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