micro quiz 4

Employing a lawyer to draft and enforce a private contract between parties wishing to solve an externality problem is an example of

a transaction cost.

Flu shots provide a positive externality. Suppose that the market for vaccinations is perfectly competitive. Without government intervention in the vaccination market, which of the following statements is correct?

At the current output level, the marginal social benefit exceeds the marginal private benefit.

free trade

Domestic price= world price, no restrictions on trade

Coase Theorem:

If private properties can bargain without cost over the allocation of resources They can solve the problem of the externalities on their own

Negative externality

Impact on the bystander is adverse Exhaust from automobiles Barking dogs

Positive externality

Impact on the bystander is beneficial Restored historic buildings Research into new technologies College education

determinants of trade

In order to look at the benefit, you will look at the consumer surplus and producer surplus

domestic price

Opportunity cost of the good on the domestic market

world trade

Price of a good that prevails in the world market for that good

Externalities

The effect of someone who is not involved in the production or consumption of the good

When a country allows trade and becomes an importer of silk, which of the following is not a consequence?

The price received by domestic producers of silk increases.

Market failure:

When the market does not produce what the society wants

producer surplus

above supply, below equilibrium

what should gov do to have no deadweight loss

allow free trade

consumer surplus

below demand, above equilibrium

effect of tariff

increase to price, benefit domestic producers, domestic consumer benefits the gov

Equilibrium price and quantity

determined on the domestic market

When a country that imports a particular good imposes an import quota on that good,

domestic sellers become better off and domestic buyers become worse off

Negative externalities lead markets to produce

greater than efficient output levels and positive externalities lead markets to produce smaller than efficient output levels.

The problem with the protection-as-a-bargaining-chip argument for trade restrictions is

if it fails, the country faces a choice between two bad options.

Most economists prefer corrective taxes to regulation as a way to correct the problem of pollution because the market-based solution

is less costly to society.

externality comes from ...

market failure

According to the Coase theorem, private parties can solve the problem of externalities if

property rights are clearly defined.