ECON 221 Chapter Notes - Chapter 10: Coase Theorem, Influenza Vaccine, Pigovian Tax

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13 Aug 2018

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A private cost is a cost paid by the consumer or the producer (typically the market price) An external cost is a cost paid by people other than the consumer or the producer trading in the market (typically by bystanders to the transaction) The social cost is the cost to everyone: the private cost + the external cost) Lo 1: external costs, external benefits, and efficiency social surplus social surplus, which is cs +ps + everyone else"s surplus. Externalities are external costs or external benefits that fall on bystanders. When externalities are significant, markets work less well and gvt action can increase. When we evaluate how well a market with externalities is working, we want to look at. A market with externalities hence does not maximize social surplus. The price and quantity that maximize social surplus is the efficient equilibrium. If there are no externalities, the market equilibrium is also the efficient equilibrium.

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QUESTION 16

Positive externalities exist because:

	a.	internal benefits are greater than external benefits.
	b.	internal benefits are greater than social benefits.
	c.	internal benefits are less than external benefits.
	d.	external benefits are greater than social benefits.
	e.	internal benefits are less than social benefits.

QUESTION 17

What is a black market?

	a.	It is an illegal market that emerges when binding price ceilings are in place.
	b.	It is an illegal market that emerges when only binding price ceilings and binding price floors are in place.
	c.	It is an illegal market that emerges when no price controls are present.
	d.	It is an illegal market that emerges when binding and nonbinding price controls are in place.
	e.	It is an illegal market that emerges when binding price floors are in place.

QUESTION 18

The personal decisions of consumers and firms are based on:

	a.	external costs.
	b.	public-good costs.
	c.	third-party costs.
	d.	internal costs.
	e.	social cost.

QUESTION 19

When the price is _________ the equilibrium price, we would expect there to be a _________, causing the market to put _________ pressure on the price until it went back to the equilibrium price.

	a.	below; shortage; downward
	b.	above; shortage; downward
	c.	above; surplus; upward
	d.	above; surplus; downward
	e.	below; surplus; upward

rosewhale311

Purpose of Assignment

In Week 2, students will employ the supply and demand model to develop consumer surplus and producer surplus as a measure of welfare and market efficiency. Students learn about welfare economics--the study of how the allocation of resources affects economic well-being--and will discover that under most circumstances, the equilibrium price and quantity is also the one that maximizes welfare. Students will review different sources of externalities and a variety of potential cures and will see that while markets are usually a good way to organize economic activity, governments can sometimes improve market outcomes. Students will see how the U.S. government raises and spends money and the difficulty of making a tax system both efficient and equitable.

Assignment Steps

Scenario: Imagine you have been assigned the responsibility of preparing a paper for the governor's next economic conference.

Prepare a 1,050-word paper addressing the following:

Explain why equilibrium of supply and demand is desirable.

Explain the following concepts using the concept of consumer and producer surplus:

Efficiency of markets

Costs of taxation

Benefits of international trade

Discuss how externalities may prevent market equilibrium and the various government policies used to remedy the inefficiencies in markets caused by externalities.

Analyze the difference between the efficiency of a tax system and the equity of a tax system as it refers to the costs imposed on taxpayers using the benefits principles.

Cite a minimum of three peer-reviewed sources, not including your textbook.

Format consistent with APA guidelines.

rosegerbil765

2a)

A market in which there are neither external benefits nor external costs is:

Select one:

a. efficient.

b. inefficient.

c. efficient and equitable.

d. impossible.

2b)

According to the special-interest theory of government, government officials and policymakers:

Select one:

a. are assumed to maximize social good.

b. tend to listen to small groups of people who contribute money to their political campaigns.

c. manage resources to maximize efficiency.

d. have a strong incentive to ensure that society's members equally benefit from a project.

2c)

Scientific research is subsidized by the government because

Select one:

a. it yields benefits to consumers and producers who did not participate in the research.

b. researchers are under-paid by private firms, so the government must make up the difference.

c. much scientific research takes place at state-funded universities.

d. scientific research has no market value so would not be undertaken without government intervention.

2d)

The forces of supply and demand will provide a quantity that is

Select one:

a. less than the efficient quantity if a good generates external benefits.

b. more than the efficient quantity if a good generates external benefits.

c. exactly the efficient quantity if a good generates external benefits.

d. either more than or less than the efficient quantity if a good generates external benefits. It is impossible to know whether it will be too much or too little without more information.

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ECON 221 Chapter Notes - Chapter 10: Coase Theorem, Influenza Vaccine, Pigovian Tax

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