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Econ Test 3


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economists use the term externalities to refer to
consequences of actions that actors ignore in their decision making
positive externalities are created by people when they act in ways that
benefit others without their intent to do so
a negative externality clearly occurs when
a person's action unintentionally imposes costs on other people
Bongo plays drums in his parent's garage after school. what can be sure of?
Bongo expects to benefit from drumming
a local bar provides free pretzels and peanuts and cheap drinks on Monday night. But soon a fight breaks out in the parking lot between two quarreling patrons. Neighboring homeowners awaken as a result, and call the police. What can we clearly conclude?
the fighters impose a negative externality on the neighboring homeowners
A great deal of damage is done to the enviroment in urban US because
the enviroment is treated as everyone's property and therefore as no one's property
Freeways in large cities tend to be so congested during rush hours that they offer little or no advantage over non-freeway routes because
no monetary fee is charged for the use of freeways during rush hours
congestion pricing is
an attempt to internalize the external costs of driving

is a financial instrument used to manage road demand and reduce congestion by charging road users for their direct use of the road in peak times.
How is a politician similar to an entrepeneur
each advances a project only if the expected marginal benefits exceeed teh expected marginal costs
transaction costs in economic theory refer to
costs of arranging and carrying out voluntary exchanges
if no beautification projects were undertaken in a city except by private individuals or firms, that city would almost surely be less beautiful than otherwise comparable cities because
it is extremely difficult to induce people to pay on a voluntary basis for the pleasure they receive from urban beautification projects
In the economic way of thinking, all ignorance is ultimately
rational ignorance
a price support on milk is not in the interest of milk drinkers. then why do elected public officials successfully implement milk price supports?
a small number of dairy farmer households gain a great deal, while the costs of the support program is spread among millions of other milk drinking households
An important difference between goverment and privately owned enterprises is that goverment
can more easily use negative incentives to obtain resources
the textbook argues that goverment supplies police protection because
it is difficult to supply police protection exclusively to those who pay for it
The argument from positive externalities for goverment subsidies to education assumes or asserts that
Students capture only part of the benefits from attending school
legislators in a democracy are more likely to support special interests than the broad interests of citizens generally because
the pay attention to the people paying attention to them
a free rider in economic theory is someone who
can obtain a desired good without payng for it and therefore has no incentive to contribute to the costs of making it available
From which of the following goods is it most difficult to exclude free riders
a radio program
The problem of "free riders" arises in a society when goods
cant be provided exclusively to those who pay for them
a proportional income tax structure implies that
marginal tax rates are the same regardless of the level of taxable income
a tax rate system characterized by higher marginal tax rates as income increases is known as a
progressive tax system
the marginal tax rate is equal to
the change in the tax payment divided by the change in income
a merit good is one which
has been deemed socially desirable via the political process
pollution is apt to lead to a market failure in which there is
an overallocation of resources in production
the largest share of federal goverment tax receipts is derived from
individual income taxes
in the absence of goverment
public goods are likely to be underprovided
which of the following would be classified as a private good?
one characteristic of a public good is that it
can be consumed simultaneously by many individuals
in the short run, if firms were forced to take into account the full social costs of production, then
output and pollution levels would decrease
The crux of the problem of pollution is
property rights that are poorly defined or expensive to enforce
the inflation-corrected price of most resources has been
falling for decades
recycling paper products may not save trees because
most trees are planted to produce paper and that land would be put to alternative uses
suppose ther are two factories on a river, and both need clean water for their production processes. the upstream factory takes in clean water and dumps dirty water back into the river. The downstream firm must clean up the water it gets from teh river b
the upstream factory's private costs are less than its social costs, and its external costs are borne by the downstream factory
the marginal benefit of pollution abatement
decreases as pollution abatement (suspension) increases because of the law of diminishing marginal utility
Buffalo in the US almost became instinct while cattle have never been close to extinct. the difference is due to
the use of private property rights on cattle relative to buffalo
economic theory suggests that if natural resources can be held as private property, then
owners will have an incentive not to abuse them
If a good is produced by firms that generate external costs, the price consumers pay
will be too low
in economic analysis, the optimal level of pollution
is where the marginal benefit from further reduction equals the marginal cost of further reduction
one difficulty in using voluntary transactions to internalize externalities is taht
transaction costs of coming to an agreement can be very large when numerous people are involved
T/F-In chapter 19 of the Economics of Public Issues book, MBN write that CAFE standards actually caused the rise of people using SUV's taht use more gasoline
what is one major cost of the CAFE standard
more light cars have to be produced which are more dangerous in accidents
the authors pose that the real reason CAFE standards were imposed (to lower gas prices) rather than a more direct tax on gasoline was because
b. domestic car producers benefited
c. politicians responded rationally to incentives they faced
T/F-superfund hs to consider the marginal benefits and marginal costs of forcing a clean-up
T/F-hazlitt being a supporter of the free-market was aganst goverment spending
T/F-According to the freeloaders video, the economist John Stossel interviewed argued taht sports stadiums create jobs and are a positive influence on local economy
T/F-walter williams said that politicians and thieves are exactly the same
T/F-rent-seeking behavior explains many political decisions
T/F-all scientists agree that global warming is a threat
T/F-stossel argued that many enviromentalists are indoctrinating the youth of America

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