Flashcards in PHASE 2 - HW5 Deck (34):
1
market failures occur when
competitive market system under or over allocates resources to production of goods
2
consumer surplus is the
difference between maximum prices consumers are willing to pay for a product and lower equilibrium price
3
in order for market to achieve allocative efficiency, need
cosumers' maximum willingness to pay equal producers' minimum acceptable price, sum of producer and consumer suplus to be maximized, marginal benefit of last unit produced equals marginal cost of producing that unit
4
allocative efficiency occurs only at output where
combined amounts of consumer surplus and producer surplus are maximized
5
efficiency loss (aka deadweight loss) is measured
as combined loss of consumer and producer surplus
6
private goods characterized by
rivalry and excludability
7
bc of free riders, demand for public good
does not get expressed in market, good does not get produced by private sellers
8
external cost of an actiivty is one that is
borne by those not directly involved
9
positive externality
some fraction of the benefit of an activity is recieved by ppl not participating in activity
10
negative externatliy
part of cost of activity falls on ppl no pursuing activity
11
exisitence of negative externatily will result in
greater than socially optimal level of production
12
if a good generating negative externatlites were priced to account for spillover costs, then its price would _ and and outputs would ___
increase, decrease
13
external benefit implies that price of good is _ and external cost implies that price is _ relative to social optimum
too low, too low
14
external benefit of an actiivty is addeed to private benefits, then the ____
demand curve shifts right
15
coase theorm
individuals can solve many externalities if they buy and sell the right to generate externality
16
factors in coase theorm
parties are self interested, potential gain in surplus is high, property rights have already been assigned to one of parties
17
market failures arise when
d/s dont accuractly reflect all benefits and all costs of production
18
consumer surplus graphically
under demand curve, above actual price
19
producer's minimum acceptable price for a particular unit of a good
equals the marginal cost of producing that particular unit
20
factors that don't necessairily garuntee social optimality
everyone can afford basic necesisties of life, market in equilibrium, collective action has allocated goods
21
allocative efficiency means that
resources are being devoted to procution of g/s most desired by society
22
excludability means that
sellers can restrict benefits of a good to those who pay for it
23
in the case of ____, the market fails to generate the efficient outcome because buyers/ sellers only take their self interests into account
external cost/external benefit
24
emission fee levied against polluters will tend to
internalize the external cost of pllution
25
significant spillover costs to society production suggests that
resources are overallocated to industry
26
when dealing with externalities, government can
correct market failure in both positive and negative externalities by inducing market participants to interliaze the externalitiy
27
market for pollution rights can be expected to
provide potential polluters with monetary incentive to find ways to reduce emissions
28
after correcting externality, equilibrium price and qty both rise. the externality was ___
postiive externality
29
requiring car producers to install emission control devices on cars, gov forces producers to internalize some f the external costs of auto pollution. leads to equilibrium price of cars ___ and qty ___
increasing, decreasing
30
amrket equilibrium qty is less than socially optimal qty, one infers that
production of good has positive externality
31
if the external cost of an activity is added to private costs, then the ______which curve shifts where____
supply curve shifts left
32
air polution policy of US has historically ben one of
direct controls in form of uniform emission standarsd
33
suppose coal mining produces a negative externality in form of polluted streams. one can deduce that unregulated
qty of coal produced is too high
34