Economics- Chapter 9
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.
What is the relationship between marginal social benefit, marginal private benefit, and marginal external benefit?
MSB − marginal external benefit = MB
What is the relationship between marginal external cost, marginal social cost, and marginal private cost?
Marginal social cost equals marginal private cost plus marginal external cost.
The price of gasoline in Europe is about three times that in the United States, mainly because the European gas tax is higher than the U.S. gas tax. In light of the principles you've learned in this chapter, what is the case for and against increasing the gas tax in the United States to the European level? 1.The marginal social cost of carbon emissions from road vehicles exceeds the marginal social benefit . 2. The marginal social benefit of carbon emissions from road vehicles exceeds the marginal social cost. 3. A pollution tax is the only way of moving toward a more efficient outcome. 4. A pollution tax is the most efficient tool available for achieving a more efficient outcome. 5. Not everyone agrees that the scientific evidence points to human activity in global warming and climate change. 6. The cost of avoiding climate change is present and certain but the benefit of avoiding climate change is future and uncertain. 7. By 2050, if current trends persist, three quarters of greenhouse gas emissions will be from the developing countries, not the United States.
Proposition 1 is the best case for and propositions 5, 6, and 7 are the best case against.
Explain the inefficiency in Beijing's market for electricity and contrast it with the US market. How can cap-and-trade achieve an efficient outcome>
The Beijing market for electricity is inefficient because electricity production has a large external cost arising from carbon emissions from coal-powered generators. Comparing the U.S. market for electricity and the Beijing market for electricity, the U.S. market is less inefficient. Cap and trade is efficient when: confronting power utilities with the marginal social cost of their production
Beijing officials issued a "red alert" for air quality, closed schools, limited automobile traffic, and kept people indoors to avoid toxic smog. Most of Beijing's energy comes from carbon-emitting coal. The U.S. EPA is working with China to develop a national cap-and-trade system. Explain the inefficiency in Beijing's market for electricity and contrast it with the U.S. market. How can cap-and-trade achieve an efficient outcome?
The Beijing market for electricity is inefficient because: electricity production has a large external cost arising from carbon emissions from coal-powered generators Comparing The U.S. market for electricity and the Beijing market for electricity, the U.S. market is LESS inefficient Cap-and-trade can achieve an efficient outcome by CONFRONTING POWER UTILITIES WITH THE MARGINAL SOCIAL COST OF THEIR PRODUCTION
Which of the following is an example of public provision?
The Department of Transportation has completed twinning of Highway 63 to improve safety and accommodate economic activity.
Which of the following is an example of a voucher?
The government gives each student a token worth $15,000 per year to be used to pay tuition.
Which of the following best describes a subsidy?
The government pays farmers $100 per ton of wheat produced.
Which of the following is an example of a negative externality?
The new factory in the area has increased children's respiratory ailments.
A study of highway use says that on two short stretches of expressway in Philadelphia, delays of 1 million hours a year cost $22 million in lost time and waste 375,700 gallons of fuel. Source: Bob McGovern, Philly Voice, November 23, 2015 What is the externality described in the news clip? How could road tolls and high parking levies reduce congestion on Philadelphia roads? If road use and parking charges cut commute times, would the Philadelphia road system by more efficient? ROAD TOLLS AND HIGH PARKING LEVIES ______ reduce congestion on Philadelphia roads because_____
Will; drivers will consider the external cost of driving in Philadelphia
An externality can be created by _______.
a production activity or a consumption activity
The Cato Institute says maintaining the subsidy is a better policy because _______.
a subsidy avoids the deadweight loss of a cut in the number of students
Marginal private benefit is the benefit from ______ of a good or service that the _____ of the good or service receives. Marginal external benefit is the benefit from _____ of a good or service that people other than the _____ of that good or service enjoy.
an additional unit; consumer; an additional unit; consumer
Marginal private cost is the cost of producing _____ of a good or service that is borne by the _____ of that good or service. Marginal external cost is the cost of producing _____ of a good or service that falls on people other than the _____.
an additional unit; producer an additional unit; producer
Externalities _______.
can be negative or positive. Logging has a negative externality, and education has a positive externality
A new Obama air pollution rule requires coal-fired power plants to reduce both smog and acid-rain causing pollutants. The coal industry says this rule is among the most expensive ever imposed by the EPA. The pollution limit is expensive for_____ because_____
consumers; price of electricity rises
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
A study of highway use says that on two short stretches of expressway in Philadelphia, delays of 1 million hours a year cost $22 million in lost time and waste 375,700 gallons of fuel. Source: Bob McGovern, Philly Voice, November 23, 2015 What is the externality described in the news clip? How could road tolls and high parking levies reduce congestion on Philadelphia roads? If road use and parking charges cut commute times, would the Philadelphia road system by more efficient? The externality described in the news clip is the_____
cost to drivers as a result of congestion on Philadelphia Roads
A new Obama air pollution rule requires coal-fired power plants to reduce both smog and acid-rain causing pollutants. The coal industry says this rule is among the most expensive ever imposed by the EPA. A pollution limit_____
decreases the quantity of electricity produced
Tom and Jake must spend a day working together. Tom likes to smoke, and his marginal benefit from one cigar a day is $20. The price of a cigar is $4. Jake dislikes cigar smoke and his marginal benefit from an environment free of cigar smoke is $24 a day. If they meet at Tom's home, Tom ______ smoke and if they meet at Jake's home, Tom ______ smoke
does not; does not
Bob and Amos must spend a day working together. Bob likes to chew tobacco, and his marginal benefit from one plug of tobacco a day is $21. The price of a plug of tobacco is $1. Amos dislikes the smell of chewing tobacco, and his marginal benefit from an environment free of the smell of chewing tobacco is $16 a day. If they meet at Amos's home, Bob ______ chew tobacco and if they meet at Bob's home, Bob ______ chew tobacco.
does; does
Last year, Ventura County farmers harvested nearly 12,000 acres of strawberries valued at more than $323 million (a quarter of the nation's crop). To comply with the federal Clean Air Act, growers must use 50 percent less pesticide. It is estimated that strawberry output will fall by 60 percent. IF A CAP-AND-TRADE scheme is used in place of the POLLUTION LIMIT< the cap-and-trade scheme will be efficient if
eventually the market price of an emission permit equals the marginal external cost of the pollution produced
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
If college becomes tuition-free, the number of students enrolled will _______ and most likely, the outcome will be _______.
increase; inefficient
If governments cut the subsidy to colleges, tuition rises because the marginal cost of colleges ______ and the number of students enrolled ______.
increases; decreases
Government actions that could decrease carbon emissions include _______.
introducing carbon taxes, implementing a cap-and-trade system, and subsidizing green alternatives
Marginal external cost _______.
is an opportunity cost borne by someone other than the producer
If road use and parking charges cut commute times, the Philadelphia road system will be _______ efficient because _______.
more; Philadelphia commuters will reallocate themselves between driving and taking transit
The private market would be inefficient and produce too few vaccinations because ______.
people ignore external benefits when making decisions about vaccinations
Suppose that the Arctic Sea minerals can be either privately owned or government owned. When the minerals are privately owned, the quantity mined is the quantity at which marginal ______ cost equals marginal ______ benefit. When the minerals are government owned, the quantity mines is EFFICIENT OR INEFFICIENT
private; private
Marginal social benefit is the benefit enjoyed by society - by the consumer of a good or service and by everyone else who benefits from it. It is the sum of marginal ______ and marginal ______.
private benefit; external benefit
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
The graph illustrates the unregulated market for pulp and paper. The pulp and paper mills dump their waste in a river that runs through a small town. The marginal social cost of producing the pulp and paper is double the marginal private cost. Suppose the town owns the river. The quantity of pulp and paper produced is ___ tons a week the town charges the mines ___ a ton to dump waste.
produced: 100 Charges $300
The private benefits from vaccination include ______ and the external benefits include ______.
protection from infection; lower infection risk for everyone
The government could achieve an efficient quantity of vaccinations by _______.
public provision, private subsidies, or vouchers
Last year, Ventura County farmers harvested nearly 12,000 acres of strawberries valued at more than $323 million (a quarter of the nation's crop). To comply with the federal Clean Air Act, growers must use 50 percent less pesticide. It is estimated that strawberry output will fall by 60 percent. A LIMIT ON PESTICIDE _____
that lowers the marginal external cost will make the strawberry industry more efficient
The European Union requires any airline operating to or from an EU airport to participate in the EU cap-and-trade system under which 15 percent of pollution credits for airlines will be auctioned off and the other 85 percent of credits are being given without charge. A cap-and-trade system would reduce the amount of airline emissions to the efficient quantity if ______ and ______.
the EU government finds the quantity at which the marginal social cost of air travel equals the marginal benefit; it provides the number of permits such that this is the quantity of travel undertaken
Marginal external benefit is _______.
the benefit from an additional unit of a good or service that people other than the consumer of that good or service receives
The government is not using these actions more aggressively in part because _______.
the costs of decreasing carbon emissions are certain and would be borne now, while the benefits would come many years in the future