econ

Question 1

externalities

Answer 1

the uncompensated impact of one person’s actions on the well-being of a bystander.

Question 2

positive externality

Answer 2

beneficial side effect that affects an uninvolved third party.

Question 3

negative externality

Answer 3

harmful side effect that affects an uninvolved third party

Question 4

externalities and inefficiency

Answer 4

market equilibrium fails to maximize benefit to society

Question 5

equilibrium quantity

Answer 5

maximizes sum of consumer and producer surplus. Maximizes efficiency in the absence of externalities.

Question 6

social optimum

Answer 6

when marginal social benefit equals marginal social cost

Question 7

social cost

Answer 7

private cost + external cost

Question 8

optimum equilibrium (negative externalities)

Answer 8

left shift of supply, smaller quantity produced than market equilibrium.

Question 9

internalizing the externality

Answer 9

altering incentives so that people take account of the external effects of their actions.

Question 10

How can the government achieve optimal equilibrium in the presence of negative externalities?

Answer 10

tax to shift supply curve. Changes incentive of buyers an sellers.

Question 11

optimum equilibrium (positive externality)

Answer 11

right shift of demand, larger quantity than market equilibrium.

Question 12

How can government achieve optimal equilibrium in the presence of positive externalities?

Answer 12

subsidies to shift the demand curve. Changes incentives of buyers and sellers.

Question 13

industrial policy

Answer 13

Government policy to promote and support individual firms which it considers are important for the growth of the economy. (incentivizes spillover of positive externality).

Question 14

patent protection

Answer 14

property right/incentive to engage in economic growth associated with a positive externality.

Question 15

command-and-control policy

Answer 15

regulatory strategy where government sets a requirement and then enforces individual and corporate actions to be consistent with meeting the requirement.

Question 16

comand-and-control: regulation

Answer 16

requiring or forbidding certain behaviors. (regulations are scaled based on cost benefit analysis-prohibiting a behavior is not always feasible).

Question 17

market-based policies

Answer 17

provide incentives so that private decision makers will choose to solve the problem on their own.

Question 18

market-based-policy

Answer 18

corrective taxes and subsidies

Question 19

corrective taxes (Pigovian taxes)

Answer 19

induce private decision makers to take account of the social costs that arise from an externality (tax or subsidy should ideally equal the cost or benefit of the externality)

Question 20

regulation versus corrective tax

Answer 20

economists believe corrective taxes are more efficient.

Question 21

market-based policy: tradable pollution permits

Answer 21

involve giving firms the legal right to pollute a certain amount.

Question 22

pollution permits vs corrective tax

Answer 22

pollution permit sets the quantity of pollution allowed, and the demand curve determines the right to pollute. Whereas, a corrective tax sets the price of pollution which combines with the demand curve to determine the quantity of pollution..

Question 23

the goal of economic analysis of pollution

Answer 23

to reduce the cost of a clean environment and therefore increase the public demand for a clean environment.

Question 24

private solutions to externalities

Answer 24

moral codes and private sanctions, charities, relying on the self-interest of the relevant parties, and the relevant parties can enter into a contract.

Question 25

coase theorem

Answer 25

the proposition that if private parties can bargain without cost over the allocation of resources. they can solve the problem of externalities on their own, Whatever the initial distribution of rights, the interested parties can still bargain (the rights only determine who pays).

Question 26

transaction costs

Answer 26

the expenses of negotiating and executing a deal.

Question 27

why private solutions do not always work

Answer 27

transaction costs, stubbornness, and coordination problems