Microeconomics: Chapter 9
Which of the following statements regarding internalizing an externality is true?
It means agents account for the full costs and benefits of their actions.
statements regarding social enforcement mechanisms is not true?
It reduces the net benefit to society. It is enforced by official government regulations and results in a stiff financial penalty if not followed.
A library's collection of e-books is a
club good
The free-rider problem arises when an individual ____________.
does not pay for a good because nonpayment does not prevent consumption.
If a product has zero external costs, then
marginal social cost equals marginal private cost
An individual or a firm can internalize an externality by ___________.
paying the cost of externality
To ensure all students are protected from getting the flu this year, your school offers free flu shots. What type of externality exists in this example?
positive consumption externality
Health insurance is a
private good.
What approach would be the least effective way to deal with free riders?
Exclude citizens from benefiting from the good or service
not an example of when the free market fails to generate maximum social surplus?
Private goods
you have just been appointed as the County Commissioner of Hazard County. Your first day on the job you have the following conversations: Ludwig mentions that Frank, the local rancher, is inflating land prices by buying too much land. This is an example of ▼ a negative externality a positive externality a pecuniary externality not an externality.
a pecuniary externality
George mentions that Ms. Daisy has planted some lovely new roses in front of her store. This is an example of ▼ a negative externality a pecuniary externality a positive externality not an externality.
a positive externality
Which of the following is a common method used by government to cope with the situation in which production of a good creates an external cost?
cap-and-trade
Externalities are called market failures because they ___________.
cause markets to produce suboptimal social outcomes.
Radio spectrum is a
common pool resource.
The tragedy of the commons results when ___________.
common pool resources are overused.
You have just been appointed as the County Commissioner of Hazard County. You realize that you should learn some economic concepts that will be useful to you in your new job. In a free market, efficient firms will produce where ▼ social surplus total cost marginal cost equals ▼ average cost marginal revenue taxes.
marginal cost marginal revenue
Joe mentions that the hog farm down the road from his house is creating a very nasty smell. This is an example of a
negative externality.
How do public goods differ from common pool resources? Explain. Public goods are _______ goods, while common pool resource goods are ________goods.
non-rival rival
Lauren mentions that it is extremely windy today. This is an example of ▼ a negative externality a positive externality a pecuniary externality not an externality.
not an externality
Furthermore, you conclude that when there are negative externalities present, free markets ______ and when there are positive externalities present, free markets produce too little _________________
produce too much, produce too little
A mosquito control program in a city is a
public good.
A video on YouTube is a
public good.
You have just been appointed as the County Commissioner of Hazard County. After your first day of work, you realize that many people talked to you about externalities that day. Based on your conversations today and your economics experience, you conclude that when externalities are present,
the free market outcome is not efficient
Positive externality will occur when _____.
the marginal social benefit is greater than the marginal cost to produce at the market equilibrium
The Coase Theorem will will breakdown when ____________.
transactions become high there are large number of agents when property rights are not clearly defined
Suppose the production of a particular good causes a negative externality. Based on market forces only, how will this impact the production levels for a factory if negative externalities are present?
It will produce the good above the socially efficient level.
example of not an externality?
Jordan has lung cancer from smoking cigarettes.
not likely to be subject to the tragedy of the commons?
National defense.
Which of the following best illustrates the tragedy of the commons?
Overfishing in public waters.
is maximized when firms produce at equilibrium in a free market.
Total Surplus
A pecuniary externality occurs when
a market transaction affects other people only through market prices.
Suppose the town decides to put the matter to a vote. If at least two people vote in favor of the fireworks display, each person will be taxed $40 and the fireworks display will be held. ____________________ will vote in favor of the display.
one person
The Coase Theorem states that ____________.
private bargaining will result in an efficient allocation of resources.
A three-person city is considering a fireworks display. Anne is willing to pay $50 to see the fireworks, Bob is willing to pay $15, and Charlie is willing to pay $15. The cost of the fireworks is $60. In terms of efficiency, the fireworks display ▼ be offered. __________________ will provide the display on his or her own.
should No one citizen
Which of the following would not be considered a common pool resource good?
streetlight
