Chapter 16 Micro

The proposition that if bargaining is costless, then the market can achieve an efficient outcome is the: - Coase theorem. - property rights paradigm. - market rights theorem. - efficient environment paradigm.

- Coase theorem.

The proposition that if transaction costs are low enough, the private market can achieve an efficient outcome regardless of which of the affected parties hold the property rights is known as the: - Coase theorem. - property rights paradigm. - market rights theorem. - green environment paradigm.

- Coase theorem.

If external costs exist, the competitive free market: - allocates resources inefficiently. - allocates resources efficiently. - automatically corrects an overallocation of resources. - automatically corrects an underallocation of resources.

- allocates resources inefficiently.

An external benefit is a(n): - example of a negative externality. - benefit that accrues to domestic firms due to the actions of foreign (external) firms. - benefit that accrues to foreign (external) firms due to the actions of domestic firms. - benefit that individuals or firms confer on others without receiving compensation.

- benefit that individuals or firms confer on others without receiving compensation.

A Pigouvian subsidy is: - designed to discourage activities generating externalities. - designed to encourage activities generating external benefits. - appropriate when the marginal social cost curve is above the marginal cost of production curve. - appropriate when the marginal social cost curve and the marginal social benefit curve intersect at an inefficient level.

- designed to encourage activities generating external benefits.

Pigouvian taxes are designed to reduce: - the marginal cost of production. - the marginal benefit of consumption. - external costs. - external benefits.

- external costs.

An externality is said to exist when: - individuals impose costs or benefits on others but have no incentive to take these costs and benefits into account. - individuals impose costs or benefits on others, and the market provides incentives to take these costs and benefits into account. - individual actions are affected by external forces like the loss of U.S. jobs because of competition from abroad. - individual actions are affected by government policies (such as taxes) that are externally imposed on the market.

- individuals impose costs or benefits on others but have no incentive to take these costs and benefits into account.

A negative externality: - is any cost above the economic cost. - equals the social cost plus the firm's private cost. - is an uncompensated cost imposed by an individual or firm on others. - equals the opportunity cost minus the social costs

- is an uncompensated cost imposed by an individual or firm on others.

Whenever human activity generates a concentration of a substance in the environment sufficient to cause harm to people, it is called: - a free good. - an external shock. - a result of human greed. - pollution

- pollution

If the marginal benefit received from pollution is equal - society's well-being can be improved if the quantity of pollution increases. - society's well-being can be improved if the quantity of pollution decreases. - society has achieved its socially optimal level of pollution. - the market is producing too much pollution.

- society has achieved its socially optimal level of pollution.

If the marginal benefit received from pollution is less than its marginal cost, then: - society's well-being can be improved if the quantity of pollution increases. - society's well-being can be improved if the quantity of pollution decreases. - society has achieved its socially optimal level of pollution. - the market is producing too little pollution.

- society's well-being can be improved if the quantity of pollution decreases.

The additional cost imposed on society as a whole by an additional unit of pollution is: - the marginal social benefit of pollution. - the marginal social cost of pollution. - the optimal Pigouvian tax. - a technology spillover.

- the marginal social cost of pollution.

The socially optimal quantity of pollution is: - zero. - the quantity whose marginal social cost is equal to zero. - the quantity whose marginal social benefit is equal to zero. - the quantity whose marginal social cost is equal to the marginal social benefit.

- the quantity whose marginal social cost is equal to the marginal social benefit.

When individuals take external costs and benefits into account: - there are no external costs. - they internalize the externality. - the government should intervene in the market. - the market will not reach an efficient solution.

- they internalize the externality.

The licenses that can be bought and sold by polluters and that enable the holder to pollute up to a specified amount during a given period are called: - emissions taxes. - Pigouvian taxes. - tradable emissions permits. - environmental standards.

- tradable emissions permits.