chapter 10 (test2) study questions

What is the market price level when a quota of 1 million gallons of gas is imposed on sellers?

$4.00

Which is NOT a part of the three-step recipe to analyze externalities?

Assess the type of good

_____ are inefficient outcomes that are not in society's best interest.

Market failures

The most important side effect of using gasoline is _____. This is an example of a _____ externality that harms bystanders.

the pollution it causes; negative

The external costs imposed on bystanders reflect _____.

their opportunity costs

An example of a rival good would be:

tickets to a concert.

At a production level of X units, the marginal external benefit is _____.

$90

If a corrective tax of $0.60 per gallon, equal to the marginal social cost, is imposed, the new equilibrium quantity would be _____ million gallons, and the old equilibrium quantity without tax is _____ million gallons.

1,000; 1,400

_____ is important because it leads to market failure, producing _____.

An externality; inefficient outcomes

Which part of the graph represents the socially optimal outcome when there are negative externalities?

C

Public schools require students to have up-to-date vaccinations. How does this policy help with the externality problem?

It helps prevent an outbreak that can affect other students and faculty.

Which statement is NOT true about externalities?

People face the full consequences of their actions when they create externalities.

Normal wear and tear on roads while driving is _____ because it involves side effects on bystanders whose interests aren't fully taken into account.

an externality

People _____ be prevented from appreciating the beautiful exterior of St. Patrick's Cathedral in New York City, so the building is _____.

cannot; nonexcludable

When suppliers _____ external costs, they tend to _____ them.

don't pay; ignore

Marginal social benefit equals:

marginal private benefit plus marginal external benefit.

Which is NOT true about the solutions to externality problems?

Regulations result in the most efficient resolution of externalities.

Which is NOT considered a goal of the government in setting a quota instead of imposing a corrective tax?

To increase the marginal private cost to equal the marginal social cost

Which example does NOT involve private bargaining to internalize an externality?

To reduce maintenance costs, an electric company replaces overhead wires with underground wires capable of carrying the same load.

The socially optimal outcome is the most efficient outcome for _____.

buyers, sellers, and bystanders

A corrective tax can induce people to consider the external _____ of the _____ externalities they create.

cost; negative

Businesses can turn public goods into club goods by _____. However, they do not fully solve the problems inherent in public goods because they _____ the goods.

excluding nonpaying customers; underprovide

A solution to the free-rider problem is the government's power to _____, which is something businesses and individuals _____ have the power to do.

force people to pay for the goods they benefit from; do not

Marginal social costs are _____ marginal private cost.

greater than or equal to

Private bargaining is most likely to succeed when the benefits from solving the externality are _____ and the costs of bargaining are _____.

high; low

Club goods are a type of _____, since the amount produced will be _____ the socially efficient quantity.

local monopoly; below

Because the determination of the socially optimal outcome is a "how many?" question, the _____ should be applied to find it.

marginal principle

Regulations should target _____ to avoid _____.

outcomes; stifling innovation

Cleaning up a roadside creates a _____ externality because your appreciation of the trash-free road _____ someone else's enjoyment of the clean roadside.

positive; does not reduce

Overfishing in lakes and oceans produces a(n) _____ benefit to those who consume or sell the fish, but this creates a _____ externality by reducing the number of fish left in those areas.

private; negative

Excessive rules may _____ competition and _____ innovation.

reduce; reduce

To limit negative externalities, the government can eliminate the overproduction by using the quantity regulation of _____ to the socially optimal quantity.

setting a quota

In the face of positive externalities, the Rational Rule for Society says that the _____ occurs at the quantity where the marginal social benefit is equal to the _____.

socially optimal outcome; marginal social cost

Lawsuits act like corrective _____ because the threat of a lawsuit provides an incentive for people to _____.

taxes; internalize the externality

Laws, rules, and regulations can be used to remove the externalities in all the following situations, EXCEPT:

the Kyoto Protocol to limit greenhouse emissions.

Companies A and B have similar marginal costs of production, but company A has a production capability of 300 units/day while company B has a production capability of 150 units/day. Each company receives two permits. One permit allows the firms to produce 100 units/day. Under a cap-and-trade system, which of these would be the MOST LIKELY scenario?

B sells one permit to A.

Which image shows the prediction of market equilibrium when side effects play no role in determining the outcome?

price on y-axis, quantity on x-axis, supply curve points up and demand curve points down.

An example of a public good would be:

street lights

The owners of Jamal's Diner have lobbied their city council for lower business taxes on small businesses. The ordinance was finally passed, and several other businesses, including SuperSudz Car Wash a few blocks away, also saw their city tax burden lowered. The owners of Jamal's Diner were participants in the action and received a _____ from the tax cuts. The owners of SuperSudz Car Wash were not participants in the lobbying effort and received a _____ from the tax cuts.

benefit; positive externality

Yahoo! banned working from home in 2013, based on the observation that informal hallway conversation often leads to _____ externalities because it helps _____.

positive; increase collaboration and create new ideas