Exam 11: Government Intervention in the Market

What does the phrase 'internalising an external cost' mean?

Compare two situations.(A)A firm is not legally responsible for damages that result from air pollution caused by its production of steel.(B)A firm is legally responsible for damages that result from its production of steel.Ronald Coase argued that

What does a patent do?

Medical research that ends in a cure for a serious disease produces positive externalities.What is the impact of this positive externality on economic efficiency?

Because producers do not bear the external cost of pollution,

Due to adverse selection,very few lemons will be sold in the market for used cars.

According to ________,in a market with an externality,private parties would voluntarily negotiate an efficient outcome without government intervention.

Haiti was once a heavily forested country.Today,80 per cent of Haiti's forests have been cut down,primarily to be burned to create charcoal.The reduction in the number of trees has led to devastating floods when it rains heavily.This is an example of

In England during the Middle Ages,each village had an area of pasture on which any family in the village was allowed to graze its cows and sheep without charge.Eventually,the grass in the pasture would be depleted and no family's cow or sheep would get enough to eat.The reason the grass was depleted was

Figure 11.6 Suppose there are several paper mills producing paper for a market. These mills, located upstream from a fishing village, discharge a large amount of wastewater into the river. The waste material affects the number of fish in the river, and the use of the river for recreation and as a public water supply source. Figure 11.6 shows the paper market. Use this Figure to answer the following question(s). -Refer to Figure 11.6.What does S₁ represent?

What is adverse selection? -------------------------------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------------------------------

Automobile insurance companies have a problem with people who buy insurance and then drive recklessly or take less care to avoid losses after being insured.In other words,the automobile insurance market is subject to

A quasi-public good differs from a public good in that unlike a public good,it is possible to keep out those who do not pay for the quasi-public good from enjoying the benefits of the good.

What is a private cost of production? What is a social cost of production? When is the private cost of production equal to the social cost of production? -------------------------------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------------------------------

Economist A.C.Pigou argued that to deal with a negative externality in production,the government should impose a tax equal to the cost of the externality.What did Pigou believe should be done in the case of a positive externality in consumption? How would his recommendation impact the demand and market equilibrium for the product which is generating the positive externality? -------------------------------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------------------------------

Adverse selection is a situation in which one party to a transaction takes advantage of knowing more than the other party to the transaction.

If the marginal benefit of reducing emissions of some air pollutant is greater than the marginal cost,

The social benefit of a given level of a public good is the vertical sum of all private benefits for that level.

Define the tragedy of the commons.Give three examples of common resources.Briefly explain why common property resources are subject to overuse. -------------------------------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------------------------------

The United States Energy Information Administration estimates that total carbon dioxide emissions from the consumption of energy are highest in -.