ECON 1B03 Chapter Notes - Chapter 10: Pigovian Tax, Deadweight Loss, Social Cost

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Externality the uncompensated impact of one person"s actions on the well-being of. Externalities are created when a market outcome affects individuals other than the. They cause welfare in a market to depend on more than just the value to the buyers (10) externalities a bystander buyers and sellers and the cost to the sellers. Positive externality a benefit that is enjoyed but society, but society does not have to pay to receive it; markets produce less than is socially desirable (qoptimum > qmarket) Negative externality cost suffered by society, and the instigator does not have to resources inefficiently pay for the damage he causes; markets produce more than is socially desirable (qoptimum < qmarket) The exhaust from automobiles is a negative externality because it creates smog that others have to inhale; the federal government taxes gasoline to reduce the amount that people drive.

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home / study / business / economics / questions and answers / Question 1 Which Of The Following Is The Best Example ... Question: Question 1 Which of the following is the best exam... Bookmark Question 1 Which of the following is the best example of a positive externality? A car company lays off 10,000 employees in order to cut costs. An individual drives a large SUV, which increases the amount of greenhouse gases in the atmosphere. An individual smokes in a restaurant, which bothers other patrons. A child is vaccinated against a disease, which reduces the probability that other children will catch the disease. 4 points Question 2 As a result of a negative externality, the market equilibrium quantity is too ______ compared to the socially optimal quantity. As a result of a positive externality, the market equilibrium quantity is too ______ compared to the socially optimal quantity. high; high. low; low. high; low. low; high. 4 points Question 3 Based on the diagram below, the deadweight loss area associated with the market equilibrium equals: Week06_graph1.jpg $10 $50 $80 $1,000 4 points Question 4 A firm's accounting profit is given by total revenue: less implicit costs. less explicit costs. less economic profit. less implicit and explicit costs. 4 points Question 5 Suppose an activity has a private cost equal to $30 and a private benefit equal to $30. The associated social cost equals $35 and the social benefit equals $30. Which of the following statements is true about this activity? There is a negative externality associated with this activity but not a positive externality. There is a positive externality associated with this activity but not a negative externality. There is both a positive and a negative externality associated with this activity. There is neither a positive nor a negative externality associated with this activity. 4 points Question 6 The Coase Theorem implies that: the efficient level of an externality is generally zero. private individuals living in market economies should not be concerned with externalities. government intervention is not always needed to arrive at the efficient level of an externality. government laws are unnecessary. 4 points Question 7 An industry in which a small number of large firms sell products that are either close or perfect substitutes is: perfectly competitive. monopolistically competitive. an oligopoly. a monopoly. 4 points Question 8 When a negative externality is present in a market: a tax can increase the level of economic surplus. the social benefits are greater than the private benefits. there is generally too little of the good produced by private markets. the government should ensure that there are zero external costs associated in all markets. 4 points Question 9 In the presence of a positive externality, the government can arrive at the socially optimal output level by: paying producers a subsidy equal to the amount of social benefits associated with the activity. charging producers a tax equal to the amount of social costs associated with the activity. paying producers a subsidy equal to the amount of external benefits associated with the activity. charging producers a tax equal to the amount of external costs associated with the activity. 4 points Question 10 The tragedy of the commons is that: too few individuals have access to high quality healthcare. common people overconsume public goods. the quality of life for lower income people is generally lower than that of higher income people. a resource with no price tends to be exploited until its marginal benefit falls to zero. 4 points Question 11 One potential remedy to the tragedy of the commons is to: never allow a single individual to consume more than one percent of the common resource. criminalize the usage of common resources. allow individuals to use a common resource as long as they receive some benefit from doing so. place a common resource under private ownership. 4 points Question 12 As a result of a positional externality: contestants have a tendency to invest in a series of mutually offsetting investments in performance enhancement. there is generally an underinvestment in performance enhancement. the market price of performance enhancement materials is too high. the quality of performance in competitive situations is lower than the socially optimal level. 4 points Question 13 Which of the following statements is true regarding health insurance? Economics shows that all health related procedures should be free to individuals because the health of an individual is priceless. Total economic surplus would be larger if individuals faced an incentive to only use services when the benefit exceeds their costs. Health maintenance organizations provide an incentive for doctors to prescribe expensive nonessential services. First dollar insurance coverage has likely had very little to do with rising healthcare expenditures since World War II. 4 points Question 14 A strategy that yields a higher payoff no matter what the other players in the game choose is known as a: prisoner's strategy. dominated strategy. dominant strategy. Nash strategy.

1. In the formula for Bayes theorem if the w-probability is greater than the zero than the a-probably is less than the b-probability

true or false

2. posted offer markets with at least two sellers will generate prices that remain a little above prices from double auction markets

3. running the price clock in a dutch auction once will produce higher observed prices compared to running the clock twice

4. if losers pay winners in a sealed bid auction then they will eventually be willing to bid up to 50 percent more than the winning prize

5. with only one seller in a posted offer market prices willl tend to move upward toward the monopoly price

6. adjusting the concentration of sweet versus sour enabled rats to have a large negative income effect for sour water

7. a sales tax on large luxury boats will impact the buyers more than the sellers of these boats causing the buyers to pay more than half the cost of the sales tax

8. if each seller knew all of the sellers unit costs and the buyers knew all of the buyers unit values a buyer or seller would be able to calculate the competitive equilibrium price before an experiment began

9. suppose your income taxes rise only on incomes over 250,000 annualkly then your after tax income will be unafftected if your annual income is 100,000

those first nine are true and false

these are short answer

1. explain the logical steps to explain how negative price effects can reult from the negative income effects

2.what happens to observed prices inposted offer and double auction markets as the number of sellers drops to 2. what happens when these two markets sellers drops to 1

3. in a looser pay winner auction. why do bidders change their minds toward wanting to bid well above the value of the price even though they refused to do so at the beginning. how does this experiment explain why george bush and citizens changed their minds about preemptive attack on iraq. how do these experiments explain why england wanted to tax trade in the american colonies which led to rebellion and the formation of the us.

if you could help with any of these thatd be great

viridianweasel299

1. In the formula for Bayes theorem if the w-probability is greater than the zero than the a-probably is less than the b-probability

2. posted offer markets with at least two sellers will generate prices that remain a little above prices from double auction markets

3. running the price clock in a dutch auction once will produce higher observed prices compared to running the clock twice

4. if losers pay winners in a sealed bid auction then they will eventually be willing to bid up to 75 percent more than the winning prize

5. with only one seller in a posted offer market prices willl tend to move upward toward the monopoly price

6. adjusting the concentration of sweet versus sour enabled rats to have a large negative income effect for sour water

7. a sales tax on large luxury boats will impact the buyers more than the sellers of these boats causing the buyers to pay more than half the cost of the sales tax

9. suppose your income taxes rise only on incomes over 250,000 annualkly then your after tax income will be unafftected if your annual income is 100,000

Short Essay Questions

1. Recall the loser pay winner auction experiment done in class.

a. Discuss how these experiments explain why the bidder changed their minds toward wanting to bid well above the value of the prize, even though they refused to do so at the beginning

b. Discuss how the experiment explains why George Bush and many citizens changed their minds about a

ECON 1B03 Chapter Notes - Chapter 10: Pigovian Tax, Deadweight Loss, Social Cost

ECON 1B03 Full Course Notes

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