Econ Chapter 9
The marginal social cost of producing the last unit of a good is $1.10 while the consumers' willingness to pay for the last unit is $0.80. The deadweight loss from the production of the last unit of the good in equilibrium is ________.
$0.30
Suppose a market has only one seller and only one buyer of a good in the market. The buyer is willing to pay $50 for the good and the seller is willing to accept $15. The market price of the good is determined at $30. If they trade, the social surplus will be ________.
$35
Smoking increases the risk of lung infections not only for active smokers but also for other people inhaling the smoke passively. Which of the following will help in reducing smoking?
A corrective tax
Vaccination against a disease helps in preventing the spread of the disease. Which of the following can help in increasing the number of people vaccinated to the socially optimal level?
A corrective tax
Ron plays loud music, which prevents his neighbor from studying. His neighbor values studying at $5,000, while the cost of soundproofing Ron's room is $3,000. Which of the following problems arises in this scenario?
A negative externality
Which of the following is an example of a public good?
A radio broadcast
Which of the following gives rise to a positive externality?
Consumption of a drug to cure a communicable disease
Which of the following statements are true regarding externalities?
Deadweight loss can be either a foregone benefit or the total cost of the externality to society.
Which of the following gives rise to a negative externality?
Deforestation leading to the extinction of many species
Which of the following activities can give rise to a positive externality?
Getting a flu vaccination
Which of the following statements regarding the Coase Theorem is not true?
Initial property right allocation determines whether the socially efficient outcome can be achieved.
Which of the following statements regarding internalizing an externality is true?
It means agents account for the full costs and benefits of their actions.
Which of the following is not an externality?
Jordan has lung cancer from smoking cigarettes.
Which of the following best illustrates the tragedy of the commons?
Overfishing in public waters.
Which of the following can give rise to a negative externality?
Smoking a cigarette
In which of the following situations can an externality be internalized by using the Pigouvian subsidy?
Sophia's flower garden provides a pleasant view for her neighbors.
Which of the following will lead to an efficient private solution if negative externalities are present in a market?
The parties involved negotiate with each other and reach an agreement.
A manufacturing plant is emitting hazardous gas into the nearby area, adversely affecting the local citizens. In which of the following situations does private bargaining not likely to lead to an efficient outcome?
When negotiating an agreement on the allowable level of emissions and who gets compensated is difficult.
An externality occurs when
an economic activity affects third parties not engaged in the activity
the presence of a positive externality in a market leads to
an underproduction of the good
Pay-per-view broadcasts are __________.
club goods
A government regulation that bans the use of a certain polluting technology in the production of a good is an example of a _______ to solve an externality.
command and control approach
The tragedy of the commons results when ___________.
common pool resources are overused.
A concert in a crowded auditorium is in __________ consumption.
excludable and rival
Three friends stay in an apartment. Their landlord offers to air-condition the apartment if they pay for the installation charges. Although they all want an air-conditioner, none of them say so. This is an example of the __________.
free-rider problem
A Pigouvian tax is a tax designed to
induce producers generating negative externalities to reduce production
An economic agent _________ when he accounts for the full costs and benefits of his actions.
internalizes an externality
The marginal social cost curve ________ when production involves negative externalities.
lies above the supply curve
A chemical factory releases its byproducts in a nearby river, which harms aquatic flora and fauna. This is an example of a ____________.
negative externality
Traffic congestion is an example of a
negative externality
The Coase Theorem states that
negotiation between economic agents leads to an efficient allocation of resources
The Coase theorem relies on internalizing externalities through ____________.
negotiations between the parties involved
Space on a popular, public beach is __________ in consumption.
non-excludable but rival
Five players are given $10 each and asked to contribute any portion of it to a group account. They are also told that the total collection will be doubled and distributed equally among each of them. In this case, the players are likely to contribute __________.
nothing
A ________ externality occurs when a market transaction affects others through market prices.
pecuniary
Jack wants to buy a new house. But the surge in housing demand over the last few months has led to a sharp increase in housing prices making it impossible for him to afford one on his current income. This is an example of a _______.
pecuniary externality
Which of the following is necessary for efficient markets?
pecuniary externality
If a good is excludable, ________.
people can be prevented from using the good
The production of a certain fertilizer emits a gas that keeps away mosquitoes and other insects from the surrounding community. This is an example of a
positive externality
The production of steel in a factory generates a negative externality. A per-unit tax on the factory that equals ________ of steel production will internalize the externality entirely.
the marginal external cost
When a Pigouvian tax is imposed, ____________.
the marginal private cost curve shifts upward
Government intervention is required to solve externality problems if
the number of people affected by the externality is large
If the production of a good involves negative externalities, ________.
the optimal price of the good is higher than the price charged in the market.
Deadweight loss refers to the loss in
total surplus due to a market distortion such as an externality
A retired athlete built a gym near his house that could be used for free by all the residents in the neighborhood. However, the overuse of the facilities soon led to irreparable damages. This is an example of the _________.
tragedy of the commons
Private solutions to externalities are most effective if
transaction costs associated with bargaining are low
