question
The private cost of producing a good will differ from the social cost...
answer
when there is an externality such as acid rain generated by the production of electricity.
question
When will the private benefit from consuming a good differ from the social benefit?
answer
Both a and b.
question
What is market failure?
answer
A market failure is when the market fails to produce the efficient level of output.
question
When is market failure likely to arise?
answer
• Market failure is likely to arise when it is difficult to enforce property rights.
• Market failure is likely to arise when property rights are incomplete.
• Market failure is likely to arise when property rights are incomplete.
question
Your neighbor, John, has a barking dog.
Which of the following statements is true?
Which of the following statements is true?
answer
It can create negative externalities by disrupting your sleep and can also create positive externalities by discouraging intruders.
question
Every year at the beginning of flu season, many people, including the elderly, get a flu shot to reduce their chances of contracting the flu. One result is that people who do NOT get a flu shot are less likely to contract the flu.
Getting a flu shot results in what kind of externality?
Getting a flu shot results in what kind of externality?
answer
Positive.
question
Suppose electricity generates a negative externality in production. If so, then...
answer
the marginal social cost of electricity is greater than the marginal private cost.
question
The Coase Theorem states that...
answer
If transaction costs are low, private bargaining will result in an efficient solution to the problem of externalities.
question
The parties involved in an externality have an incentive to reach an efficient solution because...
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both parties become better off when an efficient solution is reached.
question
Which one of the following factors helps determine the marginal cost of reducing crime?
answer
resources devoted to courts
question
Which one of the following factors helps determine the marginal benefit of reducing crime?
answer
Personal injury from crime
question
Would it be economically efficient to reduce the amount of crime to zero? Briefly explain.
answer
No, it would not be efficient to completely reduce crime because the marginal cost of doing so likely exceeds the marginal benefit.
question
An individual producer or a consumer "internalizes an externality" when...
answer
in their own decisions they take into account the external effects of their actions.
question
A producer or a consumer will internalize an externality because...
answer
they have an incentive to consider the external effects of their actions due to taxes that are imposed or subsidies that they receive.
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