英文版微觀經(jīng)濟(jì)學(xué)復(fù)習(xí)提綱Chapter 15. Extern

15Externalities,EnvironmentalPolicy,andPublicGoodsChapterSummaryAnexternalityisabenefitorcostthataffectssomeonenotdirectlyinvolvedintheproductionorconsumptionofagoodorservice.Negativeexternalitiesarecostsimposedonnon-consentingindividuals.Positiveexternalitiesarebenefitsreceivedbyindividualsnotdirectlyinvolvedinproducingorpayingforagoodorservice.Whenthereisanegativeexternalityastheresultofproduction,themarketsupplycurveunderstatesthefulleconomiccost(thesocialcostofproduction.Economicefficiencywouldbeincreasediflessofthegoodorservicewereproduced.Whenthereisapositiveexternality,themarketdemandcurveunderstatesthefulleconomicbenefit(thesocialbenefitfromconsumptionandtoolittleofthegoodisproduced.Negativeandpositiveexternalitiesleadtomarketfailure.Encompassingbothpositiveandnegativeexternalities,itistheabsenceofprivatepropertyrightsthat’stheunderlyingcauseofexternalities.Marketfailurealsoresultsfromproblemsenforcingprivatepropertyrights(forexample,laxgovernmentenforcementofcopyrightlaws.Whenprivatesolutionstoexternalitiesarenotfeasible,governmentinterventionmayberequired.Forexample,ifanegativeexternalityispresent,governmentcanimposeataxequaltotheadditionalexternalcosts(thedifferencebetweensocialcostandprivatecost.Forpositiveexternalitiesgovernmentcanprovideasubsidytoconsumersequaltotheexternalbenefits.Toreducepollution,governmentshaveoftenusedacommandandcontrolapproach.Thisoftenmeansthegovernmentsetsspecificrulesforthequantitativelimitsontheeachpollutantemitted.Anotherapproachistodictatetheinstallationofspecificpollutioncontroldevices.Forexample,in1986theAustraliangovernmentrequiredtheinstallationofcatalyticconvertersonallnewcarstoreducecaremissions.OnenotableexceptiontothecommandandcontrolapproachwastheU.S.government’sattempttoreduceacidrainpollution.IntheCleanAirActof1990Congressrequiredelectricutilitiestoreducetheiremissionsofsulphurdioxide,amajorcauseofacidrain.Thesuccessofthesulphurdioxideprogramhasledsometosuggestthatasimilarprogrambeusedtoreduceemissionsofso-called“greenhousegases”thatcontributetoglobalwarming.Otherreasonsforgovernmentinterventionmayincludecasesinwhichproductsarerivalorexcludable.Rivalryoccurswhenconsumptionofoneunitofagoodprecludesitsconsumptionbysomeoneelse.Excludabilitymeansthatanyonewhodoesnotpayforagoodcannotconsumeit.Becausecommonresourcesarenotprivatelyowned,theyareoftennon-rival,non-excludableorboth.Thereisatendencyfortheseresourcestobeoverused.Thisiscalledthetragedyofthecommons.Externalcostsarisefromtheuseofacommonresource.Sincetheprivatecostislessthanthesocialcostthemarketequilibriumforthegoodoccurswherethemarginalcostexceedsthemarginalbenefit.Lefttoitsowndevices,themarketequilibriumwillimplythattoomuchofthecommonresourceisconsumed.Governmentinterventioninthismarketmayinvolverestrictingaccesstothecommonresource.223Chapter15LearningObjectivesWhenyoufinishthischapteryoushouldbeableto:1.Identifyexamplesofpositiveandnegativeexternalitiesandusegraphstoshowhowexternalitiesaffecteconomicefficiency.Anegativeexternalitycausesthesocialcostofproductionofagoodorservicetoexceedtheprivatecostbornebytheproducer.Thesocialcostincludestheprivatecostandtheexternalcostfromproduction.Anegativeexternalitycausesoutputtoexceedtheeconomicallyefficientamount.Apositiveexternalitycausesthesocialbenefitfromconsumingagoodorservicetoexceedtheprivatebenefit.Thesocialbenefitincludestheprivatebenefitreceivedbytheconsumerandanexternalbenefit.Apositiveexternalitycausesoutputtobelessthantheeconomicallyefficientamount.2.DiscusstheCoaseTheoremandexplainhowprivatebargainingcanleadtoeconomicefficiencyinamarketwithanexternality.Privatebargainingcanresultinanefficientsolutiontoproblemsarisingfromexternalitiesifthetransactionscostsfromthebargainingarelow.Privatepartiestothebargainingagreementmusthavefullinformationregardingthebenefitsandcostsassociatedwiththeexternalityandallpartiesmustbewillingtoacceptareasonableagreement.3.Analysegovernmentpoliciestoachieveeconomicefficiencyinamarketwithanexternality.Whenprivateeffortstosolveexternalityproblemsfail,governmentinterventionmaybewarranted.Whenthereisanegativeexternalityinproduction,governmentcanimposeataxequaltothecostoftheexternality.Whenthereisapositiveexternalityinconsumption,governmentcangiveconsumersasubsidyequaltothevalueoftheexternality.Governmentmayusedirectcontrolstodealwithexternalitiessuchasimposingaquantitativelimitontheamountofpollutionfirmsareallowedtoemit.Governmentcanalsouseamarket-basedapproachbysettingupasystemoftradeableemissionsallowancestoreducepollution.4.Explainhowgoodscanbecategorisedonthebasisofwhethertheyarerivalorexcludable.Rivalryoccurswhenoneperson’sconsumptionofagoodpreventsanyoneelsefromconsumingit.Excludabilitymeansthatanyonewhohasnotpaidforagoodcannotconsumeit.Agoodthatisrivalandexcludableisaprivategoodandmarketscansupplytheefficientquantityofthegoodwithoutgovernmentintervention.Ifagoodisnotrivalorexcludablemarketsarenotlikelytoproducetheefficientquantityofthegood.5.Defineapublicgoodandacommonresource,andusegraphstoillustratetheefficientquantitiesofpublicgoodsandcommonresources.Apublicgoodisbothnon-rivalrousandnon-excludable.Apublicgoodisusuallysuppliedbythegovernment.Acommonresourceisrivalbutnotexcludable.Sincenooneownsacommonresource,itwilloftenbeoverused.ChapterReviewChapterOpener:GreenhouseGasPoliciesThreatenPrivatisationofNewSouthWalesElectricityThereisanincreasingrecognitionofthenegativeeffectsthattheemissionofgreenhousegaseshasontheenvironment.Inresponsetothis,theAustralianfederalgovernmentcommissionedareportbyProfessorRossGarnautonwaystoreducethisimpact.Althoughmanygovernmentsinthepasthavefavoureda‘commandandcontrol’approach,wherebythegovernmentmandatesthemethodsusedtoreducepollution,manyeconomistsnowfavouramarket-basedapproach,usingtradeablepermits.Underthissystem,greenhousegasemittingfirms,suchaselectricityutilities,aregiven(orsoldafixednumberofpermitsthatallowsthemtoemitacertainquantityofgreenhousegases.FirmsarethenfreetobuyandExternalities,environmentalpolicy,andpublicgoods224sellthesepermits,withtherationalebeingthatfirmswillneedtoeitherreducetheiremissions,orbuypermitsfromotheremitters.In2008,theNSWgovernmentannouncedaplantoprivatisetheirelectricityutilities.However,itwasarguedthattheimpositionofatradeablepermitsscheme,orataxontheseemissions,wouldreducethevalueoftheseassets,asthesemeasureswouldincreasecoststothesefirms.HelpfulStudyHintMakingtheConnection15.3(page477andAnInsideLook(page487discusshowatradeableemissionschememayhelptoreduceglobalwarming.ExternalitiesandEfficiencyAnexternalityisabenefitorcostthataffectssomeonewhoisnotdirectlyinvolvedintheproductionorconsumptionofagoodorservice.Positiveexternalitiesrefertobenefitsreceivedfromagoodorservicebyconsumerswhodonotpayforthem.Negativeexternalitiesrefertocostsincurredbyindividualsfromagoodorserviceforwhichnoonepays.Externalitiesinterferewiththeeconomicefficiencyofmarketequilibriumbycausingadifferencebetweentheprivatecostofproductionandthesocialcost,orbetweentheprivatebenefitfromconsumptionandthesocialbenefit.Aprivatecostisacostbornebytheproducerofagoodorservice.Asocialcostisthetotalcostofproduction,includingboththeprivatecostandanyexternalcost.Aprivatebenefitisthebenefitreceivedbytheconsumerofagoodorservice.Asocialbenefitisthetotalbenefitfromconsumingagood,includingboththeprivatebenefitandanyexternalbenefit.Anegativeexternalitycausesthesocialcostofproductionforagoodtobegreaterthantheprivatecost.Asaresult,morethantheeconomicallyefficientlevelofoutputifproduced.Apositiveexternalitycausesthesocialbenefitfromtheproductionofagoodtobetobegreaterthantheprivatebenefit.Asaresult,lessthantheeconomicallyefficientlevelofoutputisproduced.Externalitiesresultfromtheabsenceofpropertyrightsforresources(forexample,airorinadequatelegalenforcementofpropertyrights.Propertyrightsaretherightsindividualsorbusinesseshavetotheexclusiveuseoftheirpropertyincludingtherighttobuyorsellit.Marketfailurereferstosituationswherethemarketfailstoproducetheefficientlevelofoutput.Figure15.1(page465illustratestheeffectofpollutiononthemarketforelectricityandthedeadweightlossthatoccursduetoanegativeexternality.Figure15.2(page466illustratestheimpactofapositiveexternalityinthemarketforauniversityeducationandthedeadweightlosscausedbythisexternality.HelpfulStudyHintInChapter4youlearnedthattheequilibriumpriceinacompetitivemarketresultsintheeconomicallyefficientlevelofoutput,wheremarginalbenefitequalsmarginalcost.JonasSalk,AlbertSabinandtheircolleaguesdevelopedvaccinesforpolio.Theirresearchprovidesagoodexampleofpositiveexternalities.Parentswhosechildrenreceivepoliovaccineswouldgladlypayforresearchthatprovidedthisprotection.Ifparentspaidevenasmallamount($5perchildthetotalwouldrunintothehundredsofmillionsofdollarsforthescientists’efforts.Ofcourse,nomarketmechanismexiststotransferrevenuefromtheseparentstotheresearchers.Asaresultmarketsproducelessmedicalresearchthanpeoplearewillingtopayfor.225Chapter15PrivateSolutionstoExternalities:TheCoaseTheoremRonaldCoasearguedthatprivatebargainingmayimproveinefficientmarketresultscausedbyexternalities.TheCoaseTheoremstatesthatiftransactionscostsarelow,privatebargainingwillresultinanefficientsolutiontotheproblemofexternalities.Transactionscostsarethecostsintimeandotherresourcesthatpartiesincurintheprocessofagreeingtoandcarryingoutanexchangeofgoodsandservices.SuccessfulapplicationoftheCoaseTheoremrequiresthatbargainingpartieshavefullinformationregardingthecostsandbenefitsassociatedwiththeexternalitiesandtheymustbewillingtoacceptareasonableagreement.Inpractice,privatesolutionsarenotoftenfeasible.Intheabsenceofprivatesolutionstoexternalitiesgovernmentinterventionmaybewarranted.Toachieveeconomicefficiencygovernmentsmayinterveneindifferentways.Toreducepollution,“commandandcontrol”policieshaveoftenbeenemployed.Acommandandcontrolapproachreferstogovernment-imposedquantitativelimitsontheamountofpollutionfirmsareallowedtogenerate.Underthisapproachthegovernmentmayrequireinstallationofspecificpollutioncontroldevices.Since1990,amarket-basedapproachintheUnitedStateshasreducedemissionsofsulphurdioxidefromelectricutilitiesatlowerthanexpectedcost.Thesuccessofthisapproachhasledeconomiststoadvocatemoreextensiveuseofmarket-basedapproaches,andlessuseofcommandandcontrolpolicies.HelpfulStudyHintIndustrialpollutionisanexampleofanegativeexternalityinproduction.Cigarettesmokingcausesanegativeexternalityinconsumption.Today’suniversitystudentsgrewupinanerawheresmokingwasmuchlesssociallyacceptablethanwhentheirparentsandgrandparentswereyoung.Youmaybesurprisedtolearnthatsmokingbybothstudentsandinstructorswasallowedinmanyuniversityclassroomsaslateasthe1970s.Manybarsandrestaurantshavealsohadtobansmokingintheirestablishments.Theseareexamplesofprivateactionsdesignedtolimittheexternalcostssmokersimposeonnon-smokers.Economistsworkingfortheprivateresearchgroup,ResourcesfortheFuture(RFF,areamongthestrongestsupportersofasystemoftradeableemissionsallowancestoreducetheproblemofpollution.Oneofthedifficultiesofformulatingenvironmentalpolicyisplacingadollarvalueonenvironmentaldamage;forexample,thebreathingdifficultypeoplewithasthmaexperienceduetosulphurdioxidepollution.EconomistsatRFFhavepioneeredtechniquesformeasuringthevalueofthingsforwhichnomarketpriceexists.RFFhasawebsite(thatcanbeusedtoaccessdiscussionpapers,publicationsandCongressionaltestimonyregardingawiderangeofenvironmentalissues.FourCategoriesofGoodsGoodsmaybeclassifiedintofourcategoriesbasedonwhetherornottheirconsumptionisrivaland/orexcludable.IfIconsumeonemoreunitofaproductandthatmeansyoucannotconsumethesameunit,theproductiscalledrival.Ifanyonewhowantstoconsumeoneunitofaproductmustpayforthatunittheproductisexcludable.Productscanbeeitherrivalornon-rivalandexcludableornon-excludable.Thisgivesusfourpossiblecombinationsofcharacteristics.Aprivategoodisagoodthatisbothrivalandexcludable.TheeconomicallyefficientquantityofaExternalities,environmentalpolicy,andpublicgoods226privategoodcanbesuppliedinamarketwithoutgovernmentintervention.Naturalmonopoliesrefertogoodsthatareexcludablebutnotrival.Acommonresourceisagoodthatisrivalandbutnotexcludable.Apublicgoodisagoodthatisbothnon-rivalrousandnon-excludable.Publicgoodsareusuallysuppliedbygovernmentratherthanprivatefirms.Freeridingreferstobenefitingfromagoodwithoutpayingforit.PublicGoodsandCommonResourcesIncontrastwithprivategoods,eachconsumerwillconsumethesamequantityofapublicgoodaseveryotherconsumer.Thedemandforapublicgoodisdeterminedbyaddingthepriceeachconsumeriswillingtopayforeachquantityofthegood.Sincenoconsumercanbeexcludedfromreceivingthegooditisdifficulttodetermineconsumers’truepreferencesandwillingnesstopaybecauseofthefreeriderproblem.Governmentstypicallyprovidepublicgoods,suchasnationaldefence,anddeterminethequantitysuppliedthroughcost-benefitanalysisorapoliticalprocess.HelpfulStudyHintTheaverageAustralianconsumesaround121kilogramsofbeef,pork,andchickenannually.Despitethelargeandcontinuingdemandformeat,onedoesnotseenewsreportsofshortagesofcows,pigsandchickens.Incontrast,thereareoccasionalmediareportsofover-fishingandthepossibleofextinctionofsomeanimalspecies.Whenresourcesareprivatelyowned,ownershaveincentivestoconserveontheiruse.Producershavestrongincentivestomaintainthestocksofcows,pigsandchickenstoensurefuturesupplies.Propertyrightstosomepartsofoceans,rivers,lakesandhabitatareasofendangeredspeciesarenon-existentorarepoorlyenforced.Ontheotherhandsomeformerlyendangeredspecieshavebeensavedfromextinctionbysimplygrantingthepropertyrightstotheherdtoaparticulargroup.SolvedProblemChapter15ofthetextbookincludesSolvedProblemsthatsupportlearningobjective3(“analysegovernmentpoliciestoachieveeconomicefficiencyinamarketwithanexternality”andlearningobjective4(“explainhowgoodscanbecategorisedonthebasicofwhethertheyarerivalandexcludable”.ThefollowingSolvedProblemsupportsanotherlearningobjectivefromthischapter.SolvedProblemSupportsLearningObjective1:Identifyexamplesofpositiveandnegativeexternalitiesandusegraphstoshowhowexternalitiesaffecteconomicefficiency.TheInfluenzaPandemicof1918From1914to1918,WorldWarIcausedover8millionmilitarydeaths,atotalthatdwarfedthenumberofdeathssufferedinanypreviouswarinhistory.Butthistotalismuchlowerthanthenumberofpeoplewhodiedduringtheinfluenzapandemicof1918-19.Therewereatleast20million,perhapsasmanyas40million,victimsoftheso-called“SpanishFlu”or“LaGrippe.”Australia’spandemic,however,wasnotasbadasthatexperiencedinothercountries(itisestimatedaround12,000peoplediedfromthisoutbreakinAustralia.Ironically,manyAmericansoldierswhosurvivedtheWarwouldcarrytheinfluenzavirushomewiththemfromEurope.Anestimated675,000Americansdiedduringthe227Chapter15pandemic.Withnoknowncureforthedeadlydisease,publichealthofficialsdistributedgauzemaskstobeworninpublic.Storeswereforbiddentoholdsalesandrailroadsrefusedtocarrypassengerswhodidnothavesignedcertificatesstatingthattheywerefreeofthevirus.Therewereseriousshortagesofhealthcareworkers,morticiansandgravediggers,conditionsnotunlikethoseexperiencedduringtheBlackDeathoftheMiddleAges.(aDrawagraphillustratingthesupplyanddemandforresearchdirectedatfindingacureforahighlycontagiousdiseasesuchasthe1918flu.Assumethatallresearcheffortsarefundedthroughprivatemarkets.(bDescribehowanexternalitycausesadeviationfromeconomicefficiency.SolvingtheProblemStep1:Reviewthechaptermaterial.ThisproblemconcernsthematerialfromtheExternalitiesandEfficiencysectionofthetextbookthatbeginsonpage464.Youmaywanttoreviewthesectionbeforecompletingthisproblem.Step2:Drawagraphtoillustratetheexternalityassociatedwithprivatelyfundedresearchtocuremalaria.Q1Q2QuantityStep3:Describehowtheexternalitycausesadeviationfromeconomicefficiency.Thereisapositiveexternalityassociatedwithmedicalresearchbecauseoftheexternalbenefitsitgenerates.Assumethatresearchershadfoundacurefortheso-called“SpanishFlu”in1918atthebeginningofthepandemic.Thebenefitstothosepeoplewhowouldbeprotectedfromcontractingthedeadlydiseasewouldbesubstantial.Ifthebenefitwasestimatedat$100foreachperson,theexternalbenefitsrangeinthebillionsofdollars.Ofcourse,medicalresearchisbynatureuncertainandscientistsanddoctorscanExternalities,environmentalpolicy,andpublicgoods228workmanyyearswithoutfindingacureforanydisease.Privatehospitalsandresearchlaboratoriesarelikelytoreceivearelativelysmallamountofthesocialbenefitfromtheirefforts.Asaresult,theprivatedemandformedicalresearchwillbelessthanthedemandthatreflectssocialbenefits.TheprivatemarketequilibriumpriceandquantitywouldbeP1andQ1.Atthispointthemarginal(socialbenefit(MBwouldexceedthemarginalcost(MC.TheeconomicallyefficientlevelpriceandquantitywouldbeP2andQ2wheremarginal(socialbenefitisequaltomarginalcost.Self-Test(AnswersareprovidedattheendoftheSelf-Test.Multiple-ChoiceQuestions1Whatisthecostthataffectssomeonewhoisnotdirectlyinvolvedintheproductionorconsumptionofagoodcalled?aPrivatecost.bSocialcost.cExternality.dAlloftheabovefitthatdefinition.2Whatisthedifferencebetweenprivatebenefitandsocialbenefit?aAnexternalbenefit.bPrivatecost.cSocialcost.dAnegativeexternality.3Refertothefigurebelow.Inwhichofthesemarketsisanexternalitypresent?aInthemarketontheleft.bInthemarketontheright.cInbothmarkets.dNeithermarketexhibitsanexternality.229Chapter154Refertothefigurebelow.Inwhichofthemarketsistheprivatequantityofoutputinsufficientforsocialefficiency?aInmarketA.bInmarketB.cInbothmarkets.dInneitherofthetwomarkets.5Refertothefigurebelow.Whenanexternalityispresent,whichcombinationofpriceandquantitydoesthemarketyield?aP0,Q0.bP1,Q1.cP0,Q1.dP1,Q0.6Whatisthesituationcalledinwhichthemarketfailstoproducetheefficientlevelofoutput?aAnexternality.bMarketfailure.cExternaldisequilibrium.dTheCoaseTheorem.Externalities,environmentalpolicy,andpublicgoods2307Whatarethesourcesofexternalitiesandmarketfailure?aIncompletepropertyrights.bThedifficultyofenforcingpropertyrightsincertainsituations.cBothAandBabove.dLackofunderstandingofthemarketsystem.8WhichofthefollowingstatementsiscorrectaccordingtoRonaldCoase’sargumentforcuringexternalitiesandmarketfailure?aAprivatesolutiontotheproblemofexternalitiescanbefound.bOnlypublicsolutionsexistforsolvingexternalities.cCompletelyeliminatinganexternalityisalmostalwaysthemostefficientsolution.dTheonlycuretoexternalitiesistaxation.9Whatisthenetbenefittosocietyfromreducingpollutionequalto?aThesumofthebenefitsofreducingpollutionandthecosts.bThedifferencebetweenthebenefitsandthecosts.cTheadditionalbenefitplustheadditionalcosts.dThequantityofpollution,suchasthetonsofreductioninsulphurdioxide.10Refertothefigurebelow.Whichofthefollowingistruewhenthereductioninsulphurdioxideequalsseventons?aThemarginalbenefitofreducingsulphurdioxideemissionsisgreaterthanthemarginalcost.bFurtherreductionswillmakesocietyworseoff.cTheoptimalamountofpollutionreductionhasbeenfound.dAlloftheabove.231Chapter1511Refertothefigurebelow.Howmuchreductioninsulphurdioxidecanbeconsideredeconomicallyefficient?a7.0tons.b8.5tons.c10.0tons.dAlloftheabove.12Refertothefigurebelow.Whatarearepresentsthetotalcostofincreasingthereductionofsulphurdioxidefrom8.5millionto7.0milliontonsofsulphurdioxide?aAreaAbAreaBcAreaA+BdNoneoftheabove.Thegraphshowsonlymarginalbenefit.Externalities,environmentalpolicy,andpublicgoods23213Refertothefigurebelow.Howmuchisthenetbenefit(inmillionsofincreasingthereductionofsulphurdioxidefrom7.0milliontonsto8.5milliontons?a$255.b$120.c$200.dNoneoftheabove.14Fillintheblanks.Whentherearemanypeopleinvolved,thetransactionscostsareoften_______thanthenetbenefitsfromreducingtheexternality.Insuchcases,aprivatesolutiontoanexternalityproblem_______feasible.ahigher;isbhigher;isnotclower;isdlower;isnot233Chapter1515Refertothefigurebelow.Whichofthefollowingbestrepresentsataxequaltothevalueofthenegativeexternality?aS1.bS2.cTheverticaldistance(orarrowbetweenS1andS2.dEquilibriumatpointA.16Refertothefigurebelow.Tobringaboutsocialefficiency,whatshouldthemagnitudeofthearrowinthegraphbeequalto?atheamountofasubsidybtheamountofataxctheamountofapriceincreasedthesocialbenefitofeducationExternalities,environmentalpolicy,andpublicgoods23417Whatdoesthetermexcludabilityreferto?aAsituationinwhichoneperson’sconsumptionofagoodmeansthatnooneelsecanconsumeit.bThefactthatanyonewhodoesnotpayforagoodcannotconsumeit.cTheideathatsomeonecanbenefitfromagoodwithoutpayingforit.dThepossibilitythatpublicgoodsmaybecomeprivategoods.18Refertothetablebelow.Whichoftheboxesappliestogoodsthatareexcludableandnon-rival?aAbBcCdD19Refertothefigurebelow.Whichquantityistheoptimalquantityofthispublicgood?a12units.b15unitsc18units.dNoneoftheabove.20Whatisthetragedyofcommons?aThetragedyofcommonsreferstothefactthatsomepeoplebenefitfromagoodwithoutpayingforit.bThetragedyofcommonsisthetendencyforsomegoodstobeexcludedfrompublicconsumption.cThetragedyofcommonsreferstothefactthatagoodcanberivalbutnon-excludable.dThetragedyofcommonsreferstothetendencyforacommonresourcetobeoverused.235Chapter15ShortAnswerQuestions1.ExplainwhythemarginalbenefitsfromreducingleadinMelbourne’sairin1986weregreaterthanthemarginalbenefitsofreducingleadanequivalentamounttoday.2.StevenCheungoftheUniversityofWashingtonhaswrittenaboutthepositiveexternalitiesassociatedwithbeekeepingandapplegrowing(seeMakingtheConnection15.2onpage473.ExplainwhythesolutiontothisexternalitiesproblemisanapplicationoftheCoaseTheorem.3.Airandwaterpollutionimposeexternalcostsonpeoplewithouttheirconsent.Whyisn’titeconomicallyefficienttocompletelyeliminatetheseexternalcostsbyreducingtheamountsofairandwaterpollutiontozero?4.Communityradioandtelevisionstationsperiodicallyinterrupttheirregularbroadcastschedulesinordertosolicitfundsfromtheirlistenersandviewers.Why?5.RonaldCoasearguedthatprivatesolutionscansolveexternalitiesproblemswithoutgovernmentintervention.Whyisgovernmentinterventionusedmoreoftenthanprivatebargainingtosolveexternalitiesproblems?True/FalseQuestionsTF1.TheCoaseTheoremprovesthatgovernmentinterventionisnecessarytosolveexternalitiesproblems.TF2.Acommonresourceisagoodthatisexcludablebutnotrival.TF3.Anaturalmonopolydescribesamarketforagoodthatitisexcludablebutnotrival.TF4.Thefederalgovernmentratherthanprivatefirmsprovidenationaldefencebecauseconsumersofnationaldefencehaveanincentivetobefreeriders.TF5.Asocialbenefitistheprivatebenefitplusanyexternalbenefitfromconsumingagoodorservice.TF6.Ifthemarginalcostofreducingemissionsofsomepollutantisgreaterthanthemarginalbenefit,societywillbebetteroffiftheseemissionsareincreased.TF7.A.C.Pigoureceivedthe1991NobelPrizeinEconomicsforhisworkonfindingprivatesolutionstoproblemsarisingfromexternalities.TF8.Governmentpaymentstostudentstoattendcollegeareonewaytointernalizeapositiveexternality.TF9.MostEuropeangovernmentsfavourasystemoftradeableemissionspermitstoreducecarbondioxideemissions.TheAustraliangovernmentfavoursaprogramthatwouldrequireindividualcountriestoreduceemissionsbyaspecifiedamount.TF10.Thedemandforapublicgoodisdeterminedbyaddingthepriceeachconsumeriswillingtopayforeachquantityofthepublicgood.Externalities,environmentalpolicy,andpublicgoods236AnswerstotheSelf-TestMultipleChoiceQuestionsQuestionAnswerCommen