LC10: LearningCurve - Ch. 10: Externalities and Public Goods

Corrective tax can reduce overproduction. If the government impose the corrective tax of $0.60 per gallon, how many millions of gallons would no longer be produced?

400

How does a cap-and-trade system act like a corrective tax?

A cap-and-trade system raises the opportunity cost of polluting the air.

Which statement does NOT explain why the side payment can restore the socially optimal outcome?

Side payments are used when it is not possible to enforce agreements among parties.

Which example does NOT apply a subsidy to solve negative externalities?

The government charges a cigarette tax of around $2.50 per pack.

Which is NOT an example of an activity with a positive externality?

You spend your spare time trolling on social media.

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

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

Society's interests include:

all costs and benefits to everyone, including you

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

The Kyoto Protocol set up a _____ by limiting the number of permits to emit harmful greenhouse gases like carbon dioxide and methane.

cap-and-trade system

Goods that are excludable and nonrival are known as:

club goods.

Goods that are nonexcludable and rival are known as:

common resources.

A locked car is considered to be _____, and an airport people-mover is _____.

excludable; nonexcludable

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 benefit equals:

marginal private benefit plus marginal external benefit.

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

A _____ good is a good for which your use of it _____.

rival; comes at someone else's expense

All the following have negative externalities, EXCEPT:

sharing your insights in a group study.

Suppliers pay:

the marginal private cost but not the external cost.

The external costs imposed on bystanders reflect _____.

their opportunity costs

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.

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

Market failures

_____ goods provided by the government are public goods, _____ are nonexcludable.

Not all; and not all

Which statement is NOT true about externalities?

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

The government imposes taxes equal to the damage (such as pollution) that electric companies do while producing electricity. What is the role of taxes in this example?

Taxes help firms internalize the externalities.

The best way to solve the tragedy of the commons is by:

assigning ownership rights.

When private bargaining is allowed to include bystanders, _____ because _____.

better outcomes are possible; externalities are considered

A _____ is designed to induce people to take account of the external costs created by the negative externalities they cause.

corrective tax

According to the _____ principle, private bargaining can solve externality problems when bargaining costs are low.

cost-benefit

Bystanders' benefits are a part of social benefits; they do not appear on the _____ because they are _____.

demand curve; external benefits

Positive externalities create the _____ problem when people cannot be excluded from using something.

free-rider

All these examples have negative externalities, EXCEPT:

getting a flu shot.

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

The Rational Rule for Society tells you to produce more as long as the _____ is greater than or equal to the _____.

marginal social benefit; marginal social cost

When the decisions of bystanders are not considered, _____ often the result.

negative externalities are

Goods that are _____ and _____ are known as common resources.

nonexcludable; rival

Negative externalities create problems because:

people fail to account for their actions that impose costs on others.

When all interested parties are included, externalities can be removed through _____.

private bargaining

Common resources have _____ gains and _____ costs.

private; shared

Instead of using corrective taxes to eliminate the overproduction problem, the government imposes a _____ to change the quantity of the harmful activity directly by _____.

quota; setting the maximum quantity of a good

Speed limits are laws designed to _____, or to _____.

reduce negative externalities; lower the danger toward other motorists

All the following have positive externalities, EXCEPT:

taking antibiotics too often.

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

the Kyoto Protocol to limit greenhouse emissions.

Laws and regulations that tell businesses _____ can _____.

the goals to achieve; create an incentive to innovate

When a common benefit can be exploited by individuals but the costs are shared by the community, it is called a(n):

tragedy of the commons.

The externality problem can be summed up by saying that _____ outcomes occur when people don't account for the interests of _____.

worse; bystanders

The externality issue that arises when someone can enjoy the benefits of a good or service without paying for it is known as the _____.

free-rider problem

Solutions to negative externalities should be addressed by _____, instead of _____, whenever possible.

private bargaining; government intervention

Government policies that specify _____ are likely to give an incentive to businesses to solve externality problems.

the intended objectives