Ch 10 Micro

Since restored historic buildings convey a positive externality, local governments may choose to

Provide tax break downs and regulate the demolition of them

If a sawmill creates too much noise for local residents

The government can raise economic well being through noise control regulations

What statement about a well maintained yard best conveys the general nature of the externality?

A well maintained yard conveys a positive externality because it increases the value of adjacent properties in the neighborhood

The difference between social cost and private cost is a measure of the

Cost of an externality

The supply curve for a product reflects the

Cost to sellers of producing the product

All externalities...

Cause markets to fail to allocate resources efficiently

Private Markets fail to account for externalities because

Decisionmakers in the market fail to include the costs of their behavior to third parties

Market failures can be caused by

Externalities

Negative externalities lead markets to produce

Greater than efficient output levels and positive externalities lead markets to produce smaller than efficient output levels

What is an example of a positive externality?

Mary not catching the flu from Sue because Sue got a flu vaccine

In a market economy, government intervention

May improve market outcomes in the presence of externalities

All remedies for externalities share the goal of

Moving the allocation of resources toward the socially optimal equilibrium

A cost imposed on someone who is neither the consumer nor the producer is called

Negative externality

Assume that your roommate is very messy. Suppose she gets a $50 benefit from being messy but imposes a $100 cost on you. The coase theorem would suggest that an efficient solution would be for you to

Pay your roommate at least $50 but no more than $100 to clean up after herself

An optimal tax on pollution would result in what

Producers will internalize the cost of pollution

Since almost all forms of transportation produce some type of pollution...

Society has to weigh the cost and benefits when deciding how much pollution to allow

The government should _____ goods with negative externalities and ____ goods with positive externalities

Tax, Subsidize

Honey producers provide a positive externality to orchards because

The orchard owner does not have to purchase bees to pollinate his flowers

Since externalities tend to keep markets from reaching a socially optimal equilibrium, government action

is needed when private solutions fail to rise