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In performing its allocation function, government not only produces public goods:
But also corrects for market failures called externalities, or spillovers
The three options available to government in order to correct spillover benefits or the underallocation of resources are:
Government provision of public goods/Subsidies to producers/Subsidies to buyers
Government intervention may be needed to achieve:
Economic efficiency when externalities affect large3 numbers of people or when community interests are at stake
A ______ to a producer is a payment from the government to decrease the producers' cost in order to encourage more output of a product beneficial to society.
If a third party to a market transaction is experiencing an uncompensated cost, then the transaction results in a market failure known as a _______ or ________.
Spillover cost/negative externality
The _______ curve for positive externalities reflects only the direct private benefit to the individuals who consume the product.
The marginal cost to firms and hence to society _______ as pollution is reduced more and more.
Suppose that the technology of pollution-control equipment improves noticeably. One would expect:
The optimal quantity level of abatement to rise/The cost of pollution abatement to fall/Society's marginal cost curve to shift rightward
_______ intervention may be needed to achieve economic efficiency when positive or negative ______ affect large numbers of people or when community interests are at stake.
What are examples of markets that are more likely to experience positive externalities?
A cost or a benefit accruing to an individual or group, a third party, that is external to a market transaction is known as:
The ______ curve for positive externalities reflects only the direct private benefit to the individuals who consume the product.
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