Econ Chapter 9
The marginal social cost of producing the last unit of a good is $1.10, while the consumers' willingness to pay for the last unit is $0.80. The deadweight loss from the production of the last unit of the good is
$0.30
Scenario: A chemical factory is located upstream on a river. The factory dumps its liquid waste into the river. A microbrewery is located downstream on this river; it uses the river water in its production process and values the clean water. The chemical factory can filter its liquid waste before dumping it into the river, but it would be costly to the factory. The table shows the profit to these two businesses under different circumstances. Profit with Filtering Profit without Filtering Chemical factory $800 $1,000 Microbrewery $400 $100 Suppose the negotiation between the chemical factory and microbrewery is costless. What is the minimum offer that the chemical factory would be willing to accept from the microbrewery to to filter its waste?
$200
Scenario: A chemical factory is located upstream on a river. The factory dumps its liquid waste into the river. A microbrewery is located downstream on this river; it uses the river water in its production process and values the clean water. The chemical factory can filter its liquid waste before dumping it into the river, but it would be costly to the factory. The table shows the profit to these two businesses under different circumstances. Profit with Filtering Profit without Filtering Chemical factory $800 $1,000 Microbrewery $400 $100 Suppose the negotiation between the chemical factory and microbrewery is costless. What is the maximum that the microbrewer would be willing to pay the chemical factory to filter its waste?
$300
Tom is willing to contribute $400 toward building a public park, Jack is willing to contribute $500, and Joe is willing to contribute $750. What is the total value of the park if Tom, Jack, and Joe are the only residents in the neighborhood where the park is being built?
$400+$500+$750= $1,650
Which of the following is likely to generate a negative externality? A. Smoking a cigarette B. Consuming vegetarian food C. Working for long hours D. Planting a tree
A
Which of the following results in a positive externality? A. Recycling waste B. Going to the beach C. Buying a room heater D. Following a healthy lifestyle
A
Excludable and Rival
A concert in a crowded auditorium is ________ in consumption.
Due to ongoing budget shortfalls, the city of Detroit has suspended services, such as street cleaning and maintenance of cityminusowned properties in several neighborhoods. In response, some homeowners in these neighborhoods sweep the streets, replace street lights, and mow the grass on cityminusowned lots. These actions by homeowners represent
A positive externality in production
Scenario: Ron plays loud music, which prevents his neighbor from studying. He knows that his neighbor values studying at $5,000, while the cost of soundproofing Ron's room is $3,000. If Ron has the right to listen to music at night, how much does his neighbor need to pay him to stop playing music?
Any amount between $3,000 and $5,000
Which of the following is not true regarding externalities? A. Externalities are imposed on agents other than the parties to an economic exchange. B. Externalities can be either positive or negative. C. Externalities have no effect on market efficiency. D. Externalities can occur in either consumption or production.
C
Movie Theaters
Club Good
Mines
Common Pool resource
are non-excludable but rival in consumption.
Common pool resource goods
Which of the following gives rise to a pecuniary externality? A. Deforestation, leading to the extinction of many species B. Globalization, leading to the displacement of indigenous workers C. Excessive consumption of alcohol leading to bad health D. A sudden increase in the demand for diamonds, leading to an increase in their prices
D
Which of the following is not an externality? A. Rochelle has asthma caused by the pollution of a local factory near her home. B. Jose, who is allergic to pollen, is sick from the flowers that grow in his neighbor's garden. C. Alisha did not sleep well because her neighbor was playing loud music. D. Jordan has lung cancer from smoking cigarettes.
D
Suppose your roommate approaches you and asks if you would like to split the cable bill for your apartment. You decline, citing that you are not home often and are more likely to stream content on your laptop. Your roommate purchases a deluxe cable package, and you frequently watch programs on the television in your apartment. This is an example of a
Free-rider problem
Which of the following is an example of an ordinary private good?
Furniture
An economic agent ________ when he accounts for the full costs and benefits of his actions.
Internalizes an externality
What is true regarding a public good?
It is non-excludable and non-rival in consumption It is provided when marginal benefits exceed the marginal costs
Explain the concept of the tragedy of the commons
It results when the free market equilibrium quantity is higher than the optimal equilibrium quantity. The open access to common resources results in their depletion through overuse.
will provide the display on his or her own.
No one citizen
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. Who will vote in favor of display?
One person
What goods have high excludability
Ordinary private goods Club goods
A ________ externality occurs when a market transaction affects others through market prices.
Pecuniary
You respond to the business leaders' request by giving Ms. Daisy money to buy more flowers. Giving Ms. Daisy money to buy more flowers is an example of
Pigouvian subsidy
You are the County Commissioner of Hazard County. Local business leaders are thrilled that Ms. Daisy has planted a panorama of flowers around her store front designed to look like cute kittens. Tourists have been coming from neighboring towns to see the flowers, and this tourism has been increasing business activity for many businesses. The local business leaders would like you to convince Ms. Daisy to plant more flowers so that tourism continues to increase. The business generated for other stores by Ms. Daisy's flower display is an example of a
Positive externality
What tools can be used to solve the tragedy of the commons?
Privatization of the resource Pigouvian tax Incentives to self-regulate the use of resources
In an industrial township, unplanned growth resulted in several companies polluting the environment with inefficient disposal of waste from the production process. In this case, the production of the companies is such that ▼ Upper Q Subscript market Baseline greater than Upper Q Subscript optimal Upper Q Subscript market Baseline equals Upper Q Subscript optimal Upper Q Subscript market Baseline less than Upper Q Subscript optimal . Therefore, the market-based approach to deal with the externality is to use a ▼ corrective tax corrective subsidy causing ▼ an increase a reduction in the quantity produced by the companies towards the socially optimal level
Q market greater than Q optimal Corrective tax A reduction
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.
Should
When you want to encourage an activity, you should ▼ subsidize tax it, and when you want to discourage an activity, you should ▼ subsidize tax it.
Subsidize, Tax
Which of the following occurs if the production of a good gives rise to positive externalities?
The marginal social benefit curve lies to the right of the demand curve.
Scenario: A chemical factory is located upstream on a river. The factory dumps its liquid waste into the river. A microbrewery is located downstream on this river; it uses the river water in its production process and values the clean water. The chemical factory can filter its liquid waste before dumping it into the river, but it would be costly to the factory. The table shows the profit to these two businesses under different circumstances. Profit with Filtering Profit without Filtering Chemical factory $800 $1,000 Microbrewery $400 $100 Suppose the chemical factory has the right to dump its waste into the river. What would the Coase Theorem suggest as the resolution of this negative externality conflict between these two firms?
The microbrewery pays $250 to the chemical factory to filter its waste before dumping it into the river.
The production of an industrial good in a plant emits harmful gases that cause breathing problems. Which of the following will happen if the government imposes a Pigouvian tax on the plant?
The quantity supplied of the good will decrease
Suppose you live in a housing co-op with eleven other college students. The kitchen is constantly a mess; virtually nobody in the house cleans up, and the sink is overflowing with dirty dishes. This is an example of
The tragedy of the commons
The Coase Theorem will will breakdown when
When property rights are not clearly defined, There are a large number of agents Transaction costs become high
The congestion charge is an example of ________ to the negative externality associated with common pool resources.
a market-based government solution
An externality occurs when
an economic activity affects third parties not engaged in the activity
a library's collection of e-books
club good
Radio Spectrum
common pool resource
A Pigouvian tax is a tax designed to
induce the producers generating negative externalities to reduce production
The citizens of a country often refuse to pay voluntarily for national defense because
nobody can be excluded from being defended by the state
Ice-cream cones
ordinary private good
The Coase Theorem states that ____________
private bargaining will result in an efficient allocation of resources.
The social cost of producing a good that generates negative externalities is the sum of the
private cost and external costs of production
Health Insurance
private good
Mosquito control program in a city
public good
Uncongested no toll roads
public good
Video on You Tube
public good
Your roommate claims we can understand the near-extinction of the American bison during the latter half of the nineteenth century in America as an economic phenomenon. Since bison herds were ________ "owned," they were a ________, and buffalo hunters generated a ________ externality when hunting them, as the hunters failed to consider how overharvesting could reduce herd numbers in the future.
publicly; club good; negative
A Pigouvian subsidy leads to a socially efficient outcome by
raising individuals' marginal benefit from consumption
The government should provide an additional unit of a public good if
the marginal benefit exceeds the marginal cost of providing the additional unit of the good
If negative externalities are present in a market,
the quantity supplied in the market is larger than the socially optimal level
