ECON 1116 Study Guide - Midterm Guide: Mutual Fund, Pigovian Tax, Deadweight Loss

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m-p

18 Feb 2020

School

Northeastern University

Department

Economics

Course

ECON 1116

Professor

Jerry Porter

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Externalities, environment and public goods

- Externality: net benefit or cost on a third party

- Private cost: cost on producer

- Social cost: cost on the whole society

- Private benefit: benefit on producer

- Social benefit: benefit on society

Negative externality of production

Positive externality of consumption

- Area = deadweight loss

- Sole by imposing a Pigovian tax

- Reach Eefficient

- Area = deadweight loss

- Increase by subsidizing

- Reach Eefficient

- The optimal level of pollution:

- If MB > MC, then reducing pollution is beneficial

- If MB < MC, then reducing pollution is damaging

- Cap and trade systems: limit pollution and reward low polluters (sell permits)

- Transaction costs: time and resources needed to reach an agreement and good delivery

- Private bargaining is the most efficient way if costs are low

- Rivalry: one person’s consumption excludes others from benefitting

- Excludability: only the paying individual/ owner can consume the resource

- Private good: rival and excludable

- Public good: non-rival ad non-excludable

- Freeriding: benefit from consumption without paying

- Common resource: rival and non-excludable

- The tragedy of the commons: society tends to overuse common resources

- Fixed with

- Property rights (easy to sue)

- Community norms and traditions of respect

- Laws to limit access

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Document Summary

Externality: net benefit or cost on a third party. Social cost: cost on the whole society. If mb > mc, then reducing pollution is beneficial. If mb < mc, then reducing pollution is damaging. Cap and trade systems: limit pollution and reward low polluters (sell permits) Transaction costs: time and resources needed to reach an agreement and good delivery. Private bargaining is the most efficient way if costs are low. Rivalry: one person"s consumption excludes others from benefitting. Excludability: only the paying individual/ owner can consume the resource. The tragedy of the commons: society tends to overuse common resources. Dow jones: broad view of the total us market. Bonds: issued by an entity to gain funds (corporate bonds are risky, government are not) 10-year treasury notes: bond issued by governments to pay debts. A loan from investors to the fed. Used by firms as interest rate reference/ benchmark.

Related Questions

Question 11 One potential remedy to the tragedy of the commons is to: never allow a single individual to consume more than one percent of the common resource. criminalize the usage of common resources. allow individuals to use a common resource as long as they receive some benefit from doing so. place a common resource under private ownership. 4 points Question 12 As a result of a positional externality: contestants have a tendency to invest in a series of mutually offsetting investments in performance enhancement. there is generally an underinvestment in performance enhancement. the market price of performance enhancement materials is too high. the quality of performance in competitive situations is lower than the socially optimal level. 4 points Question 13 Which of the following statements is true regarding health insurance? Economics shows that all health related procedures should be free to individuals because the health of an individual is priceless. Total economic surplus would be larger if individuals faced an incentive to only use services when the benefit exceeds their costs. Health maintenance organizations provide an incentive for doctors to prescribe expensive nonessential services. First dollar insurance coverage has likely had very little to do with rising healthcare expenditures since World War II. 4 points Question 14 A strategy that yields a higher payoff no matter what the other players in the game choose is known as a: prisoner's strategy. dominated strategy. dominant strategy. Nash strategy. 4 points Question 15 Based on the diagram below, if the costs of hospital care are constant at $200 per day, and the individual does not incur any cost for each day for hospital care, then: the individual will stay 7 days and there will be no loss in economic surplus. the individual will stay 3 days and there will be no loss in economic surplus. the individual will stay 7 days and there will be lost economic surplus. the individual will stay 3 days and there will be lost economic surplus. 4 points Question 16 Economic research by Manning and colleagues suggests that people with deductible health insurance policies: spend substantially less on health care and have substantially worse health outcomes compared to people with first-dollar insurance coverage. spend substantially more on health care and have substantially better health outcomes compared to people with first-dollar insurance coverage. spend basically the same amount on health care and have substantially worse health outcomes compared to people with first-dollar insurance coverage. spend substantially less on health care and have no measurable difference in health outcomes compared to people with first-dollar insurance coverage. 4 points Question 17 An efficient program for reducing pollution is one for which: all polluters incur the same total costs of abatement. all polluters pay the same amount in taxes to the government. all polluters have the same marginal costs of abatement. all polluters reduce their emissions by the same amount. 4 points Question 18 Given the information on pollution abatement costs of the two firms shown below, which of the following is an efficient combination of pollution reduction? Quantity of pollution abatement Firm A's MC of abatement Firm B's MC of abatement 1 $30 $25 2 $35 $30 3 $40 $35 4 $45 $40 Firm A reduces by 1 ton and Firm B reduces by 1 ton. Firm A reduces by 2 tons and Firm B reduces by 3 tons. Firm A reduces by 4 tons and Firm B reduces by 1 ton. Firm A reduces by 3 tons and Firm B reduces by 2 tons. 4 points Question 19 All of the following are characteristics of perfectly competitive markets except: there are a large number of firms. productive resources are mobile. all firms produce a differentiated product. buyers and sellers are well informed. 4 points Question 20 An advantage of the auction method to pollution abatement is that: it is very expensive to firms. regulators can achieve a desired abatement target without having detailed knowledge of the abatement technologies available to polluters. it requires all firms to reduce by exactly the same amount. it assures that eventually society will reach a level of zero pollution emissions. 4 points Question 21 There are 2 firms each emitting 200 tons of a pollutant. Firm A's abatement costs are constant at $20/ton, and Firm B's abatement costs are constant at $40/ton. The government's goal is to reduce pollution by half. If the government auctions 200 one ton permits to the highest bidder: Firm A will purchase all 200 permits. Firm B will purchase all 200 permits. each firm will buy 100 tons. there is no way to know who the highest bidder for any permit would equal. 4 points Question 22 As a result of economies of scale, as output expands: fixed costs are decreasing. average total costs are decreasing. marginal costs are increasing. total costs are decreasing. 4 points Question 23 Generally, when countries open their borders to free trade: both domestic producers and consumers of imported goods gain. both domestic producers and consumers of exported goods gain. domestic producers of imported goods and domestic consumers of exported goods gain. domestic producers of exported goods and domestic consumers of imported goods gain. 4 points Question 24 Which of the following is the best example of a tariff? South Korea bans imports of U.S. beef because of safety concerns. The U.S. requires toys imported from China to undergo testing for lead content. The U.S. imposes a tax on sugar imported from Brazil. The U.S. restricts the quantity of cars imported from Japan. 4 points Question 25 A means-tested program is a benefit program: in which benefits decline as a recipient's earned income increases. in which all individuals must undergo health screening to be eligible for benefits. in which all recipients exclusively receive benefits through in-kind transfers. that only affects the average income of a specific segment of the population. 4 points Save and Submit Click Save and Submit to save and submit. Click Save All Answers to save all answers.

ECON 1116 Study Guide - Midterm Guide: Mutual Fund, Pigovian Tax, Deadweight Loss

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