Why markets Fails Flashcards
(13 cards)
Given what you learned about externalities, should human-caused global warming be completely stopped?
No
A government is deciding between command and control solutions versus tax and subsidy solutions solve an externality problem. Suppose whales are threatened with extinction because a large number of people like to eat whale meat. Governments are torn between banning all whaling except for certain religious ceremonies, and heavily taxing all whale meat. Assume there are only a few countries in the world who consume whale meat, and that they have fairly efficient government.
Ban the eating of whale meat.
Know best way forward and don’t want flexibility
LoJack is an example of a vehicle tracking system design to help police recover stolen vehicles. Steve Levitt found evidence that LoJack and other vehicles tracking devices create a positive externality of decreasing all car thefts because car thieves do not know which cars have LoJack installed, making them more hesitant to break into any car.
Subsidize purchase of vehicle tracking devices
Should not be forced to install a tracking device when the car is old, subsidizing is the best idea.
Consider a factory located in the middle of nowhere, producing a nasty smell. As long as no one is around to experience the unpleasant odor, what type of externality is produced?
A. Negative externality
B. Positive externality
C. Indeterminate from the given information
D. None of the above «<
Suppose that a family moves in next door to this smelly factory. Who is causing the externalities problem?
A. The factory
B. The family
C. A & B ««<
D. None of the above
Suppose that the family clearly possesses the right to a pleasant smelling environment. What could happen?
A. The factory stops producing the bad smell
B. The factory pays the family for the right to continue the bad smell
C. The factory pays the family to move
D. All of the above «
In which case will the Coase theorems assumptions likely to be true? My neighbor wants me to cut down an ugly shrub in my front yard. The ugly shrub, of course, imposes an external coat on him and his property value.
A. Yay, coase ✅
B. Not this time, coase
In which case will the Coase theorems assumptions likely to be true? My neighbors all would love for me to get that broken down Willies jeep off my front lawn. It’s been years now, after all. And would it be too much for me to paint the house and fill up that 6-foot deep ditch in the front yard? The whole neighborhood is just annoyed.
A. Yay, Coase
B. Not this time ✅ «»>
In which case will the Coase theorems assumptions likely to be true? A coal-fired electricity plant dumps its leftover hot water into the nearby lake, killing the naturally occurring fish. Thousands of homes line the banks of the lake.
A. Three cheers to coase
B. Not going to happen, Coase ✅ «<>
In which case will the Coase theorems assumptions likely to be true? A coal fired electricity plant dumps its leftover hot water into the nearby river, killing the naturally occurring fish downstream. There is one large fishery one-mile downstream affected by this. After that, the water cools enough so it’s not a problem.
A. Coasting to Coase ✅ ««
B. Not so, Coase
An increase in the number of pollution allowances does which of the following.
The price of permit goes down, cost to pollute is cheaper
A. Increases the cost of polluting
B. Decreases the cost of polluting ✅ <
In theory, one reason why tradable pollution allowances are preferable to pollution regulations is because they:
A. Make it more difficult for firms to pollute
B. Encourage lowest-cost pollution reduction ✅ ««
C. Decrease government oversight costs
D. All of the above
If the permits were not tradeable, how would this affect the efficiency of the program?
A. Program efficiency would remain unchanged
B. Program would resemble other command and control programs
C. Program would no longer be as efficient
D. B & C ✅ ««
E. Indeterminate with the given information
