ECON 1000 Lecture Notes - Lecture 14: Cost, Externality, Social Cost
ECON 1000 Full Course Notes
Document Summary
Get access
Related Questions
Question 1
An externality
Ā | Ā |
enhances market efficiency. |
Ā | Ā |
is a private cost or benefit that results from the production or consumption of a good or service that is external to a market. |
Ā | Ā |
is a benefit or cost that affects someone who is not directly involved in the production or consumption of a good or service. |
Ā | Ā |
refers to production or consumption that occurs outdoors. |
5 points
Question 2
Externalities can be produced by:
Ā | Ā |
the high price of goods and services |
Ā | Ā |
individuals; firms |
Ā | Ā |
market prices; market incomes |
Ā | Ā |
oceans; streams |
5 points
Question 3
When an external cost exists that is NOT taken into account in the production of a product,
Ā | Ā |
the level of output is too high, and the supply curve should shift to the left to account for the externality. |
Ā | Ā |
the price of the product is too high, and production should be expanded to lower the price. |
Ā | Ā |
the level of output is optimal, and there should be no change in the supply curve. |
Ā | Ā |
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?
Ā | Ā |
MSC = MPC - MD |
Ā | Ā |
MPC = MSC + MD |
Ā | Ā |
MSC = MPC + MD |
Ā | Ā |
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
Ā | Ā |
the demand curve will shift to the left. |
Ā | Ā |
the supply curve will shift to the right. |
Ā | Ā |
the demand curve will shift to the right |
Ā | Ā |
the supply curve will shift to the left. |
5 points
Question 6
The Coase Theorem states that
Ā | Ā |
government intervention is always needed if externalities are present. |
Ā | Ā |
assigning property rights is the only thing the government should do in a market economy. |
Ā | Ā |
if transaction costs are low, private bargaining will result in an efficient solution to the problem of externalities. |
Ā | Ā |
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
Ā | Ā |
the use of private property rights on cattle and common property rights on buffalo. |
Ā | Ā |
the greater marginal value of a head of cattle relative to buffalo, leading to over-hunting of buffalo. |
Ā | Ā |
cattle existing in Europe also while buffalo were specific to North America. |
Ā | Ā |
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
Ā | Ā |
cause firms to generate less pollution than their allowed limits. |
Ā | Ā |
raise the production costs of all firms. |
Ā | Ā |
cause firms to generate more pollution than their allowed limits. |
Ā | Ā |
lower the production costs of all firms. |
5 points
Question 9
A cap-and-trade policy
Ā | Ā |
has a set number of permits. |
Ā | Ā |
allows polluters to trade permits. |
Ā | Ā |
caps the total level of pollution allowed. |
Ā | Ā |
all of the above. |
Question 10
A Pigouvian tax corrects for
Ā | Ā |
market congestion. |
Ā | Ā |
market losses. |
Ā | Ā |
inefficient sales. |
Ā | Ā |
low market prices. |