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Which of the following is true if good x is an externality exhibiting good.
If consumption of good x by person 1 exhibits a positive externality, then consumption of good x by person 2 must also exhibit a positive externality.
Consumers consume too much good y relative to what is socially optimal.
Consumers consume too much good x relative to what is socially optimal.
Equilibrium consumption of the good is not Pareto efficient.
Step by step
Solved in 2 steps
- Suppose there are two consumers A and B, and two goods x and y. A’s utility function has the following form UA = xA – (xB)-1. Which of the following is true? Consumer B's consumption of good x exhibits a negative externality. Consumer A's consumption of good x exhibits a negative externality. Consumer B's consumption of good x exhibits a positive externality. Consumer A's consumption of good x exhibits a positive externality.Consider two ways of commuting in a crowded city: taking public transportation, such as subway and buses, or driving your own car. A person who chooses to take public transportation in a crowded city imposes a NEGATIVE OR POSITIVE externality on drivers. A policy implication of this result is a SUBSIDY FOR OR TAX ON those who take public transportation. Persons who choose to drive their own cars to get around in a crowded city impose a NEGATIVE OR POSITIVE externality on other drivers. A policy implication of this result is a TAX ON OR SUBSIDY FOR those who drive their own cars.The Coase theorem states that if transactions costs are low, property rights are assigned, and parties understand how much they value something, private bargaining will result in an efficient solution to the problem of externalities. government intervention is always needed if externalities are present. a free market equilibrium is the best solution to address externalities. assigning property rights is the only thing the government should do in a market economy.
- In a Lindahl equilibrium, which of the following is true: All individuals pay the same tax shares. Individuals who have a higher demand for public goods consume more public goods. The quantity of public goods consumed is more than the quantity of private goods. The quantity of public goods provided satisfies the Samuelson rule.If a positive demand-side externality (also called a positive externality in consumption) occurs, then: a. The market provides the efficient allocation. b. The market under-provides the product, meaning the market allocation is less than the efficient allocation. c. The market does not provided the product, hence market failure occurs. d. The market over-provides the product, meaning the market allocation is more than the efficient allocation.Consider the production and sale of Good B. Suppose that the “Social Value” of each unit of Good B is greater than the “Willingness to Pay” of the individual who consumes that unit. There are NO externalities associated with the production or consumption of Good B, and Good B is sold in a competitive market. Suppose that the “Efficient” level of output for Good B is 400,000 units. Is the market equilibrium level of output greater than 400,000, less than 400,000, or equal to 400,000 ( just circle your answer; you don’t have to explain)?
- Give an ideal example of a positive (consumption) externality which leads to a market failureIf a negative supply-side externality (also called a negative externality in production) occurs, then: a. The market provides the efficient allocation. b. The market under-provides the product, meaning the market allocation is less than the efficient allocation. c. The market does not provided the product, hence market failure occurs. d. The market over-provides the product, meaning the market allocation is more than the efficient allocation.Goods that are accompanied by negative externalities are priced lower than is socially ideal. But, oddly, goods that are accompanied by positive externalities are also priced lower than is socially ideal. Explain this apparent paradox.
- Define negative and positive externalities and analyze their effect on resource allocationsQ1. If there are no externalities a competitive market achieves economic efficiency. If there is anegative externality, economic efficiency will not be achieved because a. too much of the good will be produced. b.a deadweight loss will occur that is equal to the area under the demand curve for the good. c.too little of the good will be produced. d.economic surplus is maximized
