Principles of Economics (12th Edition)
12th Edition
ISBN: 9780134078779
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
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Chapter 16, Problem 1.6P
To determine
Whether the private individuals involved in externalities would reach the efficient outcome through negotiations.
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What conditions are needed for the Coase Theorem to be a viable way to correct externalities?
Describe a positive or negative externality that you have observed in your life. In the example you provide, determine if the externality is positive or negative, explain why, and discuss if you feel like government intervention is present and/or needed. If so, how does (or how could?) the government increase market efficiency?
What are “public goods”? Pick a government good/service that you consume, define what makes it a public good (how is its non-rival and non-excludable). As we discussed in class, the existence of externalities creates an efficiency problem in the provision of these goods and services. Unlike the private sector, State and Local Governments can intervene. Using the example of the public good, you have provided, please provide an example of an externality that will impact its provision, and detail how a government could/should intervene.
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Principles of Economics (12th Edition)
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- what is one function of the government other than correcting externalities?arrow_forwardWhat are commons and public goods? Provide any two examples of such goods.arrow_forwardWhen an economy and government face negative externality, describe the cause of this problem and what are some solutions? Name at least three possible methods of correction.arrow_forward
- Illustrate using your own words and a suitable example the effect of negative externality such as polution on market efficiency, Draw a supply-and-demand diagram to explain the effect polustion. and show how the problem caused by polution can be solved without government intervention.arrow_forwardIn what ways do company investments in research and development create positive externalities?arrow_forwardWhat are two ways to protect your car from theft. The Club (a steering wheel lock) makes it difficult for a car thief to take your car. Lojack (a tracking system) makes it easier for the police to catch the car thief who has stolen it. Which of these types of protection conveys a negative externality on other car owners? Which conveys a positive externality? Do you think there are any policy implications of your analysis?arrow_forward
- #10. When traffic gets congested, there are negative externalities. For big cities, this creates inefficiency. Could the Coase Theorem fix this problem? a. Yes, it can. The government could assign property rights: X number of drivers can be on the road during peak hours. Everyone could then negotiate an efficient solution. b. No, because bargaining costs are too high. c. No, because the government doesn't have enough information to solve the problem. d. Both b and c.arrow_forwardWhich of the following prevents private market negotiations from adequately addressing an externality? a. Unclear property rights b. Perfect competition c. Allocative efficiency d. Low or zero transaction costs e. Perfectly symmetric information.arrow_forwardThe Pigouvian solution to externalities directly compensates those who have had harm done to them. Choose T or F: a. True b. Falsearrow_forward
- Why are taxes, one traditional remedy for negative externalities, less than ideal for smoking cessation in the United States? Nicotine is addictive/demand is inelastic, and smokers are mostly poor, so in effect cigarette taxes reduce the quality of life of people we’re trying to help without substantially reducing smoking Demand is inelastic, and smokers are mostly rich, so they don’t reduce smoking as a result of taxes Demand is elastic, and smokers are mostly old, so taxes reduce smoking but cause increased anxiety among the elderly Demand is elastic, and smokers are mostly young, so they quit smoking but are then more likely to experiment with illegal drugsarrow_forwardGive an example for a negative or positive externality and explain the inefficiency this negative or positive externality might cause. How should the government deal with this negative or positive externality? (regulation, taxes, subsidies, private remedies, etc.) What would be the most appropriate remedy for your example?arrow_forwardDefine externality and please make sure to include three (3) key characteristics of the effects of an externality in your answer.arrow_forward
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