Public Goods And Externalities

Question 1

What are externalities

Answer 1

A cost that befalls a party not involved in a transaction

Question 2

What are social costs

Answer 2

Private costs together with externalities

Question 3

When should a transaction occur

Answer 3

When marginal costs and externalities are equal to marginal benefits

Question 4

What is a pigou tax

Answer 4

A tax corresponding to the external marginal cost of pollution

Question 5

What is the different effects if taxation and regulation when it comes to pollution

Answer 5

A tax sets the price if pollution and regulations determine the level of pollution

Question 6

What is marginal abetment costs

Answer 6

MAC is the marginal cost of reducing polution

Question 7

What do the acronyms MCP and MBP stand for regarding externalities

Answer 7

Marginal benefit and cost of pollution

Question 8

What would happen if a tax is introduced and the real marginal abatement cost is higher than what is payed

Answer 8

The producer limits the emissions to the extent required which is less than expected

Question 9

What happens if marginal abatement costs are higher than expected and the market has capped pollution lower than in reality

Answer 9

Producers will pollute as much as they are allowed to

Question 10

What happens if MCP is higher than expected if there is a tax or cap on pollution

Answer 10

Nothing as it does not directly bother the producers

Question 11

How does the MCP curve look if the cost is sensitive to changes in pollution

Answer 11

It is steep

Question 12

Is an incorrect tax more or less deviation from the optimal level when the MCP curve is steep

Answer 12

More

Question 13

Why may taxes be more efficient when producers have different costs of reducing emissions

Answer 13

If taxes are set on MAC those that can reduce for less do so while regulation would hurt those who cannot more

Question 14

Does the distribution if property rights affect the equilibrium according to the coase theorem

Answer 14

No

Question 15

What is the root cause that prevents equilibrium from being reached when there are externalities

Answer 15

Costs associated with trade and when property rights are not clearly defied. Does the farmer own the river that he needs to water his fields

Question 16

What is the tragedy if commons

Answer 16

When something is over exploited because no one owns it but everyone uses it. A lumber company has no incentive to listen to the mushroom picking grandmother

Question 17

What are pure public goods

Answer 17

Non-excludable so everyone may use it and non-rival so everyone can use it as much as they want

Question 18

Are common goods rival

Answer 18

Yes, if some one uses it, it effects the ability for others to use it

Question 19

Are club goods non-excludable and rival

Answer 19

No, everyone cannot use it but members usage does not affect the others

Question 20

What is the optimal level produced if a public good

Answer 20

When aggregate marginal benefit equals marginal cost

Question 21

What are the problems with public goods

Answer 21

If the marginal cost is increasing people might want to pay less than is required. freeloaders are incentivized ti take but not pay