ECO102H1 Lecture Notes - Coase Theorem, Allocative Efficiency, Demand Curve

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14 Apr 2014

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Allocative efficiency if consumption externality - divergence of social benefit and private benefit (demand curve) Production: divergence of social marginal cost and private marginal cost (supply curve) Social value = private value - value of externality. Social demand curve = private demand curve - value of externality. Social demand curve will fall beneath the private demand curve by the amount of the negative value of externality. Negative consumption externality: per bottle (impaired driving or similar costs) At qc, social value< private cost (allocative inefficiency) At qs, social value = private cost (allocative efficiency) To right of qs, social value < private cost. Government intervention: impose tax of per bottle, to be paid by buyer. Remember: incidence of tax does not depend upon whether it is imposed on buyer or seller. Note: buyer pays ps + 5, not ps. P (paid by seller) = ps < pc. (burden of the tax is shared by sellers and buyers)

Related Questions

Question 1

An externality

		enhances market efficiency.
		is a private cost or benefit that results from the production or consumption of a good or service that is external to a market.
		is a benefit or cost that affects someone who is not directly involved in the production or consumption of a good or service.
		refers to production or consumption that occurs outdoors.

5 points

Question 2

Externalities can be produced by:

		the high price of goods and services
		individuals; firms
		market prices; market incomes
		oceans; streams

5 points

Question 3

When an external cost exists that is NOT taken into account in the production of a product,

		the level of output is too high, and the supply curve should shift to the left to account for the externality.
		the price of the product is too high, and production should be expanded to lower the price.
		the level of output is optimal, and there should be no change in the supply curve.
		the level of output is too low, and the supply curve should shift to the right to account for the externality.

5 points

Question 4

Which of the following is correct?

		MSC = MPC - MD
		MPC = MSC + MD
		MSC = MPC + MD
		MD = MSC + MPC

5 points

Question 5

If external costs (costs of cleaning up) are included and added to a firm's private costs, then

		the demand curve will shift to the left.
		the supply curve will shift to the right.
		the demand curve will shift to the right
		the supply curve will shift to the left.

5 points

Question 6

The Coase Theorem states that

		government intervention is always needed if externalities are present.
		assigning property rights is the only thing the government should do in a market economy.
		if transaction costs are low, private bargaining will result in an efficient solution to the problem of externalities.
		a free-market equilibrium is the best solution to address externalities.

5 points

Question 7

Buffalo in the United States almost became extinct while cattle, an animal that provides similar products, never have been close to extinction. The difference is due to

		the use of private property rights on cattle and common property rights on buffalo.
		the greater marginal value of a head of cattle relative to buffalo, leading to over-hunting of buffalo.
		cattle existing in Europe also while buffalo were specific to North America.
		the greater marginal value of a buffalo relative to a steer, leading to the overharvesting of buffalo.

5 points

Question 8

In theory, the Emissions Fee would

		cause firms to generate less pollution than their allowed limits.
		raise the production costs of all firms.
		cause firms to generate more pollution than their allowed limits.
		lower the production costs of all firms.

5 points

Question 9

A cap-and-trade policy

		has a set number of permits.
		allows polluters to trade permits.
		caps the total level of pollution allowed.
		all of the above.

Question 10

A Pigouvian tax corrects for

		market congestion.
		market losses.
		inefficient sales.
		low market prices.

harlequingoldfish8

1. Another term for an investment good is

A) interest
B) savings
C) capital
D) rent
E) production

2. The opportunity cost of producing capital is

A) decreased current production of consumption goods
B) increased future production of consumption goods
C) the amount of roundabout production
D) abundant capital accumulation
E) the decreased amount of future capital available

A marginal revenue product curve shows the change in

A) total revenue caused by a one-unit change in output, other things constant
B) total revenue caused by a one-unit change in an input, other things constant
C) total product caused by a one-unit change in output, other things constant
D) total product caused by a one-unit change in an input, other things constant
E) total revenue product caused by a one-unit change in the price of the output, other things constant

Marginal revenue product for a price taker equals

A) MP x P
B) MP/MRC
C) MP x MRC
D) MRC/MP
E) MP/P

Interest provides an incentive for households to defer current consumption

A) True
B) False

An increase in the interest rate tends to increase the demand for loanable funds.

A) True
B) False

Generally, the longer the maturity on a bond, the lower the interest rate.

A) True
B) False

Corporations can obtain investment funds by

A) buying government securities
B) selling stock
C) increasing dividends
D) purchasing more capital
E) buying back stock

Vertical integration has no effect on the internal organization of a firm; it only affects the outside markets.

A) True
B) False

10.

One reason a computer manufacturer may produce its own microchips rather than buy them is that it can maintain control over production quality.

A) True
B) False

11.

When a firm is no longer able to reduce its long-run average cost by expanding, it has achieved its minimum efficient scale of production.

A) True
B) False

12.

If a firm experiences economies of scope, per unit production costs fall as it produces more than one kind of product.

A) True
B) False

13.

Publications such as Consumer Reports magazine

A) increase the optimal amount of information gathered
B) reduce the optimal amount of information gathered
C) reduce the amount of common knowledge
D) raise the marginal benefit of information curve
E) make consumers perfectly informed

14.

The winner's curse is more likely when the value of a good at auction is uncertain.

A) True
B) False

15.

When a seller knows more about the condition of a used car than the buyer does, the information is said to be asymmetric.

A) True
B) False

16.

The three kinds of government regulation designed to alter or control firm behavior are:

A) Antitrust policy, lobbying, and social regulation
B) Economic regulation, antitrust policy, and lobbying
C) Social regulation, lobbying, economic regulation
D) Social regulation, economic regulation, and antitrust policy
E) Social regulation, antitrust policy, fiscal policy

17.

A monopoly is likely to charge a higher price than an otherwise similar competitive industry would be.

A) True
B) False

18.

Public policy can help achieve more efficient use of an economy's resources by eliminating all monopolies.

A) True
B) False

19.

Government attempts to prohibit monopolization of a market are known as

A) antitrust regulation
B) economic regulation
C) social regulation
D) anticompetitive regulation
E) Herfindahl regulation

20.

If the electric company is allowed by regulators to earn only a normal profit, it will produce at the point where

A) MR = MC
B) P = MC
C) MC = quantity demanded
D) P = AC
E) MR = AC

apricotworm832

""Please give answer with simple explaination""""Please give answer with simple explaination""""Please give answer with simple explaination""

1. In every society, choices must be made because resources are

a. Infinite, but economic want are finite

b. Finite, but economic wants are insatiable

c. Unlimited, but economic wants limited

d. Limited, and so are economic wants

2. Which question is an illustration of a microeconomic question

a. Is the quantity of wine purchased in one year dependent upon the price of wine?

b. Does government spending influence the total level of employment in the economy?

c. Is the purchasing power of the dollar higher or lower today than it was in 2000?

d. Is capitalism superior to socialism?

3. The purpose of the ceteris paribus assumption used in economic analysis is to :

a. Avoid making normative statements

b. A void the post hoc, ergo propter hoc fallacy

c. Make sure that all relevant factors are considered

d. Restrict the analysis to effect of a single economic factor

4. The profit motive is

a. Ineffective at producing consumer goods

b. Inherently beneficial to society if left alone to pursue its own self interests

c. Effective at producing goods when consumption is non-rival or non-excludable

d. Is often at odds with societies interests

5. In the system of central planning

a. There is repaid of the infrastructure

b. There is severe inflation in wholesale and retail prices

c. Economic growth leads to widespread unemployment among workers

d. The outputs of some industries become inputs for other industries

6. The market system communicates changes in supply and demand and elicits appropriate responses from businesses and resource suppliers. This is known as the:

a. Rationing function of prices

b. Guiding function of prices

c. Monetary function of prices

d. Circular flow of income

7. An increase in the quantity of automobiles supplied would be caused by which be caused by which of the following?

a. An increase in the demand for automobiles

b. A decrease in the demand for automobiles

c. Higher prices for steel

d. Higher prices for gasoline

8. All of the following would cause an increase in the demand for private airplanes at a given price, except a:

a. Decrease in interest rates

b. Increase in consumer incomes

c. Decrease in taxes on luxury goods

d. Decrease in the costs of constructing private airplanes

9. In modern economies of mass production,

a. Biological need motivates most consumption

b. The intrinsic value of goods and services motivates mass consumption

c. Affluence makes relative depravation meaningless

d. Invidious comparison motivates much of mass consumption

10. a more equal distribution of income in the United States would result in greater total consumer satisfaction. This statement is based on the concept that:

a. Income inequality is unfair

b. Income inequality is undemocratic

c. Income equality stimulates efficiency

d. Incomes are subject to diminishing marginal utility

11. While command systems suffer from incentive problems, market economies

a. Have no incentive problems

b. Suffer from incentive problems of their own

c. Tend to resolve all problems by their own dynamics

d. Have problems to the degree that there is government interference.

12. What economic concepts can be used to explain the reason that a new car purchased by a consumer and driven off a new car lot decrease in value almost immediately compared with the value of the same make and model of a car still on the new car lot?

a. Positive and negative externalities

b. Liability rules and lawsuits

c. The Coase theorem and moral hazard

d. Asymmetric information and adverse selection

13. Consider a situation where the U.S. Congress wants to place a special tax on private airplanes to increase tax revenue. This tax would only be effective in raising new tax revenues if the price elasticity of:

a. Supply is elastic

b. Supply is inelastic

c. Demand is elastic

d. Demand is inelastic

14. Under what circumstances would you expect economic profits to be zero in a particular industry?

a. During a recession

b. When there is little competition in the industry

c. When the industry is neither expanding nor contracting

d. When the demand for the product being produced is increasing

16. If economic resources are perfectly interchangeable between the two products shown on a production possibilities graph:

a. The economy will always be at full employment

b. More of one product can be produced without producing less fo the other product

c. The production possibilities curve would be straight line

d. The two products are of equal value to the economy

17. Opportunity cost is best defined as:

a. Marginal cost minis marginal benefit

b. The time spent on an economic activity

c. The value of the best foregone alternative

d. The money cost of an economic decision

18. All of the following would affect the position of a country production possibilities curve expect:

a. The quality of labor

b. The level of employment

c. The amount of the capital stock

d. Technological progress

19. The post hoc, ergo propter hoc fallacy consists of:

a. Using an example to a different point

b. Inferring causality from chronological sequence

c. Jumping to conclusions from an inadequate number of cases

d. Arguing for or against the person rather than the position being supported

20. Which is one of the five fundamental question that needs to be answered by economic system

a. What is the rate of unemployment?

b. Who will be the richest person in the economy?

c. What goods and services will be produced?

d. Why are the prices for goods and services so high?

21. The institution of private property is sustained over time by:

a. Competition

b. Bequests

c. Self-interest

d. Free enterprise

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ECO102H1 Lecture Notes - Coase Theorem, Allocative Efficiency, Demand Curve

ECO102H1 Full Course Notes

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