Failure Markets
Nonrival goods
one person's consumption of this good does not effect another person's consumption of it
Private markets fall to provide the optimal amount of some goods, such as public fireworks displays, because:
private companies will have difficulty getting anybody to pay for them.
The supply of a good or service that reflects only the private costs of its production is called __________
private supply
_________ rights involve the exclusive right to determine how a resource is used.
property
Externalities occur when
property rights are not clearly defined
good that is both nonrival and nonexcludable is called ________ good.
public
According to the Coase Theorm, if a property right is well defined and transaction costs aare low,
resources will gravitate to their highest valued use
When the consumption of a good or service by one person reduces the quantity available for consumption by other, the goods and services with this characteristic are ___________ goods.
rivalrous
__________ demand is the demand for a good or service that reflects both the private and external benefits of its consumption.
social
When externalities exist,
the outcome observed may not be he most efficient outcome
_________ costs involves the costs, in terms of time, energy, and resources,associated with searching out, negotiating and completing a transaction
transaction
T or F: Sometimes private markets can successfully provide public goods
true
At the optimal level of pollution to be cleaned up
-the marginal benefit of preventing pollution equals the marginal cost of preventing pollution. -welfare gains from pollution prevention are maximized.
The market produces the right goods in the correct amounts, using the fewest resources possible when
-there is productive efficiency -there is allocative efficiency
Private demand is the demand for a good or service that considers only the private _________ of its consumption.
benefits
When __________ exist, outside intervention may be able to improve the market outcome, increasing efficiency and economic surplus
externalities
excludable goods
firms use prices to determine who can consume this type of good
Most susceptible to poorly- defined or difficult to define/enforce property rights?
ideas
When the marginal cost of pollution prevention _________, the equilibrium quantity of pollution prevention.
increase, decrease decrease, increase
Why do countries with relatively high incomes spend more on pollution prevention then countries with relatively low income.
- as income rises the demand for clean air and water rises - High income countries have more money to devote to pollution prevention
From an economic perspective, pollution involves _________ and ________
- costs - benefits
excludable or nonexcludable - movie theater - city sidewalk - public lighthouse - restaurant - lecture at a private university
- excludable - excudable - nonexcludable - excludable - excludable
What is a solution to the free- rider problem
- new technology to make the good excludable - use a public good to self advertising - government taxes revenue to supply public goods
When a _____ extremality exists, the socially optimal level of output will be greater than that resulting from a ______ market.
- positive - private
Social marginal cost is the sum of _________ marginal cost and ____________ marginal cost
- private - external
When there are positive externalities, governments intervene in the marketplace to stimulate demand toward the socially efficient level through
- subsidies - tax credits
The benefits of taxing a product with a negative externally include
-a reduction in the quantity traded in the market; -a reduction in the damage to people outside the market; -additional tax revenues that can be used to help clean up the damage caused by the externality itself
What would you expect to increase the optimal level of pollution prevention?
-marginal cost of pollution decreases -marginal benefit of pollution prevention increases (shift to the right)
Social supply is the supply of a good that reflects both the __________ and ________ costs of its production.
-private -external
Governments can provide _______ goods,because they have the ability to force people to ________ for a good or service by collecting taxes.
-public - pay
nonecludable goods
Consumers cannot be prevented form consuming these goods
_________ occurs when property rights are not clearly defined.
Externalities
The benefit enjoyed by or cost imposed on a third party that is not directly involved in the production or consumption of a good or service is called
Externality
Rival goods
If I consumer this good, another person cannot consumer it at the same time
T or F: Not all goods provided by the government are public goods.
True
Suppose you live near a large factory that produces a good that you do not consume. If you are subjected to loud noises and bad odors from the factory, then you experienced....
a negative externality
The unpaid benefit of an activity that is enjoyed by the third party is called
a positive externality
Something we would rather have less of is called
an economic bad
When the market does not produce an output level that maximizes total surplus, it is called a
market failure
When a positive externality exists, the socially optimal level of output will be ________ than that resulting from a private market. F
more
When a ________ externality exists, the socially optimal level of output will be less than that resulting from a private market.
negative
When people consume a nonexcludable good without paying for it, it is called...
the free-ride problem.
