Economics- Chapter 9

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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.

What is the relationship between marginal social​ benefit, marginal private​ benefit, and marginal external​ benefit?

MSB − marginal external benefit​ = MB

What is the relationship between marginal external​ cost, marginal social​ cost, and marginal private​ cost?

Marginal social cost equals marginal private cost plus marginal external cost.

The price of gasoline in Europe is about three times that in the United​ States, mainly because the European gas tax is higher than the U.S. gas tax. In light of the principles​ you've learned in this​ chapter, what is the case for and against increasing the gas tax in the United States to the European​ level? 1.The marginal social cost of carbon emissions from road vehicles exceeds the marginal social benefit . 2. The marginal social benefit of carbon emissions from road vehicles exceeds the marginal social cost. 3. A pollution tax is the only way of moving toward a more efficient outcome. 4. A pollution tax is the most efficient tool available for achieving a more efficient outcome. 5. Not everyone agrees that the scientific evidence points to human activity in global warming and climate change. 6. The cost of avoiding climate change is present and certain but the benefit of avoiding climate change is future and uncertain. 7. By​ 2050, if current trends​ persist, three quarters of greenhouse gas emissions will be from the developing​ countries, not the United States.

Proposition 1 is the best case for and propositions​ 5, 6, and 7 are the best case against.

Explain the inefficiency in Beijing's market for electricity and contrast it with the US market. How can cap-and-trade achieve an efficient outcome>

The Beijing market for electricity is inefficient because electricity production has a large external cost arising from carbon emissions from coal-powered generators. Comparing the U.S. market for electricity and the Beijing market for electricity, the U.S. market is less inefficient. Cap and trade is efficient when: confronting power utilities with the marginal social cost of their production

Beijing officials issued a​ "red alert" for air​ quality, closed​ schools, limited automobile​ traffic, and kept people indoors to avoid toxic smog. Most of​ Beijing's energy comes from​ carbon-emitting coal. The U.S. EPA is working with China to develop a national​ cap-and-trade system. Explain the inefficiency in​ Beijing's market for electricity and contrast it with the U.S. market. How can​ cap-and-trade achieve an efficient​ outcome?

The Beijing market for electricity is inefficient because: electricity production has a large external cost arising from carbon emissions from coal-powered generators Comparing The U.S. market for electricity and the Beijing market for electricity, the U.S. market is LESS inefficient Cap-and-trade can achieve an efficient outcome by CONFRONTING POWER UTILITIES WITH THE MARGINAL SOCIAL COST OF THEIR PRODUCTION

Which of the following is an example of public provision​?

The Department of Transportation has completed twinning of Highway 63 to improve safety and accommodate economic activity.

Which of the following is an example of a voucher​?

The government gives each student a token worth​ $15,000 per year to be used to pay tuition.

Which of the following best describes a subsidy​?

The government pays farmers​ $100 per ton of wheat produced.

Which of the following is an example of a negative externality​?

The new factory in the area has increased​ children's respiratory ailments.

A study of highway use says that on two short stretches of expressway in​ Philadelphia, delays of 1 million hours a year cost​ $22 million in lost time and waste​ 375,700 gallons of fuel. ​Source: Bob​ McGovern, Philly Voice​, November​ 23, 2015 What is the externality described in the news​ clip? How could road tolls and high parking levies reduce congestion on Philadelphia​ roads? If road use and parking charges cut commute​ times, would the Philadelphia road system by more​ efficient? ROAD TOLLS AND HIGH PARKING LEVIES ______ reduce congestion on Philadelphia roads because_____

Will; drivers will consider the external cost of driving in Philadelphia

An externality can be created by​ _______.

a production activity or a consumption activity

The Cato Institute says maintaining the subsidy is a better policy because​ _______.

a subsidy avoids the deadweight loss of a cut in the number of students

Marginal private benefit is the benefit from​ ______ of a good or service that the​ _____ of the good or service receives. Marginal external benefit is the benefit from​ _____ of a good or service that people other than the​ _____ of that good or service enjoy.

an additional​ unit; consumer; an additional​ unit; consumer

Marginal private cost is the cost of producing​ _____ of a good or service that is borne by the​ _____ of that good or service. Marginal external cost is the cost of producing​ _____ of a good or service that falls on people other than the​ _____.

an additional​ unit; producer an additional​ unit; producer

Externalities​ _______.

can be negative or positive. Logging has a negative​ externality, and education has a positive externality

A new Obama air pollution rule requires​ coal-fired power plants to reduce both smog and​ acid-rain causing pollutants. The coal industry says this rule is among the most expensive ever imposed by the EPA. The pollution limit is expensive for_____ because_____

consumers; price of electricity rises

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

A study of highway use says that on two short stretches of expressway in​ Philadelphia, delays of 1 million hours a year cost​ $22 million in lost time and waste​ 375,700 gallons of fuel. ​Source: Bob​ McGovern, Philly Voice​, November​ 23, 2015 What is the externality described in the news​ clip? How could road tolls and high parking levies reduce congestion on Philadelphia​ roads? If road use and parking charges cut commute​ times, would the Philadelphia road system by more​ efficient? The externality described in the news clip is the_____

cost to drivers as a result of congestion on Philadelphia Roads

A new Obama air pollution rule requires​ coal-fired power plants to reduce both smog and​ acid-rain causing pollutants. The coal industry says this rule is among the most expensive ever imposed by the EPA. A pollution limit_____

decreases the quantity of electricity produced

Tom and Jake must spend a day working together. Tom likes to smoke​, and his marginal benefit from one cigar a day is ​$20. The price of a cigar is ​$4. Jake dislikes cigar smoke and his marginal benefit from an environment free of cigar smoke is ​$24 a day. If they meet at Tom​'s ​home, Tom ​______ smoke and if they meet at Jake​'s ​home, Tom ​______ smoke

does not; does not

Bob and Amos must spend a day working together. Bob likes to chew tobacco​, and his marginal benefit from one plug of tobacco a day is ​$21. The price of a plug of tobacco is ​$1. Amos dislikes the smell of chewing tobacco​, and his marginal benefit from an environment free of the smell of chewing tobacco is ​$16 a day. If they meet at Amos​'s ​home, Bob ​______ chew tobacco and if they meet at Bob​'s ​home, Bob ​______ chew tobacco.

does; does

Last​ year, Ventura County farmers harvested nearly​ 12,000 acres of strawberries valued at more than​ $323 million​ (a quarter of the​ nation's crop). To comply with the federal Clean Air​ Act, growers must use 50 percent less pesticide. It is estimated that strawberry output will fall by 60 percent. IF A CAP-AND-TRADE scheme is used in place of the POLLUTION LIMIT< the cap-and-trade scheme will be efficient if

eventually the market price of an emission permit equals the marginal external cost of the pollution produced

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

If college becomes​ tuition-free, the number of students enrolled will​ _______ and most​ likely, the outcome will be​ _______.

increase; inefficient

If governments cut the subsidy to​ colleges, tuition rises because the marginal cost of colleges​ ______ and the number of students enrolled​ ______.

increases; decreases

Government actions that could decrease carbon emissions include​ _______.

introducing carbon​ taxes, implementing a​ cap-and-trade system, and subsidizing green alternatives

Marginal external cost​ _______.

is an opportunity cost borne by someone other than the producer

If road use and parking charges cut commute​ times, the Philadelphia road system will be​ _______ efficient because​ _______.

more; Philadelphia commuters will reallocate themselves between driving and taking transit

The private market would be inefficient and produce too few vaccinations because​ ______.

people ignore external benefits when making decisions about vaccinations

Suppose that the Arctic Sea minerals can be either privately owned or government owned. When the minerals are privately​ owned, the quantity mined is the quantity at which marginal​ ______ cost equals marginal​ ______ benefit. When the minerals are government owned, the quantity mines is EFFICIENT OR INEFFICIENT

private; private

Marginal social benefit is the benefit enjoyed by society​ - by the consumer of a good or service and by everyone else who benefits from it. It is the sum of marginal​ ______ and marginal​ ______.

private​ benefit; external benefit

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

The graph illustrates the unregulated market for pulp and paper. The pulp and paper mills dump their waste in a river that runs through a small town. The marginal social cost of producing the pulp and paper is double the marginal private cost. Suppose the town owns the river. The quantity of pulp and paper produced is ___ tons a week the town charges the mines ___ a ton to dump waste.

produced: 100 Charges $300

The private benefits from vaccination include​ ______ and the external benefits include​ ______.

protection from​ infection; lower infection risk for everyone

The government could achieve an efficient quantity of vaccinations by​ _______.

public​ provision, private​ subsidies, or vouchers

Last​ year, Ventura County farmers harvested nearly​ 12,000 acres of strawberries valued at more than​ $323 million​ (a quarter of the​ nation's crop). To comply with the federal Clean Air​ Act, growers must use 50 percent less pesticide. It is estimated that strawberry output will fall by 60 percent. A LIMIT ON PESTICIDE _____

that lowers the marginal external cost will make the strawberry industry more efficient

The European Union requires any airline operating to or from an EU airport to participate in the EU​ cap-and-trade system under which 15 percent of pollution credits for airlines will be auctioned off and the other 85 percent of credits are being given without charge. A​ cap-and-trade system would reduce the amount of airline emissions to the efficient quantity if​ ______ and​ ______.

the EU government finds the quantity at which the marginal social cost of air travel equals the marginal benefit; it provides the number of permits such that this is the quantity of travel undertaken

Marginal external benefit is​ _______.

the benefit from an additional unit of a good or service that people other than the consumer of that good or service receives

The government is not using these actions more aggressively in part because​ _______.

the costs of decreasing carbon emissions are certain and would be borne​ now, while the benefits would come many years in the future


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