ECON1101 Lecture Notes - Lecture 3: Coase Theorem, Deadweight Loss, Externality

33 views3 pages

apricotmacaw832

18 May 2018

School

Department

Course

Professor

For unlimited access to Class Notes, a Class+ subscription is required.

Wednesday, 17 May 2017

Microeconomics

Externalities

-Positive Consumption Externality: Beneﬁt accrued to someone who is not involved in

the consumption of a given good

•E.g. vaccinations, education, bike/walk to work, ﬁtness activities

-Consumption decision without consideration for external beneﬁt doesn’t allow

maximum social surplus (deadweight loss) - Invisible Hand Principle FAILS

-Coase Theorem: If trade in an externality is possible & there were no transaction

costs, bargaining will lead to an efﬁcient outcome regardless of initial allocation of

property rights - in the case of NO government

-Negative Production Externality: Cost incurred by someone who is not involved in

production of a given good

•E.g. harmful production activities (pollution), excessive risk-taking, over-ﬁshing

find more resources at oneclass.com

Unlock document

This preview shows page 1 of the document.
Unlock all 3 pages and 3 million more documents.

Already have an account? Log in

Related Questions

Question 1

An externality

		enhances market efficiency.
		is a private cost or benefit that results from the production or consumption of a good or service that is external to a market.
		is a benefit or cost that affects someone who is not directly involved in the production or consumption of a good or service.
		refers to production or consumption that occurs outdoors.

5 points

Question 2

Externalities can be produced by:

		the high price of goods and services
		individuals; firms
		market prices; market incomes
		oceans; streams

5 points

Question 3

When an external cost exists that is NOT taken into account in the production of a product,

		the level of output is too high, and the supply curve should shift to the left to account for the externality.
		the price of the product is too high, and production should be expanded to lower the price.
		the level of output is optimal, and there should be no change in the supply curve.
		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?

		MSC = MPC - MD
		MPC = MSC + MD
		MSC = MPC + MD
		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

		the demand curve will shift to the left.
		the supply curve will shift to the right.
		the demand curve will shift to the right
		the supply curve will shift to the left.

5 points

Question 6

The Coase Theorem states that

		government intervention is always needed if externalities are present.
		assigning property rights is the only thing the government should do in a market economy.
		if transaction costs are low, private bargaining will result in an efficient solution to the problem of externalities.
		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

		the use of private property rights on cattle and common property rights on buffalo.
		the greater marginal value of a head of cattle relative to buffalo, leading to over-hunting of buffalo.
		cattle existing in Europe also while buffalo were specific to North America.
		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

		cause firms to generate less pollution than their allowed limits.
		raise the production costs of all firms.
		cause firms to generate more pollution than their allowed limits.
		lower the production costs of all firms.

5 points

Question 9

A cap-and-trade policy

		has a set number of permits.
		allows polluters to trade permits.
		caps the total level of pollution allowed.
		all of the above.

Question 10

A Pigouvian tax corrects for

		market congestion.
		market losses.
		inefficient sales.
		low market prices.

harlequingoldfish8

ECON1101 Lecture Notes - Lecture 3: Coase Theorem, Deadweight Loss, Externality

Get access

Related Documents

ECON1101 Chapter Notes - Chapter 9: Coase Theorem, Underconsumption, Marginal Utility

ECON1101 Chapter Notes - Chapter 9: Coase Theorem, Externality, Overfishing

ECON1101 Lecture Notes - Lecture 9: Deadweight Loss, Marginal Utility, Demand Curve

Related Questions