Econ 202 Module 8

Recycling is an economic problem because the land is substantially damaged by the creation of garbage dumps.

False

Recycling is not an economic problem because there is only so much land on Earth.

False

The best solution to water pollution is to make the responsible people clean the water and return it to its natural state.

False

The government can be relied on to efficiently solve problems associated with pollution through (Pigovian) taxes.

False

The social problem of smoking in restaurants is caused because smokers want to pollute the air, causing harm to people around them.

False

The use of landfills means the land will lose all its value for subsequent use.

False

The possibility of "government failures" should be evaluated before getting the government involved in addressing "market failures."

True

The social benefit of a given level of a public good is the vertical sum of all private benefits for that level.

True

The social problem of smoking in restaurants because smokers and nonsmokers want to use the air in different ways.

True

The video indicated that there is a significant difference between recycling fluorescent lights and plastic bottles.

True

A private good is

a good that is rivalrous and excludable.

When campers and hikers leave human food for bears to​ consume, that poses

a negative externality for the bears because the taste of human food often causes the bears to be aggressive and since they pose a threat to human​ safety, they are eventually removed from the park or even destroyed.

"Free riding" is a characteristic of which type of good?

a public good

The market demand for a public good can be determined by

adding up how much each consumer is willing to pay for each unit of the public good.

The public choice model

applies economic analysis to government decision making.

According to public choice theory, policymakers

are likely to pursue their own self-interest, even if their self-interest conflicts with the public interest.

Which of the following is not an example of​ rent-seeking behavior?

engaging in aggressive advertising that slams a​ competitor's product

Which of the following is an example of a product that is nonexcludable and rivalrous?

free concert (with limited seating) in a park

When there are many people involved in attempting to reach an​ agreement, the transactions costs are often​ _______ than the net benefits from reducing an externality. In such​ cases, a private solution to an externality problem​ _______ feasible.

​higher; is not

Which of the following statements about rent seeking is false?

Because rent seeking redistributes society's resources, anyone engaging in such behavior is violating the law.

A Pigovian tax is

. a tax to bring about an efficient level of output in the presence of externalities.

Economics shows that it is inefficient to recycle plastic bottles because they have little value

False

The public choice model raises questions about the​ government's ability to regulate economic activity efficiently. Which of the following statements represents the views of most economists with regard to the role of​ government?

Agencies such as the Food and Drug Administration and the Environmental Protection Agency can serve a useful​ purpose, but we need to take the costs of regulation into account along with the benefits.

Sewage treatment is an example of

An externality

The key to solving problems associated with smoking in restaurants is to

Assign property rights to restaurant owners.

Which of the following best describes the process of regulatory​ capture?

Bank of America encourages the​ FDIC-Federal Deposit Insurance​ Corporation- to make banks with less than​ $50 million of deposits pay a higher percentage into the insurance fund​ "for the protection of​ consumers."

Nonexcludable and rival

Common resource

The central question In trying to determine whether to involve the government in an economic issue is

Determining whether or not the government can be relied on to make things better.

According to the video, the government should ban smoking in restaurants because of the diseases caused by passive smoking.

False

Banning smoking in restaurants is clearly economically efficient because passive smoke is harmful.

False

The point of the video is that the government can seldom enhance economic efficiency.

False.

Farmer Owens has an apple orchard that must be pollinated by bees in order to bear fruit. Farmer​ Owens's neighbor,​ Maude, owns beehives with bees that can pollinate the apple trees. Suppose the benefit of the bees to Farmer Owens is ​$1 comma 0001,000 per year. Suppose the bees provide no benefit to Maude but she must pay ​$3 comma 0003,000 per year to maintain the hives. If Farmer Owens and Maude engage in Coase​ bargaining, what would likely​ result?

Farmer Ownes would not be willing to pay Maude ah amount such that she would maintain the hives

Some economists who use the public choice model to explain the ways government intervenes in the economy believe that regulatory capture results when an agency or commission is given authority over a particular industry or product. Which of the following is the best example of regulatory capture?

Firms that were regulated by the Interstate Commerce Commission (ICC) attempted for many years to influence the ICC's actions.

What is free​ riding?

Free riding is benefiting from a good without paying for it.

Restaurant owners have an incentive to

Fully account for the value impact of restaurant smoking on nonsmokers. Fully account for the value of restaurant smoking to smokers. Take into account how smoking shifts the overall demand curve for restaurant meals.

Every year at the beginning of flu​ 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 a flu shot are less likely to contract the flu.

Getting a flu shot results in a positive externality.

Jess practices her electronic keyboard every evening for an upcoming musical concert. The sound disturbs​ Felix, who usually works on his college assignments around the same time. The value of the practice to Jess is​ $100, while the cost of the practice to Felix is​ $80. According to​ George, a student of​ economics, Jess should pay Felix​ $80 to continue her practice for the musical concert. Which of the following assumptions is being made by​ George?

He assumes that Felix has the right to quiet studying conditions.

The public choice model can be used to examine voting models that contrast the manner in which collective decisions are made by governments​ (state, local, and​ federal) and the manner in which individual choices are made in markets. Which of the following descriptions is consistent with the difference between collective decisionminus−making and decisionminus−making in​ markets?

Individuals are less likely to see their preferences represented in the outcomes of government policies than in the outcomes of markets.

Key limitations on the government correcting "market failures" include:

Information Misaligned incentives between the government and citizens The incentive of the government to tax and spend to help politicians get elected or re-elected.

Your neighbor John has a barking dog. Which of the following statements is​ true?

It can create negative externalities by disrupting your sleep and can also create positive externalities by discouraging intruders.

The net effect of smoking in a restaurant is to

It depends - there is no general answer.

For certain public projects such as building a dam on a river or a bridge to an island, what procedure is a government likely to use to determine what quantity of a public good should be supplied?

It evaluates the costs and benefits of producing the good.

Are policymakers susceptible to​ rent-seeking behavior? Explain. ​Rent-seeking behavior

May succeed when policymakers engage in logrolling

Traffic congestion is an example of a​ ________

Negative Externality

According to the video, W. Kip Viscusi studied tobacco smoking and concluded that

None of the above.

Beginning in the 1950s economists began to investigate incentives within government. They found that:

One should be cautious in calling on the government to improve economic performance.

According to the video, the key to Viscusi's findings about the net impact of smoking on healthcare costs is that

People who smoke need more medical care, but they also (unfortunately) tend to die younger, and that creates an offsetting reduction in health care costs.

The key problem(s) with externalities is that

Private costs do not equal social costs. Private benefits do not equal social benefits.

Rival and Excludable

Private good

Nonrival and excludable

Quasi-public goods

The economically efficient amount of recycling will occur if

Recyclers pay the full cost of picking up recycled products,

Megan McArdle argues that regulatory capture happens for all of the following reasons except

Regulators want the regulated industry to spend a lot of time and effort on compliance.

Economists often analyze the interaction of individuals and firms in markets. Economists also examine the actions of individuals and firms as they attempt to use government to make themselves better off at the expense of others, a process that is referred to as

Rent-seeking

A key advantage of assigning property rights to owners of restaurants is that

Smokers and nonsmokers are likely to be able to eat meals the way they like.

The U.S. government has imposed quotas on the importation of sugar that makes sugar prices higher because

Sugar farmers lobbied for regulation that would increase their profits by limiting competition.

Which of the following exemplifies the tragedy of the commons?

The Malaysian tapir, distinguished for its unusual coloration, is a target for poachers who hunt it for its tough and leathery hide.

To evaluate recycling, you must consider

The demand for recycled products, The incremental costs to society for recycling products, The value of the land used for landfills,

What is the focus of a​ command-and-control approach to reducing​ pollution?

The government imposing quantitative limits on the amount of pollution firms are allowed to generate.

Suppose the government responds by imposing a tax on the production of limestone. After the tax is​ imposed, total production of limestone declines by the amount the environmental research group had estimated. This convinces them that limestone production is now socially efficient. Which of the following conclusions can most reasonably be drawn from the given​ information?

The marginal private cost of producing limestone at this quarry is now equal to the marginal social cost as estimated by the research group.

How does the construction of a market demand curve for a private good differ from that for a public good?

The market demand curve for a private good is determined by adding up the quantities demanded by each consumer at each price but the market demand curve for a public good is determined by adding up the price each consumer is willing to pay for each quantity of the good.

The appropriate charge for trash disposal should be set by

The opportunity cost of using the landfill, The cost of the trucks and labor needed to haul trash away,

The opportunity cost of using land for a landfill is determined by:

The value of the land before the landfill was developed, minus the cost of the land after the landfill is full.

One problem with using taxes to solve economic externalities is that politicians may spend the money on things they like, rather than things their constituents want.

True

Recycling is an economic issue because the goods that are recycled, the land for landfills, and the trucks and labor needed for both recycling and trash disposal are all examples of scarce resources.

True

Which of the following is an example of rent seeking behavior?

U.S. sugar firms convinced Congress to impose a quota on imports of sugar.

Which of the following is an example of rent seeking​ behavior?

U.S. sugar firms convinced Congress to impose a quota on imports of sugar.

When are we likely to see private solutions to the problem of​ externalities?

When transaction costs are low. When the parties involved have information about the externality. When the number of parties involved is small.

Education in a public school​ (Grades K through​ 12):

a common resource

​Chickens, unlike​ whales, are not threatened with extinction because chickens

are privately owned and their owners have an incentive to ensure that they do not become extinct.

In response to the​ survey, both Jeff and James state that they are not willing to pay anything for national defense. If Jeff and James made this response they would

be free riders because they would still receive the same amount of protection as everyone else whether or not they pay.

Why is a typical person likely to gather more information when buying a new car than when voting for a member of​ Congress?

because buying a new car affects a person more immediately and personally compared to voting for a member of Congress. In the​ latter, a​ person's vote is only one of many voters and​ therefore, not likely to have a large impact on the outcome.

The parties involved in an externality have an incentive to reach an efficient solution because

both parties become better off when an efficient solution is reached.

Which of the following is not an example of rent-seeking behavior?

engaging in aggressive advertising that slams a competitor's product

A corrective subsidy induces the​ ________ to the socially optimal level

consumers of a positive externality to increase the quantity consumed

By imposing a tax on toilet​ paper, the government will cause

consumers to internalize the externality causing the equilibrium quantity of toilet paper consumed to decrease.

Which of the following is an example of a common resource?

elephants in the wild

Financial contributions to the campaigns of members of Congress, state legislators, and other elected officials by firms that seek special interest legislation that make the firms better off are

examples of rent seeking.

A fireworks show has been arranged in a park. The ticket for the show is $5 but only 40% of the tickets get sold as spectators can watch the show without entering the park. This is an example of

free-rider problem

The Coase Theorem states that

if transaction costs are​ low, private bargaining will result in an efficient solution to the problem of externalities.

An individual producer or a consumer​ "internalizes an​ externality" when

in their own decisions they take into account the external effects of their actions.

Rent seeking is

lobbying or bribing politicians to gain favorable legislation or regulations.

Public choice theory helps us to understand how government could fail systematically because it recognizes that policymakers are

no different than consumers or managers of firms and are likely to pursue their own​ self-interest, even if their​ self-interest conflicts with the public interest.

The tragedy of the commons occurs because some goods are ________ in consumption.

non-excludable but rival

In economics, the term "free rider" refers to

one who waits for others to produce a good and then enjoys its benefits without paying for it.

The free rider problem refers to a situation in which

people consume a pure public good without payment, even though the good may not be produced if no one chooses to pay.

The "tragedy of the commons" refers to the phenomenon where

people overuse a common resource.

A product is considered to be nonexcludable if

you cannot keep those who did not pay for the item from enjoying its benefits.

One result of the public choice model is that most economists believe that

policymakers may have incentives to intervene in the economy in ways that do not promote economic efficiency.

In this​ context, government failure means

politicans making bad decisions for their own selfish reasons.

An​ apple:

private good

Education in a private school​ (Grades K through​ 12):

private good

Mail​ delivery:

private good

A television broadcast of the World​ Series:

public good

Hiking in a large park​ (no congestion) not surrounded by a​ fence:

public good

Nonexcludable and nonrival

public good

Hiking in a large park​ (no congestion) surrounded by a​ fence:

quasi-public good

Which of the following displays these two characteristics: nonrivalry and excludability?

quasi-public goods

Goods can be classified on the basis of whether their consumption is

rival and excludable.

A tragedy of the commons occurs when a resource is

rival and non-excludable.

Which of the following is an example of a common resource?

sea otters in the coastal waters of the Pacific Ocean

Rent seeking can be useful in understanding why government policies

sometimes produce results that are inefficient and harmful to the people.

In England during the Middle Ages each village had an area of pasture on which any family in the village was allowed to graze its cows and sheep without charge. Eventually, the grass in the pasture would be depleted and no family's cow or sheep would get enough to eat. The reason the grass was depleted was

the area of pasture was nonexcludable and the consumption of the grass was rival.

Examples of transaction costs include

the cost of monitoring an agreement. the cost of drafting a contract or agreement. the time required to negotiate an agreement.

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.

What are the sources of externalities and market​ failure?

the difficulty of enforcing property rights in certain countries incomplete property rights

When a Pigouvian tax is​ imposed, _______

the marginal private cost curve shifts upward

How is free riding related to the tendency of a public good to create market​ failure? Free riding results in

the market producing a quantity of public goods that is inefficiently low because they are nonexcludable.

One important difference between the political process and the market process is that

the political process results in collective actions in which everyone is obliged to participate while in the market process individuals are free to participate or not.

Overfishing leading to a rapid depletion of the stock of fish is an example of

the tragedy of the commons

Haiti was once a heavily forested country. Today, 80 percent of Haiti's forests have been cut down, primarily to be burned to create charcoal. The reduction in the number of trees has lead to devastating floods when it rains heavily. This is an example of

the tragedy of the commons.

The village elders were trying to prevent the economic problem of

the tragedy of the commons.

A producer or a consumer will internalize an externality because

they have an incentive to consider the external effects of their actions due to taxes that are imposed or subsidies that they receive.

A retired athlete built a gym near his house that could be used for free by all the residents in the neighborhood. However, the overuse of the facilities soon led to irreparable damages. This is an example of the

tragedy of the commons

The presence of a positive externality in a market leads to​

underproduction of the good

Common resources differ from public goods in that

unlike public goods, common resources are rivalrous in consumption.

Rent seeking is an attempt to

use the government for individual benefit at the expense of others. Regulatory capture is an example of​ this, where a regulatory agency makes decisions benefiting the firm being regulated.

The solution of the village elders to outcast those who committed the breach of trust by fishing in the pond when it was forbidden is an example of

using community norms to solve the problem. The solution would most likely be effective because it was used in a small community.

One difference between the demand for a private good and that for a public good is that

with a private good, each consumer chooses the quantity she wants to consume but with a public good, everyone consumes the same quantity.