Macroeconomics: Principles, Problems, & Policies
20th Edition
ISBN: 9780077660772
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
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Question
Chapter 4, Problem 6RQ
To determine
Positive and negative externalities.
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Match each of the following characteristics or scenarios with either the term negative externality or the term positive externality. a. Overallocation of resources. b. Tammy installs a very nice front garden, raising the property values of all the other houses on her block. c. Market demand curves are too far to the left (too low). d. Underallocation of resources. e. Water pollution from a factory forces neighbors to buy water purifiers
See each of the following characteristics or scenarios about externalities. Choose a
correct answer whether each statement matches with the term negative externality
or the term positive externality.
a. Resources are overallocated.
( Positive, Negative) externality
く-ー
b. Gini installs a very nice front garden, raising the property values of all the other
houses on her block.
-- ( Positive, Negative) externality
c. Market demand curves are too far to the left (too low).<-- ( Positive, Negative)
externality
d. Resources are underallocated. <--
( Positive, Negative)
ternality
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a. Which of the following situations exhibits a positive externality?
__ Alan purchases a new watch as a gift for his father.
__ Sean spends the afternoon cleaning his garage.
__ Richard renovates a dilapidated historic home in the center of town.
b. when there is a positive externality associated with the market
__ too little is produced.
__ too much is produced.
__ the socially optimal amount is produced.
c. Governments may stimulate the economy to move toward the socially optimal output by
__ taxing the product
__ subsidizing the product.
__ implementing a price ceiling.
Chapter 4 Solutions
Macroeconomics: Principles, Problems, & Policies
Ch. 4.A - Prob. 1ADQCh. 4.A - Prob. 2ADQCh. 4.A - Prob. 3ADQCh. 4.A - Prob. 1ARQCh. 4.A - Prob. 2ARQCh. 4.A - Prob. 3ARQCh. 4.A - Prob. 1APCh. 4 - Prob. 1DQCh. 4 - Prob. 2DQCh. 4 - Prob. 3DQ
Ch. 4 - Prob. 4DQCh. 4 - Prob. 5DQCh. 4 - Prob. 6DQCh. 4 - Prob. 7DQCh. 4 - Prob. 8DQCh. 4 - Prob. 9DQCh. 4 - Prob. 1RQCh. 4 - Prob. 2RQCh. 4 - Prob. 3RQCh. 4 - Prob. 4RQCh. 4 - Prob. 5RQCh. 4 - Prob. 6RQCh. 4 - Use marginal cost/marginal benefit analysis to...Ch. 4 - Prob. 1PCh. 4 - Prob. 2PCh. 4 - Prob. 3PCh. 4 - Prob. 4PCh. 4 - Prob. 5PCh. 4 - Prob. 6PCh. 4 - Prob. 7P
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- #3. When pollution (a negative externality) is created by firms, which of the following is NOT a valid way for the government to restore the social optimum? a. require firms to install pollution-abatement equipment b. require firms to change production techniques to reduce emissions c. levy a tax on the production of the good d. require firms to pay for the environmental damage they create e. offer a subsidy to firms to reduce their production costsarrow_forwardGraphically, the effects of an external benefit can be shown as A. a leftward shift of the market demand curve. B. a leftward shift of the market supply curve. C. a downward movement along the market demand curve. D. a rightward shift of the market demand curve.arrow_forwardIf 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.arrow_forward
- 1.a. Suppose there is an external cost, or negative externality, associated with production of a certain good. What's wrong with letting the market determine how much of this good will be produced? List at leadsr one example of negative externalty. 1.b. The owner of a small pizzeria is deciding whether to increase the radius of delivery area by one mile. What considerations must be taken into account if such a decision is to increase profitability?arrow_forwardIn what sense do positive externalities cause the so-called "invisible hand" of the marketplace to "fail"? Select one: a. Such externalities lead to government intervention in markets, which exacerbates the problems associated with externalities. Ob. Such externalities eliminate "free-riding" c. In the absence of government intervention, markets with positive externalities often fail to produce the maximur total benefit to society, as measured by total surplus. d. Markets with positive externalities produce too much of the good or service in question.arrow_forwardPlease answer the following questions.1. Explain the factors affecting Demand.2. Explain the difference between positive and negative externalities alongwith an example.3. How are public goods different from private goods?4. Explain the Law of Supply.5. With regard to demand and Supply, explain the point of MarketEquilibrium.arrow_forward
- If 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.arrow_forwardThere is often litter along highways but rarely in people's yards. Which of the following statements help explain this observation? Check all that apply. A. When a person litters along a highway, others bear the negative externality of having to clean it up. B. No one cares if there is litter on the highway. C. Littering in your own yard imposes costs to you, so you are less likely to do it.arrow_forwardUse the graph attached below as a starting point (either download it or print it out). Add curves, labels, etc. to this graph in order to show the following: 1. Show that this good has a $4/unit negative externality (external cost), such as pollution. 2. Shade the area that represents the Deadweight Loss (lost gains from trade) caused by the external cost. 3. Show a tax or subsidy wedge (whichever you think is appropriate) that will solve the problem of the external cost. 4. Show the socially optimal level of production that the Pigouvian tax or subsidy above will help the market to achieve. You may use software or pencil and paper to complete this graph. Upload it here when you are done.arrow_forward
- Which of the following is an example of an activity generating a positive externality? O A. You buy a new car and then find $5,000 in the door panel. OB. Your next-door neighbor mows the lawn at 6 am. C. Your next-door neighbor installs a bat house and the bats eat mosquitoes. D. After Joe buys health insurance, he decides to quit smoking.arrow_forwardWhich one or ones of the following is/are an example (or examples) of positive externality? I. A shoe factory manufactures shoes at a river coast without restriction and local residents become ill due to polluted water. II. An architect designs a house for herself to live in lonely. III. A company pays lots of money for research and development and general level of knowledge within society increases along with new production techniques to manufacture cheaper and quality goods. IV. An apartment manager puts a disinfectant against Covid19 at entrance for residents and Cargo workers also use it. * Only IV I and II None of them O , Il and IV All of them O IIl and IV I and II Il and III O I,l and II Il and IV O I, Ill and IVarrow_forward
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