Environmental ECON--Positive and Negative Externalities, marginal social cost and benefit

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If the social cost of producing a good or service exceeds the private cost then....?

...a negative externality exists

"A competitive market achieves economic efficiency by maximizing the sum of consumer surplus and producer surplus." This statement only true if.....?

...there are no positive or negative externalities in the market

Keeping a junked car in your front yard causes what for the rest of your neighbors?

A negative externality

What is a negative externality?

A negative externality is something that produces a (usually societal) cost

What is a positive externality?

A positive externality is something that produces a (usually societal) benefit.

How can marginal social cost be determined?

By subtracting the marginal private cost (s) curve from the marginal social cost (s) curve. This usually looks something like S(2)-S(1)

What does it mean to internalize an external cost?

Forcing producers to factor into their production costs the cost of the externalities created in the production of their output.

What is marginal social benefit?

Marginal social benefit (MSB) is the total benefit that society recieves for the production of another additional unit.

What is marginal social cost?

Marginal social cost (MSC) is the total cost society pays for the production of another unit.

What is a pigovian solution to an externality issue?

One in which the government intervenes to tax a given good or service.

Economists argue that the level of pollution should be...?

Reduced to the point where the marginal benefit of pollution reduction is equal to the marginal cost of reduction to society.

Conceptually, what is the efficient level of carbon emissions?

That which the marginal benefit of reducing carbon emissions is equal to the marginal cost of reducing carbon emissions.

If a government wants to use a pigovian tax to bring about the efficient level of production what should the value be?

The difference between marginal social cost and marginal private cost where marginal social cost intersects marginal benefit.

What is the subsidy amount a given government should provide per unit in the case of good that has a positive externality?

The difference in price between marginal social benefit and marginal private benefit where the marginal social benefit curve intersects the supply curve.

How do private market output and efficient (for society) output levels differ?

The efficient level (for society) is where marginal revenue is equal to marginal social cost, while the private market output level is marginal revenue is

What can be said about the market equilibrium price and quantities of an item if its production brings about a negative externality?

The market equilibrium price is too low and the equilibrium quantity is too high.

If policymakers use a pollution tax to control pollution, the tax per unit of pollution should be set at what price?

The price equal to the marginal external cost at the economically efficient level of pollution.

What do market supply curves represent?

The private costs of producing a good or service.

What must be present to reach a private solution to an externality problem?

The transaction costs to negotiate a solution must be relatively low.

A Coasian solution to an externality situation involves what?

Transactions between private entities.


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