Private markets fail to account for externalities because
A. externalities don't occur in private markets
B. sellers include costs associated with externalities in the price of their product.
C. decision-makers in the market fail to take account of the external effects of their behavior
D. the government can easily correct any adverse effect on the market that externalities may cause
Private markets fail to account for externalities because
A. externalities don't occur in private markets
B. sellers include costs associated with externalities in the price of their product.
C. decision-makers in the market fail to take account of the external effects of their behavior
D. the government can easily correct any adverse effect on the market that externalities may cause
Related textbook solutions
Related questions
Question 1
An externality
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enhances market efficiency. |
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is a private cost or benefit that results from the production or consumption of a good or service that is external to a market. |
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is a benefit or cost that affects someone who is not directly involved in the production or consumption of a good or service. |
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refers to production or consumption that occurs outdoors. |
5 points
Question 2
Externalities can be produced by:
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the high price of goods and services |
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individuals; firms |
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market prices; market incomes |
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oceans; streams |
5 points
Question 3
When an external cost exists that is NOT taken into account in the production of a product,
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the level of output is too high, and the supply curve should shift to the left to account for the externality. |
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the price of the product is too high, and production should be expanded to lower the price. |
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the level of output is optimal, and there should be no change in the supply curve. |
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the level of output is too low, and the supply curve should shift to the right to account for the externality. |
5 points
Question 4
Which of the following is correct?
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MSC = MPC - MD |
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MPC = MSC + MD |
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MSC = MPC + MD |
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MD = MSC + MPC |
5 points
Question 5
If external costs (costs of cleaning up) are included and added to a firm's private costs, then
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the demand curve will shift to the left. |
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the supply curve will shift to the right. |
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the demand curve will shift to the right |
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the supply curve will shift to the left. |
5 points
Question 6
The Coase Theorem states that
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government intervention is always needed if externalities are present. |
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assigning property rights is the only thing the government should do in a market economy. |
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if transaction costs are low, private bargaining will result in an efficient solution to the problem of externalities. |
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a free-market equilibrium is the best solution to address externalities. |
5 points
Question 7
Buffalo in the United States almost became extinct while cattle, an animal that provides similar products, never have been close to extinction. The difference is due to
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the use of private property rights on cattle and common property rights on buffalo. |
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the greater marginal value of a head of cattle relative to buffalo, leading to over-hunting of buffalo. |
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cattle existing in Europe also while buffalo were specific to North America. |
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the greater marginal value of a buffalo relative to a steer, leading to the overharvesting of buffalo. |
5 points
Question 8
In theory, the Emissions Fee would
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cause firms to generate less pollution than their allowed limits. |
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raise the production costs of all firms. |
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cause firms to generate more pollution than their allowed limits. |
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lower the production costs of all firms. |
5 points
Question 9
A cap-and-trade policy
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has a set number of permits. |
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allows polluters to trade permits. |
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caps the total level of pollution allowed. |
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all of the above. |
Question 10
A Pigouvian tax corrects for
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market congestion. |
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market losses. |
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inefficient sales. |
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low market prices. |
