Ag Econ Pre Chapter 11
1. If an activity generates a cost that is incurred by people other than those who pursue the activity, then the activity generates a:
External cost / Negative Externality
Definitions
Externality
an external cost or benefit of an activity
External cost/Negative Externality
A cost of an activity that falls on people other than those who pursue the activity.
External Benefit/Positive Externality
a benefit of an activity received by people other than those who pursue the activity.
2. Antibiotic use generates a negative externality to the extent that
Antibiotic use by one person can decrease the effectiveness of antibiotics for others because bacteria can develop antibiotic resistance.
3. In a market for a good whose production involves no externalities:
equilibrium price and quantity are socially optimal.
4. The Coase theorem states that if people can at no cost negotiate the purchase and sale of the right to perform activities that cause externalities, then they can ____ arrive at efficient solutions to the problems created by externalities.
Always
5. True or false: The Coase Theorem implies that there is no need for laws and regulations concerning activities that generate externalities because people should be able to arrive at efficient solutions to the problems caused by externalities.
False.
6. A cost or benefit of an activity that falls on people other than those who pursue the activity is:
An externality.
7. The socially optimal level of pollution is:
The level at which the marginal cost of pollution abatement equals the marginal benefit of pollution abatement.
8. Antibiotic use generates a positive externality to the extent that:
antibiotic use by one person can prevent others from contracting contagious bacterial infections.
9. One solution to negative externalities is to _____ activities that generate negative externalities.
tax
10. The picture depicts a good that generates a:
Negative externality. Since Social MC is greater than Private MC, this good generates a negative externality.
11. The tragedy of the commons is the tendency for a resource that has no price
The use of a resource until its marginal benefit falls to zero.
12. The Coase Theorem states that people can always arrive at efficient solutions to the problems created by externalities if:
they can negotiate at no cost the purchase and sale of the right to perform activities that cause externalities.
13. If a commonly held resource can be successfully placed under private ownership, the tragedy of the commons:
can be avoided.
14. The government is more likely to develop laws and regulations concerning activities that generate externalities when it is _____ for people to negotiate the purchase and sale of the right to perform those activities.
easy
If it is difficult for people to achieve private solutions to externalities, government intervention may be necessary.
15. The private ownership of natural resources is _____ solution to the tragedy of the commons.
not always a practical
16. The socially optimal level of a negative externality is:
the level at which the marginal cost of reducing the externality equals the marginal benefit of reducing the externality.
17. One way to improve economic efficiency is to tax activities that generate _____ externalities.
negative
18. The most efficient system of pollution abatement is one in which the marginal cost of pollution abatement is
the same for all firms.
19. The tendency for a resource that has no price to be used until its marginal benefit falls to zero is known as:
the tragedy of commons.
20. If the government imposes a tax on pollution, then firms with the highest marginal cost of pollution abatement will:
reduce pollution the least.
21. One solution to the tragedy of the commons is to:
place the commonly held resource under private ownership.
22. Although private ownership of natural resources can be a good solution to the tragedy of the commons, private ownership:
is not always practical.
23. Auctioning pollution permits concentrates pollution abatement in the hands of firms that:
have the lowest marginal cost of pollution abatement.
Firms with a low marginal cost of pollution abatement will be better off reducing pollution than paying for a permit.
24. Consider the phrase, "once people have to pay for their emissions, they quickly find ingenious ways of reducing them."This refers to which of the following?
Tradable pollution permits work.
25. If the cost of reducing air pollution by one ton is higher for Stark Industries than it is for Wayne Enterprises, then the most efficient way to reduce pollution is to require
Wayne Enterprises to reduce pollution by one ton.
26. Taxing pollution concentrates pollution abatement in the hands of firms that
have the lowest marginal cost of pollution abatement.
27. If the government auctions pollution permits, then firms with the lowest marginal cost of pollution abatement will:
reduce pollution the most.
Firms with a low marginal cost of pollution abatement will be better off reducing pollution than paying for a permit.
28. One criticism of carbon taxes suggests that they are worthless unless other countries also tax carbon accordingly. What is one solution to this reasonable argument against taxes?
a tax on imported goods from countries that fail to enact carbon taxes at home.
