Micro Econ Module 9
After your production limit goes into effect, Dwight will produce _____ thousand hogs and sell them for a price of
1. 3 2. $6.64
Before your production limit goes into effect, Dwight will produce ______ thousand hogs and sell them for a price of
1. 4.71 2. $4.79
Common pool resource goods are different from public goods because they are ___________ which can result in ___________ externalities due to _________ demand
1. Non-exclusionary but rival 2. Negative 3. Increased
Therefore, the market-based approach to deal with the externality is to use a ________ causing _____ in the quantity produced by the companies towards the socially optimal level.
1. corrective tax 2. a reduction
As a result of the production limit, supply _____ price _____ and the negative externality
1. decreases 2. increases 3. decreases
Common pool resources are ________ in rivalry and ________ in excludability.
1. high 2. low
You are about to recommend that Jeb and Dwight engage in private bargaining to deal with the externality when twenty of Dwight's neighbors also complain that they don't like the smell. Private bargaining is _______ likely to be successful the more parties involved because of ___________
1. less 2. increased transaction costs
Public goods are ______ in rivalry and ______ in excludability.
1. low 2. low
You have just been appointed as the County Commissioner of Hazard County. You realize that you should learn some economic concepts that will be useful to you in your new job. In a free market, efficient firms will produce where ________ equals _________
1. marginal cost 2. marginal revenue
According to this theoretical principle _________ will only work as a solution if Jeb _________ have a right to clean air.
1. private bargaining 2. does
Furthermore, you conclude that when there are negative externalities present, free markets ___________ and when there are positive externalities present, free markets ____________
1. produce too much 2. produce too little
You are the County Commissioner of Hazard County. Recently a severe wave of storms swept across Hazard County, spawning several tornadoes and creating a wide path of mayhem. The citizens of Hazard County are demanding that you do something to protect them. You decide to install some early warning tornado sirens. However, there is no money left in the county budget, so you ask each citizen to donate some money to build the system. Many citizens donate money to help build the warning system; however, Ms. Nancy, who is wealthy, decides she is not going to donate. The early warning sirens are an example of a ________ and Ms. Nancy represents a
1. public good 2. free rider
When you want to encourage an activity, you should _______ it, and when you want to discourage an activity, you should ______ it
1. subsidize 2. tax
In which of the following situations can an externality be internalized by using the Pigouvian subsidy?
An orchard is placed next to a beehive. So, both the farmer and the beekeeper benefit from each other. Sophia's flower garden provides a pleasant view for her neighbors.
Why do public goods suffer from a free-rider problem?
Because nonpayment does not prevent consumption. Because the consumer consumes more than their fair share. Because the consumer pays less than their fair share of its cost.
What approach would be the least effective way to deal with free riders?
Exclude citizens from benefiting from the good or service.
Which of the following is common between corrective taxes and corrective subsidies?
It provides a greater incentive to deal with the externality problem rather than the command-and-control approach. It exactly aligns private and society's incentives.
Which of the following best illustrates the tragedy of the commons?
Overfishing in public waters.
Market inefficiencies result from all of the following, except:
Pecuniary externalities.
In an industrial township, unplanned growth resulted in several companies polluting the environment with inefficient disposal of waste from the production process. In this case, the production of the companies is such that
Qmarket greater than Qoptimal
It is given that the marginal social benefit (MSB) of a particular positive externality equals $500. Which of the following statements is true if this externality is to be internalized?
The Pigouvian subsidy equals $500 and the difference between the demand curve and the MSB curve equals $500
All of the following statements about Pigouvian taxes are true, except:
They are designed to increase quantity toward optimal quantity.
A manufacturing plant is emitting hazardous gas into the nearby area, adversely affecting the local citizens. In which of the following situations does private bargaining not likely to lead to an efficient outcome?
When negotiating an agreement on the allowable level of emissions and who gets compensated is difficult.
You respond to the business leaders' request by giving Ms. Daisy money to buy more flowers. Giving Ms. Daisy money to buy more flowers is an example of
a Pigouvian subsidy
You have just been appointed as the County Commissioner of Hazard County. Your first day on the job you have the following conversations: Ludwig mentions that Frank, the local rancher, is inflating land prices by buying too much land. This is an example of ___________.
a pecuniary externality
George mentions that Ms. Daisy has planted some lovely new roses in front of her store. This is an example of __________
a positive externality
Which of the following would be considered a true public good?
a road sign
You are the County Commissioner of Hazard County. Dwight's neighbors bring a complaint before you that Dwight's hog farm is creating a terrible odor, and they are demanding government action. You respond to the neighbor's complaints by limiting the number of hogs that Dwight can have on his farm. Limiting the amount of Dwight's production is an example of
command and control
You decide to respond to the neighbor's complaints by limiting the number of hogs that Dwight can have on his farm. This is an example of using a
command and control approach
You are the County Commissioner of Hazard County. There is a popular lake for fishing located in eastern Hazard County on county-owned park land, which is open to the public. Recently, the Reed brothers have started using large nets to catch large amounts of fish, severely depleting the amount of fish left for other fishermen. The fish in the lake are an example of a
common pool resource
Command-and-control policies
could be used to mandate usages to businesses.
If you were to recommend a command-and-control approach, a disadvantage would be that it
creates few incentives for innovation
By introducing Pigouvian subsidies, the government can _______ the equilibrium quantity towards the socially optimal level.
increase
Negative externalities impose an additional cost that:
is not explicitly recognized by the buyers and sellers in the market
Suppose the government levies a corrective tax on the companies' production. The per unit tax charged would be such that it equals ______ of an externality.
marginal external cost
You are the County Commissioner of Hazard County. Jeb brings a complaint before you that Dwight's hog farm is creating a terrible odor. The noxious odor from Dwight's hog farm is a
negative externality
Lauren mentions that it is extremely windy today. This is an example of __________
not an externality
If this externality from Dwight's farm is left unaddressed, then Dwight will continue to ___________ in regards to the social surplus optimum
over produce
You are the County Commissioner of Hazard County. Local business leaders are thrilled that Ms. Daisy has planted a panorama of flowers around her store front designed to look like cute kittens. Tourists have been coming from neighboring towns to see the flowers, and this tourism has been increasing business activity for many businesses. The local business leaders would like you to convince Ms. Daisy to plant more flowers so that tourism continues to increase. The business generated for other stores by Ms. Daisy's flower display is an example of a
positive externality
you are the County Commissioner of Hazard County. Dwight's neighbors bring a complaint before you that Dwight's hog farm is creating a terrible odor, and they are demanding government action. Which of the following is not a course of action that you could take to satisfy the neighbor's demands?
private bargaining
Which of the following is not an example of when the free market fails to generate maximum social surplus?
private goods
When bargaining to deal with negative externalities
the cost falls on the party with the most to gain.
You have just been appointed as the County Commissioner of Hazard County. After your first day of work, you realize that many people talked to you about externalities that day. Based on your conversations today and your economics experience, you conclude that when externalities are present,
the free market outcome is not efficient
The free-rider dilemma occurs because
the marginal benefit to a group is different than to that of the individual.
___________ is maximized when firms produce at equilibrium in a free market.
total surplus
The Pigouvian subsidy creates a _________ that is identical to the MSB curve by having individuals consider the externality when making their choices.
virtual demand curve
You are the County Commissioner of Hazard County. Jeb brings a complaint before you that Dwight's hog farm is creating a terrible odor. Your first instinct is to tell the neighbors to work it out among themselves. The __________ provides theoretical support for private bargaining as an effective approach to _____________
1. coase theorem 2. internalize the externality
Which of the following statements regarding the Coase Theorem is not true?
Initial property right allocation determines whether the socially efficient outcome can be achieved.
What approach would be the least effective way to deal with the overfishing problem?
Limit who is allowed to fish in the lake.
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.
Jeb mentions that the hog farm down the road from his house is creating a very nasty smell. This is an example of ___________
a negative externality
The tragedy of the commons results when
common pool resources are overused.
Which method is not a recommended approach supported by externality theory to deal with this problem?
nonprofit intervention
Which of the following would not be considered a common pool resource good?
streetlight
The overfishing by the Reed brothers is an example of
tragedy of the commons
