ECON 142 Lecture Notes - Lecture 2: Pebbles Cereal, Demand Curve, Carbon Tax

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4 Apr 2016

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What we see on the graph already is private costs and benefits, but we can add on external costs and benefits. To do this, we shift the curve up, which is called incorporating an externality. External cost = shift up cost/supply curve (new equilibrium, right q is lower) How to get firm to produce the right smaller quantity? laws? for example, increasing a firm"s costs causing supply curve to shift up, and a smaller quantity produced. Carbon tax is being considered to reduce carbon emissions. External benefit = shift up benefit/demand curve (new equilibrium, right . How to get buyers to demand the right higher quantity? giving tax breaks/pay subsidies to buyers who buy certain things. Mr. pigou came up with the idea of using taxes or subsidies to address externalities. Start with a demand curve, thinking about the law of demand.

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

QUESTION 25

What will happen in a market where a binding price floor is removed?

	a.	There will be upward pressure on the prices.
	b.	The price or quantity of the product sold in the legal market will not change.
	c.	There will be downward pressure on the prices.
	d.	The products sold will become scarcer.
	e.	There will be increased pressure to buy and sell the good on the black market.

1.05000 points

QUESTION 26

The local bakery calculates the price elasticity of demand for its cinnamon rolls to be â1.25. This tells them that demand is ________ and price is ________ to the buyer.

	a.	perfectly inelastic; everything
	b.	perfectly elastic; meaningless
	c.	elastic; more important than the quantity
	d.	inelastic; less important than the quantity
	e.	unitary elastic; on the same level as quantity

1.05000 points

QUESTION 27

Marginal product is the change in:

	a.	total output minus the change in input.
	b.	total output divided by the change in input.
	c.	input divided by the change in total output.
	d.	total output plus the change in input.
	e.	total output times the change in input.

1.05000 points

QUESTION 28

The government imposes a tax on each plastic bag sold such that the producer of the plastic bags must pay the tax to the government. In the market for plastic bags, the:

	a.	supply curve shifts to the left.
	b.	supply curve shifts to the right.
	c.	demand curve shifts to the right.
	d.	demand curve shifts to the left.
	e.	the supply curve and the demand curve shift to the left.

1.05000 points

QUESTION 29

Pepsi and Coke are considered substitute goods. Because of this, one would predict that, holding all else constant, if the price of Pepsi increases, we would see:

	a.	the demand curve for Pepsi shift to the right.
	b.	the demand curve for Coke shift to the right.
	c.	no change in the demand for Coke.
	d.	the demand curve for Coke shift to the left.
	e.	the demand curve for Pepsi shift to the left.

1.05000 points

QUESTION 30

The government has identified a situation where the production of a good is creating a negative externality. The government should enact legislation to require firms to internalize the externality:

	a.	as long as there are positive health benefits associated with this policy.
	b.	as long as it will not increase the price of the good being produced.
	c.	in all such cases.
	d.	if the benefits of doing so outweigh the costs.
	e.	as long as it will not create unemployment in this industry.

1.05000 points

QUESTION 31

The out-of-pocket expenses incurred in producing a good are also known as:

	a.	wages and prices.
	b.	fiduciary costs.
	c.	explicit costs.
	d.	capital costs.
	e.	implicit costs.

chocolatemule814

1 John raises bees to pollinate his orchard, a couple of bees which escaped ended up pollinating his neighbour's orchard so:

a. john's neighbour has received an external cost of john's beekeeping.

b. john's neighbour has received an external benefit of john's beekeeping.

c.john's neighbour has received an internal cost of john's beekeeping.

d.none of the above.

2. external costs are:

a. borne by individuals other than those who incurred them.

b.borned by the public but incurred by the government.

c.another term for implicit costs.

d.borne by the government but incurred by the public.

3. the optimal quantity of ail pollution is:

a. found by setting the quantity of air pollution equal to the quantity of water pollution.

b.a meaningless concept since monetary values cannot be attached to problems associated with pollution.

c.whatever amount of pollution is produced by the profit-maximizing firm.

d. found by equating the marginal benefits from further reductions in pollution and the marginal costs of further reductions in pollution.

4. technological changes that make it easier to produce in a "cleaner" fashion would cause:

a. the marginal cost curve of pollution abatement to shift left increasing the degree of air quality.

b.the marginal benefit curve of pollution abatement to shift left increasing the degree of air quality.

c.the marginal cost curve of pollution abatement to shift right increasing the degree of air quality.

d.the marginal benefit curve of pollution to shit right increasing the degree of air quality.

5. if pollution is bad, why do we still use pollution-causing resources such as coal and oil to generate electricity?

a. the transaction cost of pollution is too low.

b.governements lack the political will to enforce the use of pollution-free resources.

c.pollution is only a private cost.

d.the cost of using pollution-free resources to generate power in many circumstances is much higher than generating the same power through conventional pollution causing means.

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ECON 142 Lecture Notes - Lecture 2: Pebbles Cereal, Demand Curve, Carbon Tax

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