Liberty University ECON 213 InQuizitive chapter 7 complete solutions correct answers updated

Liberty University ECON 213 InQuizitive chapter 7 complete solutions correct answers updated

Chapter 7: Market Inefficiencies: Externalities and Public Goods

What is the definition of an externality?

any benefit associated with a market activity

influence on market activity by an outside party

any cost associated with a market activity

a cost or benefit of market activity to an outside party

What is a main problem with determining the social benefits of a public good like a community fireworks show?

Fill in the blanks to complete the statement about how people treat property.

When a good belongs to –, it tends to –. That is the problem – exist to solve. A good belonging to – tends to be handled –.

Fill in the blanks to complete the description of public goods.

Public goods such as – are a form of –. Private markets tend to – these goods and services because of the – problem. As a result, – use people’s – dollars to provide for public goods.

Based on the role of property rights, in which of the following scenarios would individuals be incentivized to solve or ignore the problem?

Sports fans celebrate a victory by spraying foam on cars in the parking lot, including their own.

A homeowner spills tomato sauce on the carpet.

People throw trash out the window while driving.

Students leave trash on cafeteria tables after lunchtime.

A dog walker does not clean up after his dog on a neighborhood trail.

All externalities are market failures, but not all market failures are externality

Imagine that a politician has been asked to support the public good proposals below. In order not to waste money and improve her chances of reelection, she makes her decisions based on a cost-benefit analysis. In each of the situations, should she support or reject the proposal?

repairing a broken dam that is a major source of hydroelectric power for a large city

fixing a pothole along a lightly used street

installing streetlights in a community where there has been a lot of crime

building a flood control system for an area that floods once every 100 years

Which of the following correctly describes a subsidy?

Place the events leading to deforestation in Haiti in chronological sequence.

Which incentives come with owning private property?

the incentive to maintain the condition of the property

the incentive to conserve the property

the incentive to trade the property for something more valuable to the owner in the market

the incentive to protect property

the incentive to share the property with others

the incentive to use the property in a manner that is optimal for society

What are ways the government can prompt a producer to internalize pollution costs that were previously external?

Strictly from an economist’s perspective, which of the following is not a problem with cap-and-trade policy?

Why does a campground at a national park not necessarily count as a public good?

The number of camping spaces may be limited.

The park is government-owned.

The campground competes with private campgrounds.

The park may charge a fee for overnight camping.

Public schools are a typical example of a public good.

The members of a neighborhood community have been having a problem with mosquitoes. Although people have been complaining, only a few residents have had their lawns professionally sprayed for mosquitoes. The homeowner’s association decides to use some of the association dues to provide vouchers to reduce the costs for residents who would like to have their properties sprayed. Match each statement about the effects of the voucher policy to the correct graph for the mosquito-spraying market. Click on the graphs to enlarge.

Chemicals from the mosquito spray may leach into the groundwater.

Neighborhood visitors will receive fewer mosquito bites.

The deadweight loss of mosquito spraying will be reduced or eliminated.

The Dinternal curve will shift toward the Dsocial curve.

For the problems of overfishing of Alaskan king crab, match each action to the problem it addresses.

Place each of the four goods listed in the appropriate location in the diagram.

What are some circumstances under which the Coase theorem fails to apply? Choose all correct options.

Fill in the blanks to complete the description of common property.

Under a system of common property, – leads to – and overuse. The phrase tragedy of the commons has been used to describe this type of situation.

A negative externality is the same thing as an external cost.

What are the beneficial effects of copyright law, in terms of addressing the free-rider problem? More than one answer may be correct.

Fill in the blanks to complete the passage about the tragedy of the commons.

In 1968, Garret Hardin wrote about a hypothetical pasture being ruined by –. The cause was – ownership that gave each herder – to use the pasture and – to exercise restraint. One solution for this kind of situation would be a change in the – of the commons.

A series of events takes place when an externality is internalized. Place the events in logical order.

Makers update woodstove designs.

Widespread use of residential woodstoves affects air quality.

New regulations impose emission limits on all new woodstoves.

The costs of implementing the design changes are partly borne by makers and partly passed on to consumers.

Air quality improves as the new woodstoves come into use.

Several ways exist to reduce the overuse or neglect of common resources. Match each situation with the correct method for eliminating the tragedy of the commons.

Cap-and-trade policy in effect makes the right to pollute a tradable good.

Which of the following would need to be true for Internet access to qualify as a club good?

Only a limited number of users can have access at any given time.

There is no monthly fee or sign-up fee.

Subscription fee is higher than the social optimum.

Connection speed does not depend on number of current users.

A new chocolate factory is built in a small town. Residents love the smell that emanates from the chocolate production, and visitors buy candy from the factory’s retail shop. For a fee, the company also offers factory tours and chocolate tastings to visitors. Which of the following statements about the chocolate factory are accurate?

The factory should permit the town visitor’s center to sell discounted tickets for the chocolate tastings.

Without government intervention, the factory produces too much chocolate.

The town government should tax the production of chocolate.

The factory will increase tourist business for owners of shops and restaurants in the town.

Fill in the blanks to complete the passage about common-resource goods.

Common-resource goods are – and also non-–. Together with –, they represent a kind of middle ground between – and public goods. A typical example would be any marketable ocean-dwelling fish, since – is not practical and fish stocks are –.

Place each definition, corrective measure, and example in the appropriate location.

Fill in the blanks to complete the passage describing ways of encouraging vaccination.

In order to maximize everyone’s – benefits, schools can require proof of vaccination from their students, and – often provide – to lower the cost of vaccines for –

A lack of enforceable property rights would discourage you from maintaining your car in good condition. Which factors contribute to this situation?

A poorly maintained car is less valuable.

Maintaining a car costs time, money, and effort.

A lack of enforceable property rights increases the incentive to trade with others.

Classify each activity involving common property as neglect, overuse, or neither.

Logging removes timber faster than it can grow back.

Litter is allowed to accumulate on a beach.

Redwood trees in a park become unhealthy due to heavy foot traffic at their base.

In a national park, all wildfires are immediately put out.

Identify each example of a cost as an internal cost or an external one.

A firm produces a good that generates a large amount of pollution. The government decides to force the firm to internalize the external cost of pollution, by imposing stricter pollution control requirements. Place the labels in the correct locations in the diagram, which depict the shift in market equilibrium as a result of anti-pollution regulations.

A rancher’s cattle is getting into a farmer’s wheat. The farmer is displeased because a low-cost barbed wire fence could be constructed to fix this problem. What does the Coase theorem predict could happen, depending on what property law says about the farmer’s right to his cropland? More than one choice may be correct.

A city concerned about water consumption would like homeowners to replace their lawns with low-water-consumption landscaping. To encourage this, the county offers a subsidy of $2 per square foot of lawn replaced, thereby causing homeowners to internalize the community benefit of water conservation. The diagram depicts the supply and demand for drought-tolerant shrubs. Place the labels in the correct locations in the diagram, which depict the shift in market equilibrium as a result of the subsidy.

A college professor requires students to complete group presentations. Which of the following grading schemes would make it most difficult for one or more individuals in each group to act as free-riders? Order the schemes from having the lowest likelihood to having the highest likelihood of encouraging group members to be free-riders.

Group members complete an evaluation of everyone’s contribution that counts as a small part of the individual’s final project grade.

Group members must assign roles for each part of the project, and all members receive the same final project grade.

Group members complete an individual paper on the group topic that counts as a large part of an individual’s final project grade.

Match each type of good to the corresponding description.

What would be a reason for a government not to intervene with a particular externality?

Some citizens are not affected by the externality.

The externality does not affect those actually engaged in market activity.

The externality is not large enough to justify the costs of intervening.

The externality is well established and not a surprise to the market.

Match each label to the good it fits best.

Identify each externality as either positive or negative.

Place the events in order to explain how a public good comes to be undersupplied

Many merchants and citizens benefit and verbally express their gratitude.

When those who expressed thanks are asked to support the effort with a voluntary financial contribution, only a few do so.

Lacking the funds to pay for supplies and transportation, the volunteer team eventually quits.

A team of volunteers spends weekends removing unwanted graffiti in public spaces.

The incentive to trade is different from the other three property incentives (to maintain, to protect, to conserve) because the others are about safeguarding value, while trading is about allocating it.

Choose the best explanation for why national defense is a public good.

It is not feasible for a nation to defend only selected people who pay for defense against invasion.

Waging war is not a profit-generating activity.

War is too expensive for people to afford.

One cannot control the timing of an attack by another nation.

Private property rights create incentives. Match each type of incentive to a corresponding example.

Which class of goods generally gives rise to free-rider problems?