Exam 9: Externalities and Public Goods

If there are costly negative externalities associated with an economic activity and that activity is carried out until the (private)marginal benefit equals the (private)marginal cost,then ________.

In a market,social surplus is maximized when consumers' willingness to pay for a good equals the ________.

The following figure shows the market supply and demand of a good whose consumption entails a $2 positive external benefit per unit. -Refer to the figure above.________ units of this good will be traded in this market,at the price of ________.

Which of the following occurs when an externality is internalized?

To avoid inefficient exclusion,the government often provides for free ________ but ________ goods and services.

Which of the following is not an example of the tragedy of the commons?

Private goods are ________.

Scenario: A chemical factory is located upstream on a river. The factory dumps its liquid waste into the river. A microbrewery is located downstream on this river; it uses the river water in its production process and values the clean water. The chemical factory can filter its liquid waste before dumping it into the river, but it would be costly to the factory. The table below shows the profit to these two businesses under different circumstances. -Refer to scenario above.Suppose the chemical factory has the right to dump its waste into the river.What would the Coase Theorem suggest as the resolution of this negative externality conflict between these two firms?

The following figure shows the private cost and social cost of producing Good X. -Refer to the figure above.Social surplus will be maximized when the quantity supplied of Good X is ________.

________ are non-excludable but rival in consumption.

The view of a spectacular sunset on a beach is a(n)________.

Explanation: The following figure graphs the answer. -Refer to the figure above.If Good X is a private good,what is the market price when the total quantity demanded on the market is 3?

The free-rider problem exists for goods that are ________.

Which of the following is likely to have a free-rider problem?

The cost of making an economic exchange is called a(n)________ cost.

Scenario: Currently, major corn-growing states, such as Iowa, use large amounts of nitrogen-based fertilizers. Many of Iowa's corn-growing regions are characterized by karst topography (water erodes the limestone bedrock and forms sinkholes, caves, and underground streams). In karst landscapes, runoff from corn fields contains high levels of nitrogen in the form of nitrates, which can pollute private and municipal water wells. Suppose the demand and supply for corn are: Corn Demand: Qᴰ = 70 - 5p, Corn Supply: Qˢ = 10p - 5, where quantity is millions of bushels of corn and price is dollars per bushel. The marginal private benefit of corn and the marginal private cost of corn production can be derived by rewriting demand and supply with price as a function of quantity: Inverse Demand: p = 14 - 0.2Q Marginal Private Benefit: MPB = 14 - 0.2Q Inverse Supply: p = 0.1Q + 0.5 Marginal Private Cost: MPC = 0.1Q + 0.5 Suppose the marginal external cost (MEC) of nitrogen fertilizer use in corn growing is a constant $1.50 per bushel, so MEC = 1.5. The marginal social cost (MSC) is: MSC = MPC + MEC = 0.1Q + 0.5 + 1.5 MSC = 0.1Q + 2 The figure below shows these marginal benefits and marginal costs. -Refer to the scenario above.The social optimum occurs at a price of ________ per bushel and a quantity of ________ bushels.

Suppose the federal government implements a system of tradeable permits that lets power plants buy and sell the right to emit sulfur dioxide.This is an example of ________.

A ________ occurs when an economic activity has a spillover cost that does not affect those directly engaged in the activity.

If a ton of newspaper costs $350 to produce and in the process causes $10 worth of pollution damage to the environment,then ________.

Classify each of the following goods on the basis of the characteristics of excludability and rivalry in consumption,giving appropriate reasons. a)A lighthouse b)A pair of shoes c)A paid Web site d)A congested non-toll road