Externalities

Question 1

An externality occurs when

Answer 1

a persons well being or firms production is directly affected by the actions of other consumers of firms rather than indirectly through changes in prices

Question 2

Negative externalities harm others

Answer 2

Car pollution

Question 3

Positive externalities help others

Answer 3

vaccines

Question 4

Inefficiency of competition with externalities

Answer 4

Firms and consumers do not pay for the harm of their negative externalities so create excessive amounts. Producers and individuals are not compensated for the benefits of a positive externality so too little is produced. Nonoptimal production is the primary result of externalities

Question 5

Question 6

Question 7

Question 8

Answer 8

Question 9

Answer 9

Question 10

Regulating Externalities

Answer 10

A gvt limit on amount of pollution that may be related is called an emissions standard
A tax on discharges into air or waterways is effluent charge
Gvt can also control pollution indirectly through quantity restrictions or taxes

Question 11

Regulating Externalities

Answer 11

A gvt limit on amount of pollution that may be related is called an emissions standard
A tax on discharges into air or waterways is effluent charge
Gvt can also control pollution indirectly through quantity restrictions or taxes

Question 12

Question 13

Answer 13

Question 14

Property rights to reduce externalities

Answer 14

an exclusive privilege to use an asset. Coast theorem states optimal levels of pollution and output can result from bargaining between polluters and their victims if property rights are clearly defined

Question 15

Property rights to reduce externalities

Answer 15

an exclusive privilege to use an asset. Coast theorem states optimal levels of pollution and output can result from bargaining between polluters and their victims if property rights are clearly defined

Question 16

Answer 16

Question 17