CH 17 HW REVIEW

An ITQ​

results in an efficient outcome because no one has an incentive to cheat and exceed the quota

Littering while hiking is an example of a​ ______ externality. Building a light display on your front yard is an example of a​ ______ externality.

A negative externality imposes an external cost. An external cost is a cost that arises from production and falls on someone other than the​ producer, or a cost that arises from consumption and falls on someone other than the consumer. Littering while hiking is an example of a negative consumption externality. A positive externality provides an external benefit. An external benefit is a benefit that arises from production and falls on someone other than the​ producer, or a benefit that arises from consumption and falls on someone other than the consumer. Building a light display on your front yard is an example of a positive consumption externality.

Three production activities that create externality benefits are​

An external benefit is a benefit from an action that falls on someone other than the person or firm choosing the action. Examples of production activities that create external benefits are locating beehives next to an orange​ grove, a new technology that is discovered as a​ by-product of other research and​ development, and the smell created by a bakery that is baking bread.

Betty is a cigarette smoker and her marginal benefit from smoking a pack of cigarettes a day is​ $40. Cigarettes are​ $6 a pack. Anna dislikes cigarette​ smoke, and her marginal benefit from a​ smoke-free environment is​ $50 a day. What is the outcome if a. Betty drives her car with Anna as a​ passenger? b. Anna drives her car with Betty as a​ passenger?

Anna will offer Betty an amount between​ $34 and​ $50 and Betty will not​ smoke; Betty does not smoke because Betty will not offer Anna a high enough price to be allowed to smoke

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.

Which of the following is an example of the tragedy of the commons​?

Fishing technology allowed huge catches of cod in the Grand Banks fishing grounds that collapsed the fishing industry in the 1990s as cod populations fell to very low levels.

Choose the correct equation.

MSC​ = MC​ + Marginal external cost

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

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

Which of the following is an example of an abatement technology​?

The use of catalytic converters in US cars has improved air quality.

What are the key differences among public​ production, private​ subsidies, and​ vouchers?

With public​ production, a good or service is produced by a public authority. With a subsidy and with a​ voucher, a good or service is produced by a private producer.

Marginal private cost is the cost of producing​ _____ of a good or service that is borne by the​ _____ of that good or service.

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

An increase in the number of people who are studying for graduate degrees creates​ ______. A person who wears strong perfume to class creates​ ______.

an external benefit arising from​ consumption; an external cost arising from consumption

Airplanes taking off from LaGuardia Airport during the U.S. Open tennis tournament nearby create​ ______ A sunset over the Pacific Ocean creates​ ___

an external cost arising from​ production; no externality

One reason that economists favor vouchers to achieve an efficient outcome is because​

by giving the buying power to the final​ consumers, producers must compete for business and provide a high standard of service at the lowest attainable cost

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

When a fire alarm goes off accidently in the middle of a lecture it creates an external​ ______. When your instructor offers a free tutorial after class he creates an external​ ______.

cost; benefit

A huge noisy crowd that gathers outside the lecture room creates an external​ __. When your neighbor grows beautiful flowers on his apartment deck he creates an external​ __.

cost; benefit

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

Taxes and pollution charges​ _______.

increase​ producers' costs so that they decrease​ production, which decreases pollution emissions

Setting a production quota does not always achieve the efficient use of a common resource because​

marginal cost differs for each producer and it is in​ everyone's self-interest to cheat and produce more than the quota

When you smoke in a​ restaurant, you are creating a​

negative consumption externality

What externalities arise from beautiful and ugly buildings and how do we deal with​ them? Ugly buildings create a​ __.

negative consumption​ externality, which we deal with by fining people who use their property as garbage dumps

Smoking creates a​ _______ externality, which we deal with by​ _______.

negative​ consumption; placing a relatively high tax on tobacco products

The four types of externality are​

negative​ production, negative​ consumption, positive​ production, and positive consumption

External costs prevent a competitive market from allocating resources efficiently because firms consider​ ______ when they make their production decisions.

only the costs that they bear

Transactions costs are the​ ______ of conducting a transaction.

opportunity costs

Marginal external benefit is the benefit from an additional unit of a good or service that​

people other than its consumer enjoy

A healthy person lowers the costs of a​ government-funded medical system. What type of externality​ results? This is an example of a​ _______ externality

positive consumption

What externalities arise from beautiful and ugly buildings and how do we deal with​ them? Beautiful buildings create a​ __.

positive consumption​ externality, which we deal with by having competitions that encourage beautiful design and landscaping

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

Pigovian taxes are taxes used by the government as an incentive for​

producers to cut back the pollution they create

An externality is a cost or benefit that arises from​

production or consumption

An individual transferable quota​ (ITQ​), which is a​ _____ limit that is assigned to an individual who​ _____ to transfer​ (sell) the quota to someone else.

production; is then free

Assigning property rights does not always achieve the efficient use of a common resource because​

property rights are sometimes difficult to assign and property rights are sometimes difficult to enforce

When a​ cap-and-trade is implemented​ _______

the government determines the efficient quantity of pollution and firms buy and sell the allocated pollution permits

A common resource is used efficiently when​

the marginal social benefit equals the marginal social cost