Chapter 7 - Market Inefficiencies: External and Public Goods

Which of the following is an example of market failure?

A river is polluted by a local fertilizer plant.

Common resources are associated with the incentive to

Neglect

Under which of the following scenarios would a park be considered a public good?

Visitors can enter the park free of charge, and there are always plenty of empty picnic tables.

Which of the following activities create positive externalities?

You and your friends volunteer to plant wildflowers along the local highway.

Which of the following is a club good?

a swimming pool

Suppose visitors can enter the local park free of charge, but frequently all the picnic tables in the park are in use. As a result we can say that the park is a

common-resource good.

In the graph below, Q2 is the market equilibrium of output of this product, and Q1 is the social optimum. The graph below shows a __________ externality, which can be corrected to the optimal level with a ______________. In Graph: Q2 is Equillibrium and Q1 is to the Left on S2 line

negative, tax

Which antipollution policy does not consider cost-benefit analysis?

passing a law that bans all pollution

Q1 is the market equilibrium of output of this product, and Q2 is the social optimum. This figure indicates that there are _______________ externalities created by this good. This good should be ______________ to reach the social optimum level. In Graph: Q1 is Equillibrium and Q2 is to the right on D2 line

positive, subsidized

In most areas, developers are required to submit environmental impact studies before work can begin on new construction projects. Suppose that a commercial developer wants to build a new shopping center on an environmentally protected piece of property that is home to a rare three-eyed toad. The shopping complex, if approved by the local planning commission, will cover 10 acres. The planning commission wants construction to go forward, since that means additional jobs for the local community, but it also wants to be environmentally responsible. One member of the commission suggests that the developer relocate the toads. She describes the relocation process as follows: "The developer builds the shopping mall and agrees to create 10 acres of artificial toad habitat elsewhere." The builder will agree with the proposed solution if ______________

the benefits of building the shopping center outweigh the costs including that of relocating the toads.

The Tragedy of the Commons occurs when

the good is rival in consumption, but nonexcludable.

Two roommates are opposites. One enjoys playing Modern Warfare with his friends all night. The other likes to get to bed early for a full 8 hours of sleep. The roommate who plays Modern Warfarevalues gaming more than his roommate values his sleep. According to the Coase theorem,

the person who plays Modern Warfare will compensate his roommate for loss of sleep.