Econ Test 2

When is market failure likely to arise?

-When it is difficult to enforce property rights -When property rights are incomplete

Your neighbor has a barking dog. What kind of externality is this?

-negative externality by disrupting your sleep positive externality by discouraging intruders

Externalities affect the economic efficiency of market equilibrium by causing a difference between...

-the private cost of production and the social cost of production -the private benefit of consumption and the social benefit of production

What is a pigovian tax?

A tax to bring abut an efficient level of output in the presence of externalities

What is free riding?

Benefiting from a good without paying for it

What is economic efficiency?

Economic efficiency is where consumer surplus and producer surplus are maximized

Every year at the beginning of flue season, many people including the elderly, get a flu shot to reduce their chances of contracting the flu. One result is that people who do NOT get the flu shot are less likely to contract the flu. Getting a flu shot results in a ______ externality.

Positive

At what level must a Pigovian tax be set to achieve efficiency? A pigovian tax must be set equal to...

The cost of the externality

Suppose alcohol generates a negative externality in consumption. If so, then..

The marginal social benefit of alcohol is less than the marginal private benefit.

How is free riding related to the tendency of a public good to create market failure? Free riding must result in..

The market producing a quantity of public goods that is inefficiently low because they are non excludable

Suppose cigarettes generate a negative externality in consumption. If so, then...

The private market equilibrium results in a quantity that is greater than the efficient quantity

Suppose paper products generate a negative externality in production. if so, then...

The private market equilibrium results in a quantity that is greater than the efficient quantity

What is a market failure?

When the market fails to produce the efficient level of output