Exam 11: Monopolistic Competition and Oligopoly

What are transactions costs? Why do transactions costs create difficulties in finding a private solution to the problem of pollution?

How does a positive externality in consumption reduce economic efficiency?

Private producers have no incentive to provide public goods because

The market demand for a public good can be determined by

Figure 11-15 Figure 11-15 shows the market for aviation security. Aviation security generates a positive externality because people who are not airline passengers benefit from aviation security. -Refer to Figure 11-15 to answer the following questions. a. In the absence of any government intervention,what is the equilibrium level of security that airlines will supply? Denote this level,Q*.Briefly explain why this quantity is not the economically efficient level of aviation security. b.In the diagram,illustrate the presence of positive externalities in the aviation security market.Label any new curve that you draw. c.On your diagram identify the economically efficient level of aviation security.Denote this level Qe. d.Explain how a government subsidy for the airlines can bring about the economically efficient aviation security level.Be sure to identify the size of the subsidy.

An externality refers to economic events outside a market.

Figure 11-9 -Refer to Figure 11-9.The marginal cost of reducing pollution curve is the same curve as

Overuse of a common resource may be avoided by all of the following methods except

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 is the deadweight loss from producing at the market equilibrium?

The social cost of a good or service is the cost borne by the producer.

Figure 11-9 -Refer to Figure 11-9.What is the incremental cost of increasing the quantity of pollution reduction from QB to QE units?

How does a public good differ from a quasi-public good? In your answer give an example of each type of good.

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

Figure 11-3 Figure 11-3 shows a market with an externality. The current market equilibrium output of Q₁ is not the economically efficient output. The economically efficient output is Q₂. -Refer to Figure 11-3.If,because of an externality,the economically efficient output is Q₂ and not the current equilibrium output of Q₁,what does S₁ represent?

Assume that production from an electric utility caused acid rain and that the government imposed a tax on the utility equal to the cost of the acid rain.This is an example of

'A competitive market achieves economic efficiency by maximising the sum of consumer surplus and producer surplus.' This statement

What is moral hazard?

How does the construction of a market demand curve for a private good differ from that for a public good?

Figure 11-2 Amit and Bree are the only two homeowners on an isolated private road. Both agree that installing street lights along the road would be beneficial and want to do so. Figure 11-2 shows their willingness to pay for different quantities of street lights, the market demand for street lights and the marginal cost of installing the street lights. -Refer to Figure 11-2.How much is Amit willing to pay to have 4 street lights installed?

Will equilibrium in a market always result in an outcome that is economically efficient? Explain.