Microeconomics: Chapter 9

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Which of the following statements regarding internalizing an externality is​ true?

It means agents account for the full costs and benefits of their actions.

statements regarding social enforcement mechanisms is not ​true?

It reduces the net benefit to society. It is enforced by official government regulations and results in a stiff financial penalty if not followed.

A​ library's collection of​ e-books is a

club good

The​ free-rider problem arises when an individual​ ____________.

does not pay for a good because nonpayment does not prevent consumption.

If a product has zero external​ costs, then

marginal social cost equals marginal private cost

An individual or a firm can internalize an externality by​ ___________.

paying the cost of externality

To ensure all students are protected from getting the flu this​ year, your school offers free flu shots. What type of externality exists in this​ example?

positive consumption externality

Health insurance is a

private good.

What approach would be the least effective way to deal with free​ riders?

Exclude citizens from benefiting from the good or service

not an example of when the free market fails to generate maximum social​ surplus?

Private goods

you have just been appointed as the County Commissioner of Hazard County. Your first day on the job you have the following​ conversations: Ludwig mentions that​ Frank, the local​ rancher, is inflating land prices by buying too much land. This is an example of ▼ a negative externality a positive externality a pecuniary externality not an externality.

a pecuniary externality

George mentions that Ms. Daisy has planted some lovely new roses in front of her store. This is an example of ▼ a negative externality a pecuniary externality a positive externality not an externality.

a positive externality

Which of the following is a common method used by government to cope with the situation in which production of a good creates an external​ cost?

cap-and-trade

Externalities are called market failures because they​ ___________.

cause markets to produce suboptimal social outcomes.

Radio spectrum is a

common pool resource.

The tragedy of the commons results when​ ___________.

common pool resources are overused.

You have just been appointed as the County Commissioner of Hazard County. You realize that you should learn some economic concepts that will be useful to you in your new job. In a free​ market, efficient firms will produce where ▼ social surplus total cost marginal cost equals ▼ average cost marginal revenue taxes.

marginal cost marginal revenue

Joe mentions that the hog farm down the road from his house is creating a very nasty smell. This is an example of a

negative externality.

How do public goods differ from common pool​ resources? Explain. Public goods are _______ ​goods, while common pool resource goods are ________goods.

non-rival rival

Lauren mentions that it is extremely windy today. This is an example of ▼ a negative externality a positive externality a pecuniary externality not an externality.

not an externality

​Furthermore, you conclude that when there are negative externalities​ present, free markets ______ and when there are positive externalities​ present, free markets produce too little _________________

produce too much, produce too little

A mosquito control program in a city is a

public good.

A video on YouTube is a

public good.

You have just been appointed as the County Commissioner of Hazard County. After your first day of​ work, you realize that many people talked to you about externalities that day. Based on your conversations today and your economics​ experience, you conclude that when externalities are​ present,

the free market outcome is not efficient

Positive externality will occur when​ _____.

the marginal social​ benefit is greater​ than the marginal cost to produce at the market equilibrium

The Coase Theorem will will breakdown when​ ____________.

transactions become high there are large number of agents when property rights are not clearly defined

Suppose the production of a particular good causes a negative externality. Based on market forces​ only, how will this impact the production levels for a factory if negative externalities are​ present?

It will produce the good above the socially efficient level.

example of not an​ externality?

Jordan has lung cancer from smoking cigarettes.

not likely to be subject to the tragedy of the​ commons?

National defense.

Which of the following best illustrates the tragedy of the​ commons?

Overfishing in public waters.

is maximized when firms produce at equilibrium in a free market.

Total Surplus

A pecuniary externality occurs when

a market transaction affects other people only through market prices.

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. ____________________ will vote in favor of the display.

one person

The Coase Theorem states that​ ____________.

private bargaining will result in an efficient allocation of resources.

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. __________________ will provide the display on his or her own.

should No one citizen

Which of the following would not be considered a common pool resource​ good?

streetlight


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