Exam 17: Market Failure: Externalities, Public Goods, and Asymmetric Information

Exhibit 30-1 ​ Refer to Exhibit 30-1. This graph represents a negative externality situation. Given this, which of the two curves, X or Y, represents marginal social costs and why?

A nonexcludable public good is characterized by nonrivalry in

A side effect of an action that adversely affects the well-being of others is called a

Exhibit 30-2 ​ Refer to Exhibit 30-2. If the exhibit represents a positive externality situation, the social benefit of expanding output from Q₁ to Q₂ is the area of

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 the government imposes an emission tax of $300 per ton of pollution.  As a result of this tax, Firm A would _________________, firm B would ____________________ and firm C would __________________.

The primary difference between private goods and public goods is that

A negative externality exists and government wants to impose a per-unit tax in order to bring about the socially optimal output. To accomplish its objective, government must set the tax equal to marginal

There are two divorce laws, A and B. Under A, it takes only one person to agree to a divorce and the divorce is granted. Under B, it takes two persons to agree to a divorce before it is granted. According to Coase,

According to the Coase theorem, externalities

A positive externality is internalized when

The disagreement between A. C. Pigou and Ronald Coase arose because

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

Which of the following situations is clearly and unambiguously descriptive of a positive externality?

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

Suppose that there are two goods, X and Y, that are competing for dominance in a market with network externalities.  Furthermore, suppose that the market has chosen good X even though it is inferior to good Y and that the net benefits of switching from X to Y are $20 while the costs of switching are $30.  If the market stays with good X, then __________________ has occurred.  If the costs of switching were to fall to $15 and the market still stays with good X then ___________________________.

Exhibit 30-5 ​ Refer to Exhibit 30-5. If a positive externality exists, then curve __________ represents the marginal social benefit curve and the area __________ represents the market failure.

Sometimes, when goods are produced and consumed, side effects are felt by people who are not directly involved in the market exchanges. In general, these side effects are called

Under a tradable pollution permits system (cap and trade), government _____________ the amount of pollution, ___________________ what the price to pollute will be.

When negative externalities are connected with the production of a good,

A good is nonrivalrous in consumption if