Chapter 5, 6, 7 - ECON 4211

____ _____ moves production (or consumption) to the socially optimal level of output.

A Pigouvian subsidy

In general, a firm's efficiency decision will result in:(A plant that maximizes profits, An unpolluted environment, Lower prices for products associated with a pollution-causing production process, A pollution-causing production process if that process minimizes costs).

A pollution-causing production process if that process minimizes costs.

An external cost is borne by(A third party to the market transaction, The producer of the good, The consumers of the good.)

A third party to the market transaction

There is an application in your text about congestion pricing (see Section 5.3: Public Sector Remedies for Externalities). Which of the following is one of the reasons "congestion pricing" was successful in London?

Additional buses were added to the public transportation system.

Suppose your neighbor enjoys letting the grass in his yard grow wild and free, a practice with which you disagree. This is an example of a:(positive production externality, negative consumption externality, negative production externality, positive consumption externality.)

Negative Consumption Externality

Which of the following is excludable but non-rival in consumption?(the main road in a town, Netflix, a lighthouse, public radio)

Netflix

If firms were charged the full social opportunity cost of the resources they used, there would be(A need for government intervention, No external costs, Government failure, Market failure.)

No external costs

In private equilibrium, a positive production externality will lead to _____; a negative consumption externality will lead to _____.

SMC less than PMC; SMB less than PMB

All of the following are negative externalities in production except: (Acid rain produced by power plants, Thermal pollution into a river from an electric power plant, Carbon dioxide emissions from the production of steel, Secondhand smoke in a restaurant).

Secondhand smoke in a restaurant.

Which is NOT a barrier to solving the free rider problem in the provision of public goods?(Some individuals may voluntarily choose to pay for a public good, Individuals may not know their valuation of a good, The government may not be able to put together preferences of many citizens, Individuals may not reveal their valuation of a good to the government.)

Some individuals may voluntarily choose to pay for a public good

Part I of the Coase theorem states that when there are well-defined property rights and costless bargaining, then, in a market in which there is an externality, which statement is TRUE?(The socially optimal level of consumption cannot be achieved without mediation by the government, The socially optimal level of consumption can be achieved through the use of taxes and subsidies by the government, The socially optimal level of consumption can be achieved through negotiations between the affected parties, The socially optimal level of consumption can be achieved through the use of quantity restrictions by the government.)

The socially optimal level of consumption can be achieved through negotiations between the affected parties.

If a manufacturer does not have to pay for its contribution to pollution, it will produce( Inefficiently from a private viewpoint, At a price that is too high from a social viewpoint, Unprofitably from a private viewpoint, Too much output from a social viewpoint)

Too much output from a social viewpoint.

Demand curves for pure public goods satisfy the law of demand(True or False)

True

Externalities can be positive, as well as negative. (True or False)

True

Externalities can be positive because(positive externalities are subsidies, marginal damages do not last over time, utility can be impacted positively as well as negatively, there is no concept for marginal benefit.

Utility can be impacted positively as well as negatively

The central question in determining whether a good is public or private is whether (The good is provided by the government, Free riding is considered immoral, We have the political will to exclude nonpayers from consumption, We have the technical capability to exclude nonpayers from consumption)

We have the political will to exclude nonpayers from consumption

Public good is

commodity or service that is made available to all members of a society.

Suppose government subsidized the consumption of education by giving education vouchers to parents to spend at the school of their choice. The subsidy would shift the private:

demand curve to the right.

A woodblock print by Hokusai displayed in a museum that charges an entrance fee is:(both rival and excludable, neither rival nor excludable, excludable but not rival, rival but not excludable)

excludable but non rival (charges a fee, but there is not limit on consumption)

A ________ is a person who wants to enjoy the benefits of a public good without contributing his or her marginal benefit to the cost of financing the amount made.

free rider

The underprovision of public goods by a private market is characterized by the:

free rider problem.

A public good(Is overproduced by the market, Is any good produced by the government, Is subject to the free-rider dilemma, Causes government failure)

is subject to the free-rider dilemma.

With respect to solving a problem of a negative externality, the assignment problem refers to the difficulty in determining who:

is to blame for an externality.

Which of the following explains why flood control is a public good?(It is not divisible and therefore cannot be kept from people who do not pay, Flood control is paid for by taxpayers, The private sector usually produces flood control projects, There are external benefits associated with its consumption)

it is not divisible and therefore cannot be kept from people who do not pay.

Which factor is likely to enable private market forces to provide more of a public good than it might otherwise provide?(little to no difference among individuals in their demand for the public good, the fact that the benefits of the public good are available to everyone, large differences among individuals in their demand for the public good, the existence of free riders who enjoy benefits but refuse to pay)

large differences among individuals in their demand for the public good

Which action can be best described by the warm glow model?(not being able to consume a private good and blaming the government for it, making a large donation to a charitable organization to gain acceptance from friends, making a donation to a charitable organization to reduce tax obligations, using a national park without contributing)

making a large donation to a charitable organization to gain acceptance from friends

To maximize total welfare, one must equate _____ with _____.

marginal social benefit; marginal social cost

Someone else playing music loudly on the radio in a dormitory the night before your economics exam is an example of:

negative consumption externality

Which of the following is a public good (schools, library, public defense, none of the options, public television)

none of the options (are a public good)

A Pigouvian tax corrects for:

positive consumption externalities.

The three problems facing a government trying to determine the optimal quantity of a public good include all of the following EXCEPT:(preference aggregation because it is difficult to add up the preferences of millions of citizens, preference implementation because it is hard to produce public goods in practice, preference revelation because individuals may not tell the government their true valuation of the public good, preference knowledge because individuals may not know their true valuation of the public good.)

preference implementation because it is hard to produce public goods in practice.

Suppose a city manager finds that residents lied about the value to them of a proposed city project. This illustrates the problem of:

preference revelation.

Suppose your neighbor's dog has been using your lawn in an unwanted way. If the dog's owner agrees to compensate you for his dog's use of your yard, this is an example of:(private (Coasian) bargaining, a subsidy, a government regulation)

private bargaining (Coasian)

The _____ is the direct benefit to consumers of consuming an additional unit of a good.

private marginal benefit

According to part II of the Coase theorem, to achieve the efficient solution to an externality:(property rights must be assigned to one party or the other, property rights must be periodically switched between the parties, the party imposing the externality must be assigned the property rights, the government must impose taxes or subsidies.)

property rights must be assigned to one party or the other.

If one person consumes a good so that no other person can consume it, then that good is:

rival

Which of the following activities is most likely to impose a negative externality? (drinking coffee, going to a movie, smoking, riding a bicycle)

smoking

External costs are the difference between

social costs (PMC-SMC≠0-->external costs)

A government payment to an individual or firm that lowers the cost of consumption or production, respectively, is referred to as which of the following?(subsidy, government payment for private provision, tax, government provision)

subsidy

In a free market with pollution and no government intervention, the market equilibrium quantity of output of the good that generates that pollution is reached when:(the social marginal cost equals twice the private marginal benefit, the marginal external costs equal the social marginal costs, the social marginal benefits equal the social marginal costs, pollution reduction is zero. (No pollution is reduced.)

the marginal external costs equal the social marginal costs

Under the market mechanism, a market characterized by external costs will produce ______ output and ______ pollution.(too little; too little, too much; too much, too little; too much, too much; too little)

too much(output) ; too much (pollution)

Which activity is most consistent with altruism?(taxing individuals to pay for a new park, volunteering to pick up trash in the community, taxing businesses to pay for a new park, buying more of a good as its price rises, all things equal)

volunteering to pick up trash in the community

If the social costs of an economic activity are $120 and the private costs are $75, then the external costs of the activity are ____, and market failure _______.

$45; occurs

A negative consumption externality would be written as what effect to the demand curve (PMB=D)

(PMB-MD(marginal damage from neg. cons. externality)=SMB, so PMB>SMB) Demand (PMB) Curve Shifts LEFT

Which of the following is most likely a private good?(Bicycles, National defense, The administration of justice, Sidewalks)

Bicycles

The Private Marginal Benefit is the same as

Demand Curve (PMB=D)

For a tax to lead to the optimal amount of output, it should be set (equal to):

External marginal cost (i.e., marginal damage).

Increasing the quantity of a pure public good can be done at zero cost. (True or False)

False

Private goods are always provided by the private sector.(True or False)

False

Public goods are any goods provided by units of local, state, or federal governments.(True or False)

False

Vertical summation of demand curves yield results equivalent to those of horizontal summation (True or False)

False

The market tends to underproduce public goods because(It is difficult to measure the benefit of a public good such as national defense, The consumption of a public good by one person prevents the consumption of the same good by another person, Joint consumption allows those who do not pay for the good to still benefit from the good, The free-rider dilemma results in exclusive consumption of a good.)

Joint consumption allows those who do not pay for the good to still benefit from the good

If public goods were marketed like private goods, then (Society would be closer to achieving the optimal mix of output, People would avoid paying for these goods, Market failure would not occur, Public goods would be efficiently produced)

People would avoid paying for these goods

Which of the following is not true when social costs are greater than private costs?(There is market failure, Resources are allocated efficiently, The market's price signals are flawed, External costs exist)

Resources are allocated efficiently

The free-rider problem (Arises from the ability to exclude an individual from the benefits of someone else's purchase, Is a government failure resulting from consumption of private goods, Means that the market mechanism is the most efficient way to produce public goods, Reflects the inability to exclude an individual from the benefits of someone else's purchase)

Reflects the inability to exclude an individual from the benefits of someone else's purchase

The Private Marginal Cost is the same as

Supply Curve (PMC=S)

Public goods can be (all of these answer options are correct, provided privately, provided publicly, subject to free rider problems)

all of these options are correct

If individuals care about the outcomes for other people as well as for themselves, economists refer to them as:

altruistic.

A power plant in Illinois produces electricity by burning coal. This results in acid rain that kills trees and wildlife in New York. This is an example of: (An external cost, Inequity, A public bad, A private cost)

an external cost

Impure public goods(can be non-rival or non-excludable, are always provided by the private sector, are never rival in consumption, cannot be priced in the market)

are never rival in consumption (non-excludable but can become congested)