Lesson test: Externalities and public goods

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Externalities and public goods

1.[3p]
A market has demand $p = 100 - Q$ and marginal private cost $10 + Q$ , with £20 of external damage per unit. What is the efficient quantity?

CorrectNot quite: 35

2.[3p]
For that market, what is the deadweight loss from the unregulated outcome, in pounds?

CorrectNot quite: 100

3.[3p]
Why is the efficient level of a harmful externality usually not zero?

The activity generating it also produces value, so the right amount is where marginal damage equals marginal benefit

Correct

Some pollution is required by law

The answer is: The activity generating it also produces value, so the right amount is where marginal damage equals marginal benefit

Eliminating it entirely is technically impossible

The answer is: The activity generating it also produces value, so the right amount is where marginal damage equals marginal benefit

Marginal damage is always below marginal benefit

The answer is: The activity generating it also produces value, so the right amount is where marginal damage equals marginal benefit

4.[3p]
What did Coase actually argue in 1960?

With clear rights and costless bargaining the efficient outcome is reached whoever holds the right, so the real question is transaction costs

Correct

Externalities never require any government action

The answer is: With clear rights and costless bargaining the efficient outcome is reached whoever holds the right, so the real question is transaction costs

Pigouvian taxes are always superior to bargaining

The answer is: With clear rights and costless bargaining the efficient outcome is reached whoever holds the right, so the real question is transaction costs

Property rights should always be given to the party causing the harm

The answer is: With clear rights and costless bargaining the efficient outcome is reached whoever holds the right, so the real question is transaction costs

5.[2p]
Under a Pigouvian tax set equal to marginal damage, the tax removes a deadweight loss rather than creating one.

True

Correct

False

The answer is: True

6.[3p]
Three households value a public good at $50 - Q$ , $40 - Q$ and $30 - Q$ per unit, and it costs £45 per unit. What is the efficient quantity?

CorrectNot quite: 25

7.[3p]
Why are marginal benefits summed vertically for a public good?

Everyone consumes the same quantity, so it is the benefits and not the quantities that add

Correct

Public goods are provided by government, which adds up votes

The answer is: Everyone consumes the same quantity, so it is the benefits and not the quantities that add

Marginal cost is constant for public goods

The answer is: Everyone consumes the same quantity, so it is the benefits and not the quantities that add

Households cannot be excluded, so their demands are identical

The answer is: Everyone consumes the same quantity, so it is the benefits and not the quantities that add

8.[3p]
Match each good to its classification.

A sandwich
A streaming subscription
An ocean fishery
National defence

neither rival nor excludable
non-rival but excludable
rival but non-excludable
rival and excludable

Show the answer

A sandwich: rival and excludable A streaming subscription: non-rival but excludable An ocean fishery: rival but non-excludable National defence: neither rival nor excludable

9.[2p]
What did Elinor Ostrom establish about common resources?

Communities have managed shared resources sustainably without either private property or central control

Correct

The tragedy of the commons never occurs in practice

The answer is: Communities have managed shared resources sustainably without either private property or central control

Private ownership is always the cheapest solution

The answer is: Communities have managed shared resources sustainably without either private property or central control

Common resources are best treated as public goods

The answer is: Communities have managed shared resources sustainably without either private property or central control

1.[3p] A market has demand p=100-Q and marginal private cost 10+Q, with £20 of external damage per unit. What is the efficient quantity?

2.[3p] For that market, what is the deadweight loss from the unregulated outcome, in pounds?

3.[3p] Why is the efficient level of a harmful externality usually not zero?

4.[3p] What did Coase actually argue in 1960?

5.[2p] Under a Pigouvian tax set equal to marginal damage, the tax removes a deadweight loss rather than creating one.

6.[3p] Three households value a public good at 50-Q, 40-Q and 30-Q per unit, and it costs £45 per unit. What is the efficient quantity?

7.[3p] Why are marginal benefits summed vertically for a public good?

8.[3p] Match each good to its classification.

9.[2p] What did Elinor Ostrom establish about common resources?

1.[3p]
A market has demand $p = 100 - Q$ and marginal private cost $10 + Q$ , with £20 of external damage per unit. What is the efficient quantity?

2.[3p]
For that market, what is the deadweight loss from the unregulated outcome, in pounds?

3.[3p]
Why is the efficient level of a harmful externality usually not zero?

4.[3p]
What did Coase actually argue in 1960?

5.[2p]
Under a Pigouvian tax set equal to marginal damage, the tax removes a deadweight loss rather than creating one.

6.[3p]
Three households value a public good at $50 - Q$ , $40 - Q$ and $30 - Q$ per unit, and it costs £45 per unit. What is the efficient quantity?

7.[3p]
Why are marginal benefits summed vertically for a public good?

8.[3p]
Match each good to its classification.

9.[2p]
What did Elinor Ostrom establish about common resources?