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BUEC 503 > Module 11 > Flashcards

Module 11 Flashcards

1
Q

What kind of good is both excludable and rival?

A

Private good

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2
Q

what kind of good is non-excludable but rival?

A

Common good

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3
Q

What kind of good is non-rival, but excludable?

A

Quasi-public good

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4
Q

What kind of good is non-excludable and non-rival?

A

Public good

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5
Q

What does it mean when we say a good is rival?

A

One person’s consumption of that good excludes someone else from consuming it.

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6
Q

What does it mean when we say a good is excludable?

A

It’s possible to make people pay for it, with no free-rider problem.

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7
Q

What kind of good is national defence?

A

Public

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8
Q

What kind of good is a lighthouse?

A

Public

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9
Q

What kind of good is a cinema?

A

Quasi-public

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10
Q

What kind of good is a haircut?

A

Private

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11
Q

What kind of good is cable-TV?

A

Quasi-public

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12
Q

What kind of good is public education?

A

Common good

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13
Q

How do we calculate the demand curve for a public good?

A

Q: the individual units
P: added across consumers
So if 2 people would each pay $1 for 1 unit, Q=1, P=$2

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14
Q

Why is it hard to figure out the true demand for a public good?

A

Because no one has incentive to reveal their preferences.

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15
Q

What kind of good is a toll road?

A

Quasi-public (unless massive congestion occurs)

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16
Q

What is the “tragedy of the commons”?

A

The “tragedy of the commons”:
- stems from lack of enforceable property rights
- the tendency for a common resource to become overused to the point where it’s no longer useful.

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17
Q

How do we correct for the tragedy of the commons?

A

Taxes, quotas.

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18
Q

What is an externality?

A

A cost or benefit that is not borne solely by the buyer or seller.

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19
Q

What is a private cost?

A

A cost borne solely by the producer.

20
Q

What is a social cost?

A

The sum of private cost plus any externality.

21
Q

What is a private benefit?

A

The benefit received by the consumer.

22
Q

What is a social benefit?

A

= private benefit plus any externalities

23
Q

Where do we find the DWL for a negative externality?

A

On the right side of the demand curve, between the old and new supply curves.

24
Q

Where do we find the DWL for a positive externality?

A

Between the old and new demand curves on the left hand side of the intersection between them and supply.

25
Q

When showing the correction for a positive externality, does the supply or the demand curve change?

A

Demand curve changes with a correction for a positive externality.

26
Q

When showing the correction for a negative externality, does the supply or demand curve change?

A

The supply curve changes when we correct for a negative externality.

27
Q

With a negative externality, is there a shortage or a surplus of the good?

A

Surplus

28
Q

With a positive externality, is there a shortage or a surplus of the good?

A

Shortage

29
Q

What is a market failure?

A

When the market fails to produce the efficient level of output.

30
Q

What do externalities and market failures arise from?

A

The inability to enforce property rights, or the incompleteness of property rights.

31
Q

Is there an efficient level of an externality? Why or why not?

A

Yes - rule of decreasing marginal benefit applies to fighting the externality as well.

32
Q

What is area B?

A

Area B is the total cost of increasing the reduction of pollution from 7.0 to 8.5.

33
Q

What is area A?

A

Area A is the net benefit to society for increasing the pollution reduction from 7.0 to 8.5.

34
Q

What is the total benefit from increasing the reduction in pollution levels from 7.0 to 8.5?

A

The total benefit from increasing pollution reduction levels from 7.0 to 8.5 is the sum of areas A + B.

35
Q

How does the cost of fighting an externality change based on who’s paying?

A

The cost does not change at all. It still costs the same amount to fight externalities no matter who’s paying.

36
Q

What is a transaction cost?

A

Transaction costs are the costs in time and resources that parties incur in the process of agreeing to and carrying out an exchange of goods or services.

37
Q

What must be true about transaction costs in order for there to be a private solution to externalities?

A

They must be low.

38
Q

What is the Coase Theorem?

A

If transaction costs are low, private bargaining will result in an efficient solution to the problem of externalities.

39
Q

What are the caveats to the Coase Theorem?

A

All parties to the agreement must have full information about all costs and benefits.
All parties must be willing to accept a reasonable agreement.

40
Q

How do we find the value of the tax when correcting for a negative externality?

A

The value of the tax is from Pefficient to Preceived by producers, found from the natural Q when S has been corrected.

41
Q

How do we find the value of a subsidy when looking at a correction for a positive externality?

A

The value of the subsidy is from Ppaid by consumers to Pefficient

42
Q

How do we find the price paid by consumers on a graph showing a subsidy that corrects for a positive externality?

A

Where the original D is intersected by Qefficient.

43
Q

Who was Pigou?

A

A British economist who argued that taxes and subsidies could be used to correct for externalities.

44
Q

What is a Pigouvian tax or subsidy?

A

A tax or subsidy used to correct for externalities, and in the same amount as the externality.

45
Q

What is “command and control”?

A

“Command and control” refers to using rules to combat externalities, such as quantitative limits on pollution, rules about processes, etc.

BUEC 503 (12 decks)

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