Public Goods

Marketable permit program

A permit that allows a firm to emit a certain amount of pollution; firms with more permits than pollution can sell the remaining permits to other firms

Negative externality

A situation where a third party, outside the transaction, suffers from a market transaction by others

Which of the following would be classified as a positive externality?

A surcharge for ambulance service is shifted to property taxes Removing government education subsidies for public schools Reselling outdated textbooks to under-funded public school The increase in neighborhood property values from converting a derelict empty lot to a public vegetable garden (correct)

Pollution charge

A tax imposed on the quantity of pollution that a firm emits. A pollution charge gives a profit-maximizing firm an incentive to figure out ways to reduce its emissions—as long as the marginal cost of reducing the emissions is less than the tax

Additional external cost

Additional costs incurred by third parties outside the production process when a unit of output is produced

Which of the following would be classified as a situation where a third party benefits from a market transaction by others?

Allowing a mining company to use a natural lake to discharge waste Two firms trading pollution credits to avoid cutting their toxic emissions City buying 10,000 trees for green-space renewal projects (correct) Increased levels of air pollution in neighborhoods near a football stadium

Positive externality

Beneficial spillovers to a third party, or parties

Many residents of a particular town enjoy taking their dogs with them when they go to their local park for recreation and picnics. Everybody enjoys the park more when each group cleans up after themselves and their pets, but nobody enjoys the act of cleaning up after themselves or their dogs. We can expect the park to be ________, due to a ________.

Clean: prisoner's dilemma Clean: positive externality Dirty: prisoner's dilemma (correct) Dirty: positive externality

Social costs

Costs that include both the private costs incurred by firms and also additional costs incurred by third parties outside the production process, like costs of pollution

Nonrivalrous

Even when one person uses the good, others can also use it

An individual who wants others to pay for public goods, but plans to use those goods for their own purposes, is often referred to as a ________.

Excludable Free rider (correct) Tax evader Nonexcludable

International externalities

Externalities that cross national borders and that cannot be resolved by a single nation acting alone

Spillovers

Externalities that occur in market transactions affect other parties beyond those involved

When it is costly or impossible to exclude someone who hasn't paid to use a particular good from using it, then that good is classified as being:

Free rider Public good non excludable (correct) unexcludable

public good

Good that is nonexcludable and nonrivalrous, and thus is difficult for market producers to sell to individual consumers

Which of the following are examples of positive externalities?

Investments in private education raise your country's standard of living (correct) Your roommate is a smoker, but you are a nonsmoker You are a bird watcher, and your neighbor puts up birdhouses and gardens to attract birds (correct)

If you are highly asthmatic, then having high levels of industrial air pollutants waft over your house every day

Is a voluntary exchange Would be a negative externality (correct) Would be an external voluntary exchange Is positively a voluntary exchange

Command-and-control regulation

Laws that specify allowable quantities of pollution and that also may detail which pollution-control technologies must be used

A cost imposed on others outside of any market exchange is:

Leads to overproduction of goods/service in question (correct) An external cost (correct) Not taken into account by those imposing the cost (correct) Leads to underproduction of the good/service in question

A public good is a good that is ________, and thus is difficult for market producers to sell to individual consumers.

Non excludable and nonrivalrous (correct) Unexcludable or unrivaled Excludable and rivalrous Excludable or rivalrous

In order for a good to be classified as ________ , when one person uses the good, others are also able to use it.

Nonexcludable Unrivalrous Nonrivalrous (correct) Unexcludable

Private Good

One for which the consumer pays all the costs and receives all the benefits. If you buy an apple to eat, no one gets to share any part of the apple that you eat

Public Good

One where one person's consumption doesn't prevent anyone else from consuming it too. National defense is the classic example Once it's there, everyone gets the benefits of it

Which of the following is an example of economic activity that can injure the environment?

Paper mill discharging raw chemical waste into a river (correct) Excessive clear-cutting of wood resources by logging companies (correct) Gold mine discharging arsenic into a natural lake that it's using for a tailings pond (correct)

The U.S. Government has a variety of policies that enable inventors to ________, such as the granting of patents and ________.

Protect their inventions: limited copyrights during the inventor's lifetime Receive an increased rate of return: subsidization of research and development (correct) Receive reasonable rate of return: lifetime intellectual property rights Register their invention: unlimited copyrights during the inventor's lifetime

Private markets

Such as the cell phone industry, offer an efficient way to put buyers and sellers together and determine what goods are produced, how they are produced, and who gets them

Government policies in addition to patent protection that can spur innovation include:

Tax breaks for companies that invest in research and development (partial) Direct government investment in research and development (partial) Government regulation that require innovative products (partial)

Which is the best example of a market-oriented environmental policy?

The US government determines which technologies are cleaner and subsidizes their use to reduce CO2 emissions from manufacturing industries The US government passes a law that imposes penalties on manufacturing industries whose CO2 emissions exceed certain levels The US government establishes a market to trade the right to emit CO2 among manufacturing industries (correct) The US government requires to install pollution control equipment to improve air and water quality

Which of the following is/are example(s) of command-and-control regulation?

The US government requires to firms to install antipollution equipment to improve air and water quality (correct) The US government passes a law that imposes penalties on manufacturing industries where CO2 emissions exceed certain levels (correct) The US government determines which technologies are cleaner and subsidizes their use to reduce CO2 emissions from manufacturing industries

Intellectual property

The body of law including patents, trademarks, copyrights, and trade secret law that protect the right of inventors to produce and sell their inventions

Social benefits

The dollar value of all benefits of a new product or process invented by a company that can be captured by other firms and by society as a whole

Private benefits

The dollar value of all benefits of a new product or process invented by a company that can be captured by the investing company

Externality

The effect of a market exchange on a third party who is outside or "external" to the exchange; sometimes called a "spillover"

Which of the following are examples of market-based policies, rather than command-and-control policies?

The federal government requires domestic auto companies to improve car emissions The federal government pays fisherman to preserve wild salmon (correct) A state charges an emissions tax on the quantity of carbon emitted by each firm (correct)

Biodiversity

The full spectrum of animal and plant genetic material

Property rights

The legal rights of ownership on which others are not allowed to infringe without paying compensation

If a government wants to establish a marketable permit program, it must begin by determining ________.

The overall price to be charged for each permit How many permits will be issued in the overall market The overall quantity of a certain pollutant that will be allowed (correct)

Free rider

Those who want others to pay for the public good and then plan to use the good themselves; if many people act as free riders, the public good may never be provided

Nonexcludable

When it is costly or impossible to exclude someone from using the good, and thus hard to charge for it

Private rates of return

When the estimated rates of return go primarily to an individual; for example, earning interest on a savings account

Social rate of return

When the estimated rates of return go primarily to society; for example, providing free education

Market failure

When the market on its own does not allocate resources efficiently in a way that balances social costs and benefits; externalities are one example of a market failure

Suppose a city releases 16 million gallons of raw sewage into a nearby lake. The table below shows the total costs of cleaning up the sewage to different levels, together with the total benefits of doing so. (Benefits include environmental, recreational, health, and industrial benefits.) Using the information in the table, calculate the marginal costs and marginal benefits of reducing sewage emissions for this city. What is the optimal level of sewage for this city?

4 million gallons (correct) 12 million gallons 8 million gallons