Econ Chapter 4

When the marginal private benefit of an activity does not equal the marginal social benefit, which of the following exists?

Externality in consumption.

When the marginal private cost of an activity does not equal the marginal social cost, which of the following exists?

Externality in production.

T/F: Enjoying the smell of bread baking from your neighbor's house is an example of a negative externality.

False

T/F: The optimum level of pollution is zero.

False

T/F: The socially optimal level of production for any good or service is found where MPB=MPC.

False

If all benefits from consuming a good go to consumers, the market demand curve is the same as the

MPB curve.

The optimal level of pollution control occurs when

MSB of control equals MSC.

When the cost of an action falls on someone other than the person (or persons) responsible for the action, which of the following exists?

Negative externality.

Which of the following best describes why pollution exists in the environment?

Recycling processes fail to prevent wastes from accumulating in the environment.

Marginal private cost (MPC) always includes:

The extra costs of production of one more unit of a good.

T/F: A pollution rights market can be an efficient method of pollution control.

True

T/F: An increase is a tax per unit of polluted discharge will decrease the amount of pollution.

True

T/F: Complete elimination of pollution would only make economic sense if the cost to eliminate the last unit of pollution is less than the benefit from its elimination.

True

T/F: Deodorant may be an example of a good for which MSB>MPB.

True

T/F: If polluters were forced to pay the full cost of their activities, the price of goods produced by polluting firms would rise.

True

T/F: If the MPC of production is less than the MSC, the market will produce too much of the product.

True

T/F: If the marginal social cost of attaining a certain level of water purity exceeds the marginal social benefit, the level of water purity should be decreased.

True

T/F: If your snoring keeps your roommate from sleeping, your roommate is experiencing a negative externality.

True

T/F: In the case of an upstream paper mill that pollutes water used by a downstream power plant forcing the latter to clean the water it uses, the costs of pollution by the paper industry are borne by both the consumers and producers of electricity

True

T/F: Net social benefits will always be increased by increasing pollution control if the marginal social benefit of the increase in pollution control is greater than the marginal social cost of additional control effects.

True

T/F: Pollution consists of loading the environment with wastes that are not completely recycled, are not recycled fast enough, or are not recycled at all.

True

T/F: Pollution occurs when the environment cannot recycle all the waste dumped into it.

True

T/F: The optimum level of pollution control is where marginal social benefit equals marginal social cost.

True

Which of the following creates a positive externality in consumption?

Vaccinations.

Suppose that you have a beautiful yard surrounding your house, filled with flowers, shrubs and trees, and your neighbors are always complimenting you on your garden. As a consequence of this, your yard creates

a positive externality in consumption.

The market output level tends to be socially optimal when

all costs and benefits are private and MSB=MSC.

If a pollution tax is placed on firm emitting pollution, the firm will pay the tax, rather than reduce its emissions, as long as the tax is

below its MPC of pollution control.

Costs incurred by the producer to buy or hire resources are called

explicit costs.

When MPC is less than MSC.

firms will tend to produce more than is socially optimal.

For a tax on pollution to be effective, it must be

greater than the cost of cleaning-up the pollution.

Costs incurred by the producer for the use of self-owned resources are called

implicit costs.

The efficient level of pollution is zero only if the

marginal cost of pollution control is zero.

Another term for implicit cost is

opportunity cost.

The term "marginal social benefit" means

the change in total social benefits per unit change in the amount of the activity.

The level of pollution increases when

wastes are dumped into the environment at a higher rate than wastes are recycled.