Econ ch 10

What conditions must be met for private bargaining to be effective in resolving an externality? Property rights must be clear, and production must begin at a socially optimal level. Bargaining costs must be low, and property rights must be clear. Taxes must be low, and regulations must be minimal. There must be trade in public goods.

Bargaining costs must be low, and property rights must be clear.

An example of a rival good would be:

a sandwich

externalities create tension between

personal interests and society's interests

All the following have negative externalities, EXCEPT:

sharing your insights in a group study

The outcome that is most efficient for society as a whole — including the interests of buyers, sellers, and bystanders — is the _____ outcome. externally optimal socially optimal social benefit maximizing public optimal

socially optimal

Which of the following statements describes the Coase Theorem? If the marginal benefit of a good exceeds the good's marginal cost, more of it should be produced. Even if bargaining is not costless, and property rights are unclear, externality problems can be solved through private bargaining. If bargaining is costless, and property rights are clearly established and enforced, then externality problems can be solved through private bargaining. Elimination of an externality is possible only when the marginal benefit of a good is no higher than its marginal cost.

If bargaining is costless, and property rights are clearly established and enforced, then externality problems can be solved through private bargaining.

Which is NOT true about the solutions to externality problems? Regulations result in the most efficient resolution of externalities. A cap-and-trade system raises the opportunity cost of creating externalities. A corrective tax raises the direct financial cost of creating externalities. Regulations can often blunt the forces of competition. A cap-and-trade system raises the opportunity cost of creating externalities. A corrective tax raises the direct financial cost of creating externalities. Regulations can often blunt the forces of competition.

Regulations result in the most efficient resolution of externalities.

Which of the following illustrates a positive externality? Martin's company experiences an increase in profits due to his cost-cutting initiatives. Artem loses sleep when an airport is built near his home, and planes fly overhead. The value of Maria's house rises when the city builds a park nearby, enhancing her view. Ella can buy a shirt at half price because someone else returned it.

The value of Maria's house rises when the city builds a park nearby, enhancing her view.

The owners of Jamal's Diner have lobbied their city council for lower business taxes on small businesses. The ordinance was finally passed, and several other businesses, including SuperSudz Car Wash a few blocks away, also saw their city tax burden lowered. The owners of Jamal's Diner were participants in the action and received a _____ from the tax cuts. The owners of SuperSudz Car Wash were not participants in the lobbying effort and received a _____ from the tax cuts.

benefit, positive externality

In the presence of externalities, market forces ignore the interests of _____, resulting in _____.

bystanders, inefficent outcome

Marjean walks to work every day along a busy road. As she does so, she breathes in the fumes of many cars, often arriving at work coughing. The economic term for the impact of the cars on Marjean is: exploitative supply. an externality. an alternative action. a nonmarket repercussion.

externality

The marginal private benefit is the: extra benefit that goes to bystanders for each additional unit of a good consumed by others. total extra benefit society gains from the consumption of an extra unit of a good. extra benefit enjoyed by the buyer of one extra unit of a good or service. addition to the satisfaction a buyer receives from the total quantity of a product consumed.

extra benefit enjoyed by the buyer of one extra unit of a good or service.

example of public good

interstate highway

The median earnings for a 25 to 34 year old, full-time, year round worker with a high school education was about $31,830 in 2016, while similar workers with a bachelor's degree (but no further education) earned $49,990, and as a result, they pay more income tax. a) There ---- a private benefit for individuals who attend college and earn a bachelor's degree. b) Does an individual's attainment of a bachelor's degree generate an externality? c)The private market for college education results in ----- individuals going to college to earn bachelor's degrees relative to the socially efficient outcome. d) To achieve the socially efficient outcome in the market for bachelor's degrees, the government should

is A positive externality exists because college educated individuals pay higher taxes and are often considered more valuable to employers than individuals without college diplomas. too few subsidize college education

The external costs imposed on bystanders reflect

opportunity costs

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

Jostin is ill and goes to the doctor. The doctor diagnoses him with a bacterial infection and prescribes an antibiotic. Jostin's visit to the doctor

produces a positive externality if it prevents other people from getting sick and a negative externality if the bacterial infection becomes resistant to antibiotics.

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

rational rule

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

the government charging a cigarette tax of around $2.50 per pack

xternalities tend to occur because decision makers consider _____ and do NOT consider _____. their own costs and benefits; the effects of their actions on others their own needs as most important; the fact that others also have needs the welfare of others; their own welfare their own income as limitless; their income as limited

their own costs and benefits; the effects of their actions on others

A solution to the free-rider problem is the government's power to _____, which is something businesses and individuals _____ have the power to do.

force people to pay for the goods they benefit from; do not

An urban farmer decides to build a bee hive to help pollinate the rooftop gardens in his neighborhood. The beehive

generates a positive externality if the rooftop gardens benefit from the pollination and a negative externality if the neighbors get stung by bees.

All of the solutions to externality problems involve: getting buyers and sellers to consider marginal external costs and benefits. converting social costs into private costs. turning private costs and benefits into external costs and benefits. setting regulations that impose the socially optimal price and quantity in the market.

getting buyers and sellers to consider marginal external costs and benefits.

Private bargaining is most likely to succeed when the benefits from solving the externality are _____ and the costs of bargaining are _____.

high, low

Public goods like _____ are often best managed when they are funded by _____.

military, government

Public schools require students to have up-to-date vaccinations. How does this policy help with the externality problem?

prevents an outbreak that can affect other students anf faculty

Which of the following would be both nonrival and nonexcludable? an immunization a siren tornado warning system a road a museum

tornado warning system

In 2018, a wind farm developer was ordered to dismantle its newly constructed wind turbines after adjacent residents filed a lawsuit complaining that they never consented to the loud noise and visual obstructions of the turbines. How could the wind farm developer have utilized insights from the Coase Theorem to avoid its legal troubles and ultimately wasting millions of dollars on wind turbines it never got to operate? Select all situations that would apply.The developer could have petitioned the local and state government to fund the wind farm.The developer could have paid people living near the wind farm a stipend for putting up with the noise and the restricted views.The developer could have asked the government to set a quota on electricity generation for the wind farm so there would be down time from the noise.The developer could have invested in improved infrastructure for power generation to lower residents' electricity costs as well as to promote the use of wind farms.

The developer could have paid people living near the wind farm a stipend for putting up with the noise and the restricted views. The developer could have invested in improved infrastructure for power generation to lower residents' electricity costs as well as to promote the use of wind farms.

Joe decides to build a chicken coop in his suburban backyard. He has several hens and one rooster. The rooster wakes up his neighbor each morning at 5:00 am. Joe's chicken coop

creates a negative externality if the neighbor wants to sleep longer and a positive externality if the neighbor is happy to be awaken early each day.