Externalities & Public Goods-- Microecon Chapter 8

Which of the following statements regarding social enforcement mechanisms is not ​true? ​(Check all that apply.​)

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

Which of the following is the correct definition of marginal social​ cost? ​(Check all that apply​.)

- marginal private cost + marginal external cost - marginal cost of externality + marginal private cost The marginal social cost​ (MSC) includes both the marginal​ (private) cost of the firm and the marginal external cost imposed on society. The marginal external cost imposed on society is also referred to as the marginal cost of the externality.

Which of the following statements are true regarding​ externalities? ​(Check all that apply​.)

A: Deadweight loss can be either a foregone benefit or the total cost of the externality to society. D: A negative externality occurs when an economic activity has a spillover cost to a bystander. Why? In the case of an​ externality, the free market fails to maximize social surplus. This leads to a deadweight loss to society which can be either a forgone benefit in the case of a positive externality or the total cost in the case of a negative externality. A negative externality occurs when an economic activity has a spillover cost to a bystander. The supply curve is the marginal cost curve for the economic agent. For computing efficient​ outcomes, economic agents adjust the supply curve to account for the negative externalities

Which of the following would be considered a true public​ good?

A: a road sign B: a public pool c: a park bench A: a road sign A public good is both​ non-rival and​ non-excludable whereby it is not possible to exclude people from using the good and consumption by one person does not prevent consumption by others.

In the case of the negative​ externality, the socially efficient output will be ____ relative to the market quantity

Low Why? Negative externalities lead to external costs of production that the free market will not account for when making decisions.​ However, the socially efficient output will consider the external cost. As a​ result, a smaller quantity of output should be​ produced, since it is now more costly to produce each unit.​ Therefore, in cases where a negative externality exists the socially efficient output will be low relative to the market quantity.

Which of the following would be an example of the Coase​ Theorem?

The homeowners association provides a fireworks show that ends at 10 p.m.

Why is the market demand curve for public goods calculated as a vertical summation of individual demand​ curves?

because the public good is non-rival, so you and others can consume every unit of the good at the same time

The tragedy of the commons results when​ ___________. Which of the following best illustrates the tragedy of the​ commons?

common pool resources are overused, overfishing in public waters

​Command-and-control policies

could be used to mandate usages to businesses.

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

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

Socially accepted methods of behavior can ___ internalizing of negative externalities. Financial rewards ___ achieve the same result.

encourage, can

A corrective subsidy would be used when marginal social benefit is ___ than market demand. This causes the ____ to internalize the externality.

greater, consumer

Negative externalities impose an additional cost​ that:

is not explicitly recognized by the buyers and sellers in the market

public goods are ___ in rivalry and ___ in excludability

low, low

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

paying the cost of the externality

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

private goods

Which of the following economic tools can be used to solve the tragedy of the​ commons? ​(Check all that apply.​)

privatization of the resource, pigouvian tax, incentives to self-regulate the use of resources

Jones and Smith live in the same apartment building. Jones loves to play his opera recordings so loudly that Smith can hear them. Smith hates opera. Jones receives​ $100 worth of benefits from his music and Smith suffers​ $60 worth of damages. From an efficiency perspective, Jones ___ allowed to play his music. Suppose the apartment building does not have any rules about noise. Jones and Smith can bargain at zero cost. According to the Coase Theorem, ___ to compensate for the ___ Now suppose the apartment builiding passes a rule that says residents are not allowed to play music their neighbors can hear if any of the neighbors object. As​ before, Jones and Smith can bargain at zero cost. According to the Coase Theorem ___ to compensate for the ___

should be, Jones will pay $0 to Smith, negative externality, Jones will pay $60 to Smith, negative externality

When bargaining to deal with negative externalities

the cost falls on the party with the most to gain

The​ free-rider dilemma occurs because

the marginal benefit to a group is different than to that of the individual.

Positive externality will occur when​ _____.

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

Which of the following statements explains the concept of the tragedy of the​ commons? ​(Check all that apply.​)

the open access to common resources results in their depletion through overuse, it results when the free market equilibrium quantity is higher than the optimal equilibrium quantity

Coase Theorem

the proposition that if private parties can bargain without cost over the allocation of resources, they can solve the problem of externalities on their own