in education and training to improve a worker's productivity.

Identify the characteristics that describe each good listed below. Note that each good will be described by two characteristics. "Rivalrous" is also referred to as "rival in consumption." Consider only the immediate benefits and costs, not any externalities.

nonexcludable nonrivalrous national defense excludable nonrivalrous Pay-Per-View cable television excludable rivalrous a Hot Pocket sandwich excludable rivalrous private classroom education excludable rivalrous pajamas excludable rivalrous a unicycle

Why does the United States government provide tax breaks related to the amount of money companies spend on research and development?

to involve less government scrutiny than a government funded project to provide incentives for companies to conduct research and development