Exam 30: Market Failure Externalities Public Goods and Asymmetric Information

Suppose a particular production process results in a large amount of pollution and the government decides to impose a tax to correct for this externality, such that the socially optimal output will be produced. The tax will have the effect of shifting the

The Coase theorem states that

Explain why the socially optimal output is not always the same as the market output.

A tax may be used as a corrective device in the case of a negative externality because it will __________ marginal private costs and __________ supply.

Externalities can be internalized through voluntary agreements as long as

If a negative externality exists, then there is a __________ when society produces the market output instead of the socially optimal output. This exists because the __________ to sellers and third parties are __________ the __________ derived by buyers.

Exhibit 30-2 ​ -Refer to Exhibit 30-2. If Exhibit 30-2 exhibits a positive externality situation, then what is Q₂?

Suppose the production of a good results in positive externalities. If output occurs at the intersection of the supply curve and the marginal social benefits curve, then

Identify two activities that generate positive externalities and two activities that generate negative externalities. Be sure to explain why each activity you identified generates the type of externality you stated.

Exhibit 30-5 ​ -Refer to Exhibit 30-5. If a positive externality exists, then the external benefits associated with the positive externality equal

Exhibit 30-4 ​ -Refer to Exhibit 30-4. If a negative externality exists, then the market ____________output by the amount ________________.

In the case of a positive externality, the entire demand curve lies

If Jamal successfully and completely internalizes a negative externality, it follows that

A positive externality exists when

When marginal private benefit is equal to marginal private cost,

The buyer of a good has less information than the seller of the good. This is a case of

Which of the following statements is true?

Negative externalities arising from the production of a good

Insurance deductibles __________ the __________ problem of insurance coverage.

Exhibit 30-3 -Refer to Exhibit 30-3. Suppose that Firms A, B, and C are the only polluters in the state and that each emits 4 tons of pollution into the atmosphere. To cut the level of pollution in half the government issues two transferable pollution permits to each firm (a cap and trade policy). What is the total cost savings to society of decreasing pollution to half its present level if firm C buys one pollution permit from firm A and one pollution permit from firm B compared to if there were a government mandate for each firm to cut pollution by one-half?