CHAPTER 10

Question 1

The four types of goods

Answer 1

Private goods, common goods, club goods, public goods

Question 2

Common Resources

Answer 2

A good that is rival and also excludable

Question 3

Marginal social cost

Answer 3

All marginal costs, NO MATTER who pays them

Question 4

Marginal Private Benefit

Answer 4

The extra costs PAID BY THE SELLER from producing one extra unit

Question 5

Externality

Answer 5

Side affect of an activity that affects bystanders whose interest are NOT taken into account

Question 6

Negative Externalities

Answer 6

Side effect that HARMS BYSTANDERS: choices that impose cost on others

Question 7

Positive Externalities

Answer 7

A side effect that BENEFITS bystanders: Choices that generate benefits for others

Question 8

subsidy

Answer 8

A sum on money granted by the government to assist a business so price of a commodity may remain low or competitive

Question 9

Quota

Answer 9

A limit on the max quantity of a good or service that can be sold

Question 10

What is the difference between rival, nonrival, excludable, and non-excludable

Answer 10

Rival means when your use of something detracts from another’s ability to do so. EX- If I buy a cupcake, then there is one fewer available for you to buy and enjoy
Nonrival means when one person’s use does not subtract from another’s
EX- Just because I am watching something on my TV does not mean that you can’t watch the same show.
Excludable means when someone can be easily excluded from using something.
EX- I can exclude you from using my car by not giving you my key
Nonexcudable means when someone cannot be easily excluded from using something.
EX- you can not stop your neighbors from enjoying the fireworks you set off in your backyard.

Question 11

What impact does the change in cap and trade permits have on equilibrium price and quantity?

Answer 11

it reduces it

Question 12

What is the difference between a subsidy, quota, tax, and tradable permits?

Answer 12

a tax is designed to induce people to take account of the negative externality they cause
A subsidy is designed to induce people to take account the positive externalities they cause
A quota is a limit on the max quantity of a good or service that can be sold (corrects the overproduction issue)
A tradable permit is permits that can be traded with other companys to reduce the amount they use

Question 13

How do you find social benefit from a graph?

Answer 13

Social benefit= private benefit + external benefit

Question 14

What is the rational rule for society?

Answer 14

Produce more of an item as long as its marginal social benefit is at least as large as the marginal social cost.

Socially optimal quantity is located where marginal social benefit = marginal social cost

Question 15

What is an example of tax emission?

Answer 15

Taxes on green house gases

Question 16

What is the Coase Theorem? What are some applications of this theorem?

Answer 16

The Coase theorem is if bargaining is costless (easy to strike a deal) and property rights are clearly established and enforced, then externality problems can be solved by private bargains. Some applications for this theorem are:
-Private bargaining and corrective taxes or subsidies

Question 17

What are Marginal private benefit, marginal social benefit, marginal public benefit, and marginal external costs benefit?

Answer 17

Marginal private benefits are the extra enjoyment by the buyer from purchasing one extra unit (THIS IS THE BUYERS demand curve)
Marginal social benefits are all marginal benefits, NO MATTER who gets them

Question 18

To address a negative externality problem, a corrective tax should equal what?

Answer 18

It should be equal to the marginal external cost.

Question 19

How do you find the marginal external cost from a graph with marginal social cost and marginal private cost curves?

Answer 19

marginal private cost (supply) - marginal social cost

Question 20

How do you find the socially optimal price and quantity based on the graph of supply, demand, and marginal social benefit

Answer 20

socially optimal price is where overproduction starts and the rise is all the way to the marginal social cost
Demand IS the marginal social benefit
Quantity based is

Question 21

What is the free rider problem?

Answer 21

When someone can enjoy the benefits of a good WITHOUT BEARING THE COSTS

Free riders are bystanders enjoying positive externalities

Question 22

Given Marginal external cost and market price, how do you find the marginal social cost at the market equilibrium quantity?

Question 23

What are some examples of positive and negative externalities?

Answer 23

An example of a negative externality is your neighbor is playing loud music that is preventing you from sleeping.
A positive example is when you exercise your health insurance company ends up spending less medical care for you.