Exam 9: Externalities and Public Goods

The free-rider problem may arise in the case of ________.

Scenario: The production of a good creates a negative externality. The following figure shows the market for this good. -Refer to the scenario above.To restore the socially optimal outcome in this market,the government should ________.

Scenario: Vacant houses, foreclosed or abandoned, are typically boarded up with plywood that many people consider unsightly and likely to invite vandalism. An alternative is clear plastic (polycarbonate) panels. The figure below shows the demand and the supply of polycarbonate panels used for boarding up houses in a hypothetical town. To answer some of the questions below, it will be useful to find the equations of the three lines in the figure. -Refer to the scenario above.If the private marginal benefits as well as external benefits are taken into account,then ________ panels will be bought at ________ per panel.Use the equations of the demand and the supply curves.

Jack wants to buy a new house.But the surge in housing demand over the past few months has led to a sharp increase in housing prices,making it impossible for him to buy one on his current income.This is an example of a ________.

An environmental awareness program was launched in a certain community,and all residents in the community were asked to contribute to its functioning.After a month,the program had to be discontinued due to a lack of funds.Why did the program not receive sufficient funds? Explain your answer.

Electricity generated from coal-burning plants is relatively cheap,but the plants contribute to global warming due to their high level CO₂ emissions.The negotiations between developed and developing countries to cut back on coal electricity has failed in the past.This is an example of the ________.

Which of the following is an example of a club good?

In practice,assessing the benefits and costs of a proposed government program is difficult because ________.

Scenario: Frank and Nancy live in a small community on Cape Cod in Massachusetts. For simplicity, assume Frank and Nancy are the only individuals in the community. Each has a demand for mosquito control, given by the following table, equations, and figure. Assume that mosquito control is a public good. Mosquito control is provided at a constant marginal cost of $120. Frank's demand: qFᵣₐnk = 200 - p, Frank's inverse demand = (Marginal Private Benefit): p = 200 - q, Nancy's demand: qNₐncᵧ = 100 - p, Nancy's inverse demand = (Marginal Private Benefit): p = 100 - q, -Refer to the scenario above.Now suppose that mosquito control will be publicly provided.What is the market equilibrium quantity of mosquito control services provided? Explain your answer graphically.

Scenario: The following excerpt is from Timothy R. Hylan, Maureen J. Lage, and Michael Treglia, "The Coase Theorem, Free Agency, and Major League Baseball: A Panel Study of Pitcher Mobility from 1961 to 1992" ( Southern Economic Journal 62, no. 4 (1996): 1029-42). Many economists and legal scholars interpret the [Coase] theorem as containing two propositions. The first is that, in the absence of transactions costs and wealth effects, parties will bargain to an efficient outcome. The second holds that the same outcome will be achieved regardless of the distribution of property rights. … Major League Baseball [MLB] presents a natural experiment consisting of an industry in which there has been an explicit change in the assignment of property rights. Beginning in 1879, … a player could negotiate salary only with the team that owned his contract and the team could trade or sell the player as management saw fit. In 1976 this system was replaced by the institution of free agency whereby a player with at least six years of Major League experience acquired the right to sell his services to prospective buyers…. The empirical analysis shows that after the introduction of free agency, the pitchers with greater longevity in the major leagues are less likely to move relative to their mobility in the pre-free agency period. The results also indicate that, in general, better pitchers are less likely to move and that pitchers playing on teams with higher winning percentages or in large market cities were less likely to move. -Refer to the scenario above.If the Coase Theorem holds for baseball playing services in MLB,which of the following should be expected after the introduction of free agency?

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

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.The socially optimal quantity of this good should be ________ units.

________ are non-excludable in consumption.

Which of the following is true if the production of a good gives rise to a positive externality?

Scenario: The following excerpt is from Timothy R. Hylan, Maureen J. Lage, and Michael Treglia, "The Coase Theorem, Free Agency, and Major League Baseball: A Panel Study of Pitcher Mobility from 1961 to 1992" ( Southern Economic Journal 62, no. 4 (1996): 1029-42). Many economists and legal scholars interpret the [Coase] theorem as containing two propositions. The first is that, in the absence of transactions costs and wealth effects, parties will bargain to an efficient outcome. The second holds that the same outcome will be achieved regardless of the distribution of property rights. … Major League Baseball [MLB] presents a natural experiment consisting of an industry in which there has been an explicit change in the assignment of property rights. Beginning in 1879, … a player could negotiate salary only with the team that owned his contract and the team could trade or sell the player as management saw fit. In 1976 this system was replaced by the institution of free agency whereby a player with at least six years of Major League experience acquired the right to sell his services to prospective buyers…. The empirical analysis shows that after the introduction of free agency, the pitchers with greater longevity in the major leagues are less likely to move relative to their mobility in the pre-free agency period. The results also indicate that, in general, better pitchers are less likely to move and that pitchers playing on teams with higher winning percentages or in large market cities were less likely to move. -Refer to the scenario above.What does the empirical analysis by these researchers imply?

An economic agent ________ when he accounts for the full costs and benefits of his actions.

A Pigouvian subsidy leads to a socially efficient outcome by ________.

Which of the following is the best description of the Coase Theorem?

An online newspaper is an example of a(n)________.

Most of the goods produced in an economy are ________.