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Chapter 16 Externalities
Terms in this set (12)
The extra safety your neighbor might have because everyone else in the area has purchased burglar alarms is a(n):
external benefit. (correct answer)
Which activity generates a negative externality?
a) You buy a new car, then discover it needs a new transmission.
b)Your next-door neighbor mows the lawn at 5 A.M.
c)The only two coffee shops in town conspire to raise prices.
d)After Jane buys health insurance, she begins riding her motorcycle on the weekends.
Your next-door neighbor mows the lawn at 5 A.M - correct.
The marginal benefit of pollution emissions _____ as the quantity of pollution emissions _____.
a. decreases; increases
b. increases; increases
c. decreases; decreases
d. remains unchanged; goes up or down
decreases; increases - correct.
A market economy will produce _____ without any government regulation in the presence of an externality.
a) too little pollution
b)too much pollution
c)the socially optimal amount of pollution
d)the amount of pollution that maximizes total surplus
too much pollution - correct.
Suppose that the marginal cost from the production process itself (to the producer) is 0. The market-determined quantity of pollution is _____ tons.
d. 8 - correct.
In reality, the Coase theorem is unlikely to work because:
a)most people don't care if they are affected by an external cost.
b)externalities are rare and difficult to identify.
c)transaction costs are often high, making negotiations difficult.
d)prices will increase as a result of ending the externality.
transaction costs are often high, making negotiations difficult. (correct answer)
Licenses that are exchangeable and that enable the holder to pollute up to a specified amount during a given period are called:
a. emissions taxes.
b. environmental standards.
c. tradable emissions permits.
d. Pigouvian taxes.
tradable emissions permits - correct.
Which statement describes a positive externality?
a) Sam dug a pond, so he could go fishing, but the pond has contributed to an explosion of mosquitoes in your neighborhood.
b)Sam has dozens of cats, and they come into your yard to hunt the birds that come to your birdbath.
c)Sam buys a dilapidated house, renovates it, and increases the property values of all the houses in the neighborhood.
d)Liquid waste from Sam's chicken farm flows into a neighbor's well water.
Sam buys a dilapidated house, renovates it, and increases the property values of all the houses in the neighborhood - correct.
When the consumption of a good generates positive external benefits, the market tends to produce:
a)too much of the good, since there are positive external benefits from the consumption of the good.
b)too little of the good, since the market does not take into account the positive external benefits from the consumption of the good.
too little of the good, since the market does not take into account the positive external benefits from the consumption of the good. (correct answer)
A Pigouvian subsidy is:
a)designed to discourage activities generating externalities.
b)designed to encourage activities generating external benefits.
c)appropriate when the marginal social cost curve is above the marginal cost of production curve.
d)appropriate when the marginal social cost curve and the marginal social benefit curve intersect at an inefficient level.
designed to encourage activities generating external benefits - correct.
For most pollutants, the socially efficient level of pollution is zero.
False (correct answer)
Tony has a cell phone, and his service provider is Verizon. When he calls his wife, Meleah, who is also a Verizon customer, he does not have to pay for those minutes. The more Verizon customers there are in the market, the more benefit Tony receives. This is:
a. a network externality.
b. the Coase theorem.
c. a Pigouvian subsidy.
d. a technology spillover.
a network externality - correct.
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