Chapter 9

Classify the following goods and services as private​ goods, common pool​ resources, club​ goods, or public goods. ​a) Health insurance is a private good. ​b) Radio spectrum is a common pool resource. ​c) A video on YouTube is a public good. ​d) A mosquito control program in a city is a public good. ​e) A​ library's collection of​ e-books is a club good.

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Which of the following is not an​ externality?

Jordan has lung cancer from smoking cigarettes.

Which of the following is not likely to be subject to the tragedy of the​ commons?

Which of the following is not likely to be subject to the tragedy of the​ commons?

a) In which of the following situations can an externality be internalized by using the Pigouvian​ subsidy? b) By introducing Pigouvian​ subsidies, the government can ____ the equilibrium quantity towards the socially optimal level. c) Which of the following statements is true if this externality is to be​ internalized? d) The Pigouvian subsidy creates a ____ that is identical to the MSB curve by having individuals consider the externality when making their choices. e) Which of the following is common between corrective taxes and corrective​ subsidies?

a) 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. b) increase c) The Pigouvian subsidy equals​ $500 and the difference between the demand curve and the MSB curve equals​ $500. d) virtual demand curve e) It exactly aligns private and​ society's incentives. It provides a greater incentive to deal with the externality problem rather than the​ command-and-control approach.

You are the County Commissioner of Hazard County. Jeb brings a complaint before you that​ Dwight's hog farm is creating a terrible odor. a) 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 ____. b) According to this theoretical​ principle, ____ will only work as a solution if Jeb ____ have a right to clean air. c) Private bargaining is ____ likely to be successful the more parties involved because of ____.

a) Coase Theorum , internalize the externality b) private bargaining , does c) less , increased transaction costs

a) Taxing​ Dwight's hog production is an example of ____ b) Before the tax goes into​ effect, Dwight will produce ____ thousand hogs and sell them for a price of ​$____ per pound. c) The efficient tax is $____ per pound. d) After the tax goes into​ effect, Dwight will produce ____ thousand hogs and sell them for a price of $____ per pound. e) As a result of the​ tax, supply ____​, price ____​, and the negative externality ____.

a) Pigouvian taxation b) 5 , 5 c) (7.36-5) = 2.36 d) 3.79 , 6.21 e) decreases , increases , decreases

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. a) Which of the following is not a course of action that you could take to satisfy the​ neighbor's demands? b) 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 ____ c) If you were to recommend a​ command-and-control approach, a disadvantage would be that it ____

a) Private bargaining. b) command-and-control approach c) creates few incentives for innovation.

a) Draw the market demand curve for public goods on Panel​ (c) with the help of the following information given in the demand schedules that are drawn on Panel​ (a) and Panel​ (b): b) Why do public goods suffer from a​ free-rider problem?

a) add Emily and Ron up to get graph b) Because the consumer consumes more than their fair share. Because nonpayment does not prevent consumption. Because the consumer pays less than their fair share of its cost.

a) The tragedy of the commons results when​ ____. b) Which of the following best illustrates the tragedy of the​ commons?

a) common pool resources are overused. b) Overfishing in public waters.

The European Union banned certain pesticides for two years after studies found links between the use of these insecticides and a decline in the bee population. a) This outcome ____ socially efficient. b) draw and graph new supply c) This outcome ____ socially efficient.

a) is not b) below current supply c) is

Many cities tax or ban plastic grocery bags. The rationale for these taxes and bans is an externalities​ argument: plastic bags are an​ eyesore, take up space in​ landfills, and damage​ fish, birds, and other wildlife. a) this outcome ____ socially efficient b) this outcome ____ socially efficient

a) isn't a) is

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. a) In a free​ market, efficient firms will produce where ____ equals ____. b) ____ is maximized when firms produce at equilibrium in a free market. c) Which of the following is not an example of when the free market fails to generate maximum social​ surplus?

a) marginal cost , marginal revenue (MC=MR) b) total surplus c) private goods

You are the County Commissioner of Hazard County. Jeb brings a complaint before you that​ Dwight's hog farm is creating a terrible odor. a) The noxious odor from​ Dwight's hog farm is a ____ b) If this externality from​ Dwight's farm is left​ unaddressed, then Dwight will continue to ____ in regards to the social surplus optimum. c) Which method is not a recommended approach supported by externality theory to deal with this​ problem?

a) negative externality b) overproduce c) nonprofit intervention

a) Based on your conversations today and your economics​ experience, you conclude that when externalities are​ present, ____ b) Furthermore, you conclude that when there are negative externalities​ present, free markets ____, and when there are positive externalities​ present, free markets ____ c) graph

a) the free market outcome is not efficient b) produce too much, produce too little

They know that each time they raise the temperature in the apartment by 1​ degree, their heating bill goes up by ​$20. To maximize social​ benefit, they should raise the temperature by ____

find marginal benefit

Negative externalities cause a ____ shift of the supply curve and ____ in market quantity. Recognizing this deadweight loss ____ result in elimination of the externality.

leftward , decrease, will not

Why is it difficult for the market to deliver socially efficient quantities of goods like clean air or street​ lighting? These are examples of ____​;​ therefore, even if you ____ for the good you still ____.

public goods , do not pay , get to enjoy it

Positive externalities result in a ____ shift of the ____ curve. There ____ a deadweight loss with a positive externality.

rightward , demand , is

When bargaining to deal with negative externalities

the cost falls on the party with the most to gain.