CHAPTER 7
Why are externalities considered a cause of market failure? -Because they make markets so competitive that profits disappear. -Because they always cause a net loss in welfare. -Because they lead to suboptimal outcomes. -Because decision makers become overly concerned about the impact of their actions on bystanders.
Because they lead to suboptimal outcomes.
Which of the following statements is TRUE? I. Sugar consumers pay higher prices because of sugar quotas, a sufficient incentive for them to campaign against politicians that favor quotas. II. Sugar producers know more about sugar quotas than do sugar consumers because the quota system has a large effect on sugar industry profits. III. When it comes to sugar trade policy, sugar producers are rationally informed and sugar consumers are rationally ignorant. -I only -I, II, and III -I and II only -II and III only
II and III only
A farmer agrees to give a company access to a private road on his property if the company reduces pollution of the farm's water source. This is an example of reducing an externality through: -private bargaining. -public goods. -corrective taxes. -cap and trade.
private bargaining.
The marginal cost of producing 40 units of a public good is $200. There are two individuals in the society. Person A is willing to pay $80 for 40 units of the public good. If 40 units of the public good are provided, how much must Person B be willing to pay? $150 $120 $80 $0
$120
The marginal social benefit from the production of the last unit of a good is $4,800. If the willingness to pay for that unit is $3,900, what is the external benefit from its production? $4,100 $8,700 $3,800 $900
$900
Which of the following describes a situation with a negative externality? -After a commercial poultry farm opens, neighbors on all sides complain of its smell. -When 10% more people get a flu shot, the incidence of the flu drops by 20%. -When the price of gasoline rises by 10%, the quantity sold drops by 8%. -The buyer of a skateboard falls when using it and is injured.
After a commercial poultry farm opens, neighbors on all sides complain of its smell.
How can the tragedy of the commons be averted? -Ownership rights can be assigned. -The government can implement a cap and trade policy. -The parties involved can engage in public bargaining. -The government can assess corrective taxes.
Ownership rights can be assigned.
Which of the following is the amount of a corrective/Pigouvian tax that would resolve a negative externality problem? -The total external cost. -The total social cost. -The marginal external cost. -The marginal social cost.
The marginal external cost.
Classify each scenario as to whether it is likely to result in an efficient or inefficient market outcome. a market dominated by a few powerful businesses
inefficient
A market with negative externalities will tend to _____ compared to a market producing the socially optimal output. -underproduce and sell at a lower price -underproduce and sell at a higher price -overproduce and sell at a lower price -overproduce and sell at a higher price
overproduce and sell at a lower price
Which of the following is NOT a result of an efficient market? -Allocative efficiency is achieved. -Goods go to the consumers who will gain the highest marginal benefit from the good. -Goods are produced by the firms that can do so at the lowest marginal cost. -Economic surplus is minimized to reduce waste.
Economic surplus is minimized to reduce waste.
Some researchers estimate that all saltwater fish will be extinct by 2048, in large part due to overfishing. But surveys also show that more households eat chicken and beef than fish; however, neither chickens nor cattle are in danger of extinction. Which of the following best explains these observations? -The price of fish is much higher than the price of chicken and beef. -Fish tend to be nonrival resources, whereas chicken and beef are rival. -The supply of fish has always been less than the supply of chicken and beef. -Fish tend to be nonexcludable resources, whereas chicken and beef are excludable.
Fish tend to be nonexcludable resources, whereas chicken and beef are excludable.
In economics, what is the meaning of the phrase 'the tragedy of the commons?' -It serves the common good to produce items that are neither rivalrous nor excludable, but profit‑maximizing firms will not produce such products. -In decisions involving intellectual property rights, policy-makers must compromise in order to reach common ground among competing interest groups. -In market economies products are often similar and common, so the government must actively attempt to create variety in goods and services. -People will overuse or misuse a common resource that is not excludable but is rivalrous. -Goods that are not rivalrous but are excludable are under‐produced by private markets, often with consequences that reduce social welfare.
People will overuse or misuse a common resource that is not excludable but is rivalrous.
In what ways might property rights achieve more efficient outcomes in markets containing externalities? (multiple answers) -Property rights help avoid the tragedy of commons. -With property rights, the marginal social benefit curve increases. -Property rights provide incentives to supply the optimal amount. -With property rights, the marginal social cost curve becomes the marginal private cost curve. -Property rights enforce production quotas.
Property rights help avoid the tragedy of commons; Property rights provide incentives to supply the optimal amount; With property rights, the marginal social cost curve becomes the marginal private cost curve
Which of the following is NOT a reason for government failure? -Elected officials are more concerned about reelection than efficiency. -Government leaders are focused on enriching themselves. -Regulators are overly focused on efficiency. -Regulators act in the interest of the industries they regulate.
Regulators are overly focused on efficiency
As part of the American Recovery and Reinvestment Act, $7 million was earmarked to build a bridge over a railroad crossing so that 168 Nebraska town residents wouldn't have to wait for the trains to pass. Which of the following best explains why this proposal was passed? -The benefits were highly diffused, while the costs were very concentrated. -The costs were highly diffused, while the benefits were very concentrated. -The costs were external, while the benefits were internal. -The total benefit of the bridge was greater than the total cost.
The costs were highly diffused, while the benefits were very concentrated.
Which is a source of market failure? -Market power -Externalities -Irrationality -These are all sources of market failure.
These are all sources of market failure.
Which of the following is an example of a negative externality? -Raul loses weight because he wants to feel better, but the weight loss means that he needs new clothes. -Rita gains weight while she is on vacation because she eats more than normal. -Bae's company has a decrease in profits when the demand for its product falls. -When Fazio parks his big truck at the grocery store, people in the cars on each side of his parking space have a hard time opening their car doors.
When Fazio parks his big truck at the grocery store, people in the cars on each side of his parking space have a hard time opening their car doors.
According to the Coase theorem, which situation would MOST likely result in a private bargaining solution and yield an efficient market? -A company recently turned an abandoned factory at the end of your street into a paper mill that now stinks up the entire town. -Your neighbor's dog routinely gets out of his yard and does his "business" in your yard. -People who get flu shots actually end up decreasing the spread of the virus. -A railroad train that runs the entire East Coast regularly emits both pollution and loud noises for people living near the tracks.
Your neighbor's dog routinely gets out of his yard and does his "business" in your yard.
hat is the net effect of a negative externality? It decreases -the market equilibrium output. -only consumer surplus. -only producer surplus. -both producer and consumer surpluses.
both producer and consumer surpluses.
When the forces of supply and demand lead to an inefficient outcome -it is a signal that the government needs to take ownership of that market including all the resources involved. -the economic surplus is maximized. -economists call this a deadweight loss. -economists call this a market failure.
economists call this a market failure.
Classify each scenario as to whether it is likely to result in an efficient or inefficient market outcome. a market in which economic surplus is maximized
efficient
A large farming operation which uses a potent fertilizer is located up river from a trout farmer. If property rights of the river exist and transactions costs are low, the amount of pollution will be -efficient only if the trout farmer owns the river. -efficient if either the farming operation or the trout farmer own the river. -inefficient if the farming operation owns the river.
efficient if either the farming operation or the trout farmer own the river.
When government policies lead to outcomes that are worse than those that would occur in unregulated markets: -government failure occurs. -government efficiency occurs. -liveweight loss occurs. -marginal costs occur.
government failure occurs.
Classify each scenario as to whether it is likely to result in an efficient or inefficient market outcome. a market in which government regulation creates distortions
inefficient
Technological advancements are considered a _____externality because ______receive the majority of the benefits. Too _____of this type of externality is usually provided.
positive; third parties; little
Classify each example according to whether it is rivalrous or nonrivalrous, and excludable or nonexcludable. a Chipotle burrito:
rivalrous and excludable
Which scenario is the best example of the tragedy of the commons? The best example is when -a country experiences widening income inequality. -a group of farmers forms a collective to coordinate a common pricing strategy. -users of a shared shower in a dorm allow the shower to get nasty by failing to clean it often enough. -two countries engaged in international trade of a good reach the same equilibrium price, which is higher than it would have been in the absence of trade. -all artists in a mass-media environment face an incentive to create works that are lower quality in order to appeal to the lowest common denominator.
users of a shared shower in a dorm allow the shower to get nasty by failing to clean it often enough.
Which statement best illustrates a cause of government failure as it relates to economics and markets? One cause is -a situation in which rebels overtake an established government. -when the incentives of government officials do not allign with public interest -the cessation of government business due to lack of funding. -a failure of governments to meet budgetary needs.
when the incentives of government officials do not allign with public interest
Which of the following statements supports the idea that price changes are not externalities? -A drop in price is a clear signal that the market was negatively impacting buyers. -Prices are a side effect of decisions making. -A price change redistributes costs and benefits but does not generate new costs or benefits. -A change in price adversely affects all suppliers in the market.
A price change redistributes costs and benefits but does not generate new costs or benefits.
Which of the following is a positive externality? -After the price of dental care decreases, more people can afford regular dental check-ups. -Researchers develop a new drug that effectively treats a devastating disease that previously had no cure. -After measles vaccinations increase by 20%, the number of cases of measles falls by 35%. -After a large stadium is built in a neighborhood, homeowner property values in the neighborhood fall because of noise and traffic.
After measles vaccinations increase by 20%, the number of cases of measles falls by 35%.
Suppose that instead of each farmer in an area owning a specific parcel of land, all farmland is pooled together. The profits that remain from all of the pooled farmland is divided among all of the participating farmers equally. Which is the most likely consequence of a property right system like this being used? -Farmers will undertake increased investment in human and physical capital. -Technological innovations will occur that will help the farmers become more productive. -The farmers would develop a sense of altruism and work hard to accomplish as much as possible as a group. -Free riding would occur from various farmers on the land.
Free riding would occur from various farmers on the land.
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. -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. -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.
Which of the following is NOT a problem that occurs when rules and regulations are used to control externalities? -Rules and regulations may stifle innovation and discovery of how to achieve the rule's goal. -Rules and regulations may focus on an easy-to-monitor way to achieve a goal rather than the best way to achieve it. -Rules and regulations tend to focus on the most extreme cases of an externality rather than the most common. -Rule and regulations tend to eliminate rather than reduce externalities when reduction might be the better option.
Rules and regulations tend to focus on the most extreme cases of an externality rather than the most common.
Which of the following exemplifies the tragedy of the commons? -The Malaysian tapir, distinguished for its unusual coloration, is a target for poachers who hunt it for its tough and leathery hide. -Residents on the northern coast of California receive only one public broadcasting signal which may be eliminated altogether if government funding is cut. -The Pleasant Hill community is growing so fast that the city's only post office is not able to keep pace with the population growth in the community. -Canadian citizens receive free universal health care administered by provincial governments.
The Malaysian tapir, distinguished for its unusual coloration, is a target for poachers who hunt it for its tough and leathery hide.
What is the difference between a positive externality and a negative externality? -Whether the perspective is the buyer's or the seller's. -Whether the welfare of bystanders rises or falls. -Whether bystanders have a direct or inverse relationship to the decision maker. -Whether the price rises or falls.
Whether the welfare of bystanders rises or falls.
If the social benefit of consuming a good or a service exceeds the private benefit -a negative externality exists. -the sum of consumer surplus and producer surplus is maximized. -the market achieves economic efficiency. -a positive externality exists.
a positive externality exists.
A negative externality is: -a change from a positive relationship between two variables to an inverse relationship. -an unintended consequence of an action that harms the decision maker. -a side effect of an activity when the side effect harms bystanders. -a reduction in demand that occurs when agents outside a market influence market participants.
a side effect of an activity when the side effect harms bystanders.
An externality is defined as: -an effect of market activity that impacts the opposite side of the market from the side whose decision caused the effect. -the impact of an activity on buyers and sellers in the market where the activity takes place. -the effect of an activity undertaken outside a building rather than inside a building. -a side-effect of an activity that affects bystanders whose interests are not taken into account.
a side-effect of an activity that affects bystanders whose interests are not taken into account.
Which of the following would be both nonrival and nonexcludable? -a siren tornado warning system -a road -an immunization -a museum
a siren tornado warning system
A government action that can help correct positive externalities is -regulations aimed at reduced production by sellers of the good that provides external benefits. -a fee charged to producers of the good that provides external benefits. -a tax on producers of the good that provides external benefits. -a subsidy to consumers of the good that provides external benefits.
a subsidy to consumers of the good that provides external benefits.
Which of the following goods would be nonrival? -toothpaste -gasoline -a candy bar -an online course
an online course
One of the main problems with the Coase theorem is that: -bargaining costs are generally not low (or zero). -individuals only act in their own self-interest. -the consumer evaluation theorem implies that bargaining costs are not sufficiently high. -a corrective tax or subsidy is needed to ensure that a social optimum is reached.
bargaining costs are generally not low (or zero)
A factor that is NOT a possible reason for market failure is: -firms having the capacity to raise the market price. -transactions that have side effects on the welfare of others. -lack of information about the quality of a second-hand car. -extremely high prices for prescription eyewear.
extremely high prices for prescription eyewear.
Aurora Township is asking all of its citizens to chip in and donate money to build a new library. Tommy thinks he already pays enough money in taxes, so he chooses not to donate. He knows that even if --he does not contribute he will be able to use the library once it is built. -This is an example of -asymmetric information. -adverse selection. -the free rider problem. -the tragedy of the commons. -moral hazard.
free rider problem.
A ______ is a person who ____ a public good that others ______
free rider; enjoys; pay for.
All of the solutions to externality problems involve: -turning private costs and benefits into external costs and benefits. -converting social costs into private costs. -setting regulations that impose the socially optimal price and quantity in the market. -getting buyers and sellers to consider marginal external costs and benefits.
getting buyers and sellers to consider marginal external costs and benefits.
The Coase theorem implies that: -private individuals will not produce the socially optimal outcome because bargaining costs are generally quite high. -given low bargaining costs, private individuals can achieve a socially optimal solution without the involvement of the government. -given external costs, the government must intervene to achieve the socially optimal output. -all goods that generate an external cost (or benefit) should be produced up to the point where the marginal social benefit equals the marginal social cost of the good.
given low bargaining costs, private individuals can achieve a socially optimal solution without the involvement of the government.
Classify each scenario as to whether it is likely to result in an efficient or inefficient market outcome. a market transaction in which buyers or sellers behave irrationally
inefficient
Classify each scenario as to whether it is likely to result in an efficient or inefficient market outcome. a market transaction in which one party has all the information not available to the other party
inefficient
When someone can enjoy the benefits of a good without bearing the cost, the good: -is attractive to manufacturers. -is excludable and rival. -is subject to the free-rider problem. -is a nonmarket good.
is subject to the free-rider problem.
A nonexcludable good is a good in which: -there is a regulation that the good must be provided to everyone. -the good has no cost of production and so is available to consumers at no cost. -one person consuming or using the good cannot prevent others from using or consuming the same unit of the good. -it is difficult to prevent someone from using or having access to the good.
it is difficult to prevent someone from using or having access to the good.
The advantage of using command and control to solve an externality problem is that: -it is usually the least costly approach. -it is a very flexible approach. -it is inflexible, and some problems require an inflexible approach. -it solves the problem efficiently without the government requiring very much information.
it is inflexible, and some problems require an inflexible approach.
Which of the following is NOT a source of market failure? -government regulations that impede market forces -lack of market power -irrational decisions -side effects of externalities
lack of market power
One of the key underpinnings of public choice analysis is the assumption that politicians and bureaucrats -make political decisions based on self‑interest, just as individuals and firms do. -seek only to maximize long term economic growth through increasing GDP. -act not out of self‑interest but desire to increase the general utility of the public. -make political decisions based primarily on benefiting future generations.
make political decisions based on self‑interest, just as individuals and firms do.
A corrective/Pigouvian tax designed to resolve a negative externality problem is typically set at an amount equal to the _____ cost. -marginal external -marginal social -total social -total externality
marginal external
When externalities are present, the socially optimal outcome occurs where the _____ benefit equals the _____ cost. -marginal social; marginal social -total external; total external -marginal external; marginal external -total social; total social
marginal social; marginal social
A carbon tax which is designed to reduce pollution is an example of a -strong-arm tactic. -market-based policy. -noneffective incentive. -command-and-control policy.
market-based policy.
A corrective or Pigouvian tax leads: -people to internalize the external costs and benefits of their actions. -to a Coase Theorem-based solution that arises from private bargaining. -to a need for offsetting subsidies. -to a reduction of external benefits and costs.
people to internalize the external costs and benefits of their actions.
Individual transferable quotas (ITQs) are like a _____, allowing _____. -permit; fishermen the right to catch a limited number of fish -corrective tax; fishermen a tax write-off for capital purchases -subsidy; the internal benefit of fishing to be externalized -cartel; fisherman to raise market prices by limiting competition
permit; fishermen the right to catch a limited number of fish
Common resources have: -characteristics of being nonrival and nonexclusive. -private gains but shared costs. -characteristics of being rival and exclusive. -shared gains but private costs.
private gains but shared costs
Which of the following problems occurs when some participants in a market have information that other participants in the market do not have? -overproduction -excessive surplus -private information -excessive trust
private information
Ronald Coase's ideas on property rights have helped economists and policymakers better understand environmental problems. Identify the true statement regarding Coase and property rights. Coase contended that -property rights allocation is unimportant because the affected parties will contract with one another to find an efficient solution to --externality problems regardless of who is assigned the initial property right. -environmental harms will be greater when property rights are assigned to firms. -property rights refer exclusively to ownership of land. the assignment of property rights to someone is essential.
property rights refer exclusively to ownership of land. the assignment of property rights to someone is essential.
When benefits are concentrated and costs are diffused: -resources get devoted to projects with high benefits and low costs. -fewer projects with low benefits and high costs get developed. -resources get wasted on projects with low benefits and high costs. -more projects with high benefits and low costs get developed.
resources get wasted on projects with low benefits and high costs
Classify each of the foods goods according to whether it is rivalrous, nonrivalrous, excludable, or nonexcludable. Rivalrous is also referred to as rival in consumption. A sports team t-shirt: -rivalrous and excludable -nonrivalrous and excludable -rivalrous and nonexcludable -nonrivalrous and nonexcludable
rivalrous and excludable
A negative externality exists when _____ exceed ______
social costs; private costs
Irrational decision making in markets results in: -externalities. -consistent overproduction. -evidence that the rational rules do not lead to their claimed outcomes. -some supply decisions not matching marginal costs, and some demand decisions not reflecting marginal benefits.
some supply decisions not matching marginal costs, and some demand decisions not reflecting marginal benefits.
Montgomery owns a nuclear power plant in the town of Springfield. His power plant dumps substantial quantities of radioactive waste into the local pond, which has given rise to a mutant guppy fish population with three eyes. The town decides to have Montgomery do something about the externality. Which method would NOT result in Montgomery accounting for the social cost of running the power plant? It would not work to -define property rights clearly to identify Springfield as the owner of the pond with the right to compensation from Montgomery for damages from the pollution. -have the government give Montgomery a permit to allow a limited amount of pollution but no more. -subsidize Montgomery for every three‑eyed fish found in the pond. -charge Montgomery $1,000 for every barrel of toxic waste his nuclear reactors produce.
subsidize Montgomery for every three‑eyed fish found in the pond
A familiar example of a negative externality is loud music in a busy park on a weekend. In principle, it should be possible to solve this externality by permitting park visitors to negotiate rights to play music in particular locations or at specific times. The most likely reason these negotiations do NOT occur is that: -most people are unfamiliar with the Coase theorem. -the bargaining costs of identifying and establishing communications between all affected parties would be high. -music is an experience, not a good. -some park goers do not view loud music as a negative externality.
the bargaining costs of identifying and establishing communications between all affected parties would be high.
Traffic congestion is a common example of a negative externality. In principle, it should be possible for drivers to negotiate the right to drive at particular times, thereby compensating those who would prefer not to drive at peak times and solving the externality. The most likely reason these negotiations do NOT occur is that: -individuals are unfamiliar with the Coase theorem. -the bargaining costs of such negotiations would be prohibitive, as there are (in large cities) many interested parties. -such an agreement could not be enforced, since all individuals have free access to all public roads. -the punitive nature of the negotiations for those not involved would ensure it cannot come to pass.
the bargaining costs of such negotiations would be prohibitive, as there are (in large cities) many interested parties.
The incentive to dedicate private resources to maintaining a common resource is low because: -maintenance is very expensive. -entrepreneurs have not found a way to profit from common resources. -the benefits of maintenance are external, not private benefits. -there is no benefit from maintenance of a common resource.
the benefits of maintenance are external, not private benefits.
The free-rider problem results from: -the inability to prevent individuals who do not pay for a good from consuming it. -average cost pricing. -monopoly pricing. -the horizontal summing of supply curves.
the inability to prevent individuals who do not pay for a good from consuming it.
A knowledge problem exists when -the information needed to make a good decision is not available to a decision-maker. -a decision-maker refuses to believe or make use of available information. -so much information is available to decision-makers that it is difficult to process all the relevant information. -the information available to a decision-maker is not accurate and based on opinion.
the information needed to make a good decision is not available to a decision-maker.
Competitive markets do NOT result in: -goods going to the consumers who will receive the highest marginal benefit from the good. -goods produced at the lowest possible marginal cost. -the largest possible economic profit for firms. -the largest possible economic surplus.
the largest possible economic profit for firms.
A positive externality causes -the marginal social benefit to exceed the marginal private cost of the last unit produced. -the marginal social benefit to be less than the marginal private cost of the last unit produced. -the marginal social benefit to be equal to the marginal private cost of the last unit produced. -the marginal private benefit to exceed the marginal social cost of the last unit produced.
the marginal social benefit to exceed the marginal private cost of the last unit produced.
When the lawn care services market is characterized by positive externalities: -too many lawn care services are produced. -output is too high, and price is too low. -too few lawn care services are produced. -output is too low, and price is too high.
too few lawn care services are produced.
Suppose that a small company is thinking of putting plants in their lobby for employees to view and enjoy. Since the plants are to be viewed by employees, the plants are non-excludable (it is infeasible to move a plant each time a specific individual walks by) and non-rival in consumption (if one worker looks at the plant, it does not prevent another from doing so as well). The company employs three workers: Tim, Tyler, and Sharon. The company is thinking about buying up to three plants, and wants to know how much workers would enjoy each plant. For Tim, the first plant has a benefit of $31$31 per day, the second plant has a benefit of $19$19 per day, and the third plant has a benefit of $9$9 per day. For Tyler, the first plant has a benefit of $26$26 per day, the second has a benefit of $13$13 per day, and the third has a benefit of $7$7 per day. For Sharon, the first plant has a benefit of $17$17 per day, the second has a benefit of $11$11 per day, and the third has a benefit of $3$3 per day. Given that no one else will see the plants, no one else values the plants in the lobby. What is the marginal social benefit of the first plant? $$ What is the marginal social benefit of the second plant? $$
74; 43
Which of the following is NOT an example of a corrective tax or subsidy used to address an externality problem? -The government charges Ku's company a tax equal to the difference between the marginal social cost and the marginal private cost of emissions. -The government discourages the production of paper products in a suburban community by imposing a unit tax on the production of such products, limiting paper companies' emissions of carcinogenic toxins. -Marlo's customers have been bothered by the noisy, midday deliveries at the business next door. She arranges to cover part of the delivery costs in order to have the neighbor's deliveries arrive early in the morning rather than at midday. -The government covers part of the cost of a particular immunization.
Marlo's customers have been bothered by the noisy, midday deliveries at the business next door. She arranges to cover part of the delivery costs in order to have the neighbor's deliveries arrive early in the morning rather than at midday.
How does rational ignorance reduce social welfare? -Special interests are able to get projects with higher costs than benefits passed because they have the necessary connections. -Special interests are able to get projects with higher costs than benefits passed because of lobbying measures. -Special interests are able to get projects with higher costs than benefits passed because voters fail to acquire sufficient understanding of complex issues. -All of the above result from rational ignorance.
Special interests are able to get projects with higher costs than benefits passed because voters fail to acquire sufficient understanding of complex issues.
How does the construction of a market demand curve for a private good differ from that for a public good? -The market demand curve for a private good is determined by adding up the quantities demanded by each consumer at each price but the market demand curve for a public good is determined by adding up the price each consumer is willing to pay for each quantity of the good. -There is no difference; in both cases the demand curve is determined by adding up the quantities demanded by each consumer at each price. -The market demand curve for a private good is determined by adding up the price each consumer is willing to pay for each quantity of the good but the market demand curve for a public good is determined by adding up the quantities demanded by each consumer at each price. -There is no difference; in both cases the demand curve is determined by adding up the price each consumer is willing to pay for each quantity of the good.
The market demand curve for a private good is determined by adding up the quantities demanded by each consumer at each price but the market demand curve for a public good is determined by adding up the price each consumer is willing to pay for each quantity of the good.
The market demand curve of a good that is rival in consumption and excludable is the horizontal sum of the individual demand curves. However, the marginal social surplus curve of a public good is the vertical sum of the individual marginal benefit curves. What aspect of a public good causes the demand curves to be summed vertically instead of horizontally? -A vertical sum of individual demand curves is the same thing as a horizontal sum of individual demand curves. -Whether we sum vertically or horizontally depends only on whether the good is excludable. -Whether we sum vertically or horizontally depends on both whether the good is excludable and whether it is rival in consumption. -Whether we sum vertically or horizontally depends on whether the government, as opposed to the free market, usually provides the good. -Whether we sum vertically or horizontally depends only on whether the good is rival in consumption.
Whether we sum vertically or horizontally depends only on whether the good is rival in consumption.
The market demand for a public good can be determined by -estimating the value of the benefit that each unit provides and multiplying that by the number of consumers. -adding up how much each citizen expects to consume at each possible price. -adding up how much each consumer is willing to pay for each unit of the public good.
adding up how much each consumer is willing to pay for each unit of the public good.
Marginal external costs of pollution are the -additional positive effects imposed on others due to one more unit of pollution. -sum of the marginal private benefit and marginal external benefits of pollution. -additional negative effects imposed on others due to one more unit of pollution. -sum of the marginal private cost and marginal social cost of pollution.
additional negative effects imposed on others due to one more unit of pollution.
Market failure refers to a situation in which: -it is not possible to make some people better off without making other people worse off. -markets establish a high price for necessities. -market-determined wages are not high enough to raise all workers above the poverty line. -markets fail to reach an efficient outcome.
markets fail to reach an efficient outcome.
Sunday afternoon NFL football games on television are nonrival because: -the provider cannot prevent people who do not pay for them from watching them. -more than one person can consume the same unit of the good at the same time. -individuals ignore the effect of their use on the amount of the resource remaining for others. -the market suffers from inefficiently low consumption.
more than one person can consume the same unit of the good at the same time.
A good is characterized as _____ when one person's use of the good does not reduce another person's ability to use the same unit of the good. -shareable -free -nonrival -nonexcludable
nonrival
Most neighborhood streets have traffic lights to help control the flow of traffic. Traffic lights are _____ and _____. Therefore, they will be _____ by the competitive market. -nonrival; nonexcludable; underprovided -nonrival; nonexcludable; overprovided -rival; excludable; efficiently provided -nonrival; excludable; underprovided
nonrival; nonexcludable; underprovided
Classify each example according to whether it is rivalrous or nonrivalrous, and excludable or nonexcludable. playing World of Warcraft, a massive multiplayer online computer game:
nonrivalrous and excludable
Classify each of the foods goods according to whether it is rivalrous, nonrivalrous, excludable, or nonexcludable. Rivalrous is also referred to as rival in consumption. A toll road in normal traffic: -nonrivalrous and excludable -rivalrous and nonexcludable -rivalrous and excludable -nonrivalrous and nonexcludable
nonrivalrous and excludable
Classify each example according to whether it is rivalrous or nonrivalrous, and excludable or nonexcludable. street lighting in a public park:
nonrivalrous and nonexcludable
Classify each of the foods goods according to whether it is rivalrous, nonrivalrous, excludable, or nonexcludable. Rivalrous is also referred to as rival in consumption. he air we breathe: -nonrivalrous and nonexcludable -rivalrous and excludable -nonrivalrous and excludable -rivalrous and nonexcludable
nonrivalrous and nonexcludable
According to public choice theory, the main reason for some politicians' ability to build support for policies that generate more costs than benefits is that: -rational ignorance is higher in the situation of concentrated benefits and diffuse costs. -the public is always ignorant about the costs and benefits of any policy. -the political process has flaws, so the public is always misinformed. -the government always misleads the public with biased information.
rational ignorance is higher in the situation of concentrated benefits and diffuse costs.
Classify each example according to whether it is rivalrous or nonrivalrous, and excludable or nonexcludable. wild tuna in the Pacific Ocean for which no fishing permit is required:
rivalrous and nonexcludable
Classify each of the foods goods according to whether it is rivalrous, nonrivalrous, excludable, or nonexcludable. Rivalrous is also referred to as rival in consumption. Atlantic bluefin tuna in the Mediterranean Sea: -nonrivalrous and nonexcludable -nonrivalrous and excludable -rivalrous and nonexcludable -rivalrous and excludable
rivalrous and nonexcludable
Suppose a classmate claims that the reason he knows nothing about politics is rational ignorance. What does he mean? -that cable television is too expensive -that the cost associated with becoming informed is greater than the benefit -that he is lazy -that he does not understand certain policies, so there is no point in paying attention -that he is scared of discovering the extent of corruption in politics
that the cost associated with becoming informed is greater than the benefit
Your college roommate has the right to practice her tuba during the day. You, however, find that studying during the day is most conducive to good grades, and her tuba-playing makes it difficult for you to concentrate. You make a deal with your roommate: you will clean the dorm room once a week if she will practice her tuba at other times or elsewhere. This is an example of -emission permits. -a corrective tax. -a corrective subsidy. -the Coase theorem.
the Coase theorem.
