chapter 9 PS
Terms in this set (23)
________ are highly excludable but non-rival in consumption.
Which of the following occurs if the production of a good gives rise to positive externalities?
The marginal social benefit curve lies to the right of the demand curve.
The government should provide one more unit of a public good if ________.
the marginal benefits exceed the marginal costs of providing the next unit
If the production of a good gives rise to negative externalities, ________.
the social cost of production exceeds the private cost of production
A free rider is a person who ________.
receives the benefit of a good without paying for it
A Pigouvian tax is a tax designed to ________.
induce producers generating negative externalities to reduce production
Which of the following leads to the tragedy of the commons?
The use of common pool resources above the socially optimal level
An externality occurs when ________.
an economic activity affects third parties not engaged in the activity
A street light is a ________.
Smoking increases the risk of lung infections not only for active smokers but also for other people inhaling the smoke passively. Which of the following will help in reducing smoking?
A corrective tax
If positive externalities are present in a free market, ________ at any output level.
the marginal social benefit of production exceeds marginal private benefit
If the production of a good involves negative externalities, ________.
the optimal price of the good is higher than the price charged in the market
Deadweight loss refers to the loss in ________.
total surplus due to a market distortion such as an externality
Pay-As-You-Throw programs that charge people a small price for each bag of trash they throw out are ________
likely to increase recycling and reuse
An economic agent ________ when he accounts for the full costs and benefits of his actions.
internalizes an externality
The production of steel in a factory generates a negative externality. A per-unit tax on the factory that equals ________ of steel production will internalize the externality entirely.
the marginal external cost
Which of the following activities can give rise to a positive externality?
Getting a flu vaccination
If a good is excludable,________.
people can be prevented from using the good
Mary plants a number of trees in her garden every week which keeps her neighborhood cool. Which of the following is true?
There is an external benefit in planting a tree.
Which of the following is true?
The market demand curve for a public good is arrived at by the vertical sum of individual demand curves.
Why does the presence of negative externalities in the production of a good lead to an overproduction of the good?
If the production of a good generates negative externalities, the marginal social cost of producing the good exceeds the marginal private cost of producing the good. However, the producers of the good do not take this external cost into account and continue producing as long as the marginal private benefit from production exceeds the marginal private cost. This leads to an overproduction of the good.
Why are public goods non-rival in consumption? Explain with a real world example.
A public good like national defense is non-rival in consumption. This is because the enjoyment of national security by a citizen of a country does not reduce the level of security enjoyed by others.
If the consumption of a good involves a positive externality, what can be done to encourage the consumers to consume more of the good?
If the consumption of a good involves a positive externality, the marginal social benefit derived from the good exceeds the marginal private benefit. However, the consumers of the good do not take this additional benefit into consideration and continue consuming only as long as the marginal private benefit from consumption exceeds the marginal private cost. In this case, if the consumption of the good is subsidized, the marginal private benefit from consumption will increase causing the consumers to consume more.
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