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MS 2220 Final CH 16
MS 2220 Final Chapter 16
| Question | Answer |
|---|---|
| When examining market failure, we look at _____ as a source of inefficiency | externalities |
| What are some other names for externalities? | spillovers or neighborhood effects |
| What is the total cost to society of producing an additional unit of a good or service | marginal social cost |
| MSC (marginal social cost) is equal to the sum of what? | marginal costs of producing and the measured damage costs involved in production |
| What is the profit-maximizing point? | P=MC |
| What is an excellent example of an externality? | acid rain! |
| What is the amount that a consumer pays to consume an additional unit of a particular good? | Marginal private cost (MPC) |
| What is the additional harm done by increasing the level of an externality-producing activity by 1 unit? | Marginal damage cost |
| If producing product X pollutes the water in a river, the marginal damage cost is the additional cost imposed by the added pollution that results from increasing output by ____________ | 1 unit of X per period |
| A number of mechanisms are available to provide decision makers with incentives to weigh the external costs and benefits of their decisions is referred to as _____ | internalization |
| Under certain conditions, where externalities are present, private parties can arrive at the efficient solution without government involvement | Coase theorem |
| A court order forbidding the continutation of behavior that leads to damages | Injunction |
| Laws that require A to compensate B for damages imposed | Liability rules |
| Goods that are nonrival in consumption and/or their benefits are nonexcludable | public goods (social collective goods) |
| A characteristic of public goods - one persons enjoyment of the benefits of a public good does not interfere with another's consumption of it | nonrival in consumption |
| A characteristic of public goods - once a good is produced, no one can be excluded from enjoying its benefits | nonexludable |
| Problem intrinsic to public goods; because people can enjoy the benefits of public goods whether or not they pay for them, they are usually unwilling to pay for them | the free-rider problem |
| A problem intrinsic to public goods; the good or service is usually so costly that its provision gneerally does not depend on whether any single person pays | drop-in-the-bucket problem |
| the level at which society's total willingness to pay per unit is equal to the marginal cost of producing the good | optimal level of provision for public goods |
| An efficient mix of public goods is produced when local land/housing prices and taxes come to reflect consumer preferences just as they do in the market for public goods | Tiebout Hypothesis |
| Goods that are part public goods and part private goods (i.e. education) | mixed goods |
| The problem of deciding what society wants; the process of adding p individual preferences to make a choice for society as a whole | social choice |
| A proposition demonstrated by Kenneth Arrow showing that no system of aggregating individual preferences into social decisions will always yield consistent, nonarbitrary results | Impossibility Theorem |
| A simple demonstration of how majorit-rule voting can lead to seemingly contradictory and inconsistent results; a commonly cited illlustration of the kind of inconsistency described in the impossibility theorem | voting paradox |
| Occurs when congressional representatives trade votes, agreeing to help each other get certain pieces of legislation passed | Logrolling |
Created by:
savelae
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