Module 4

Question 1

external benefits

Answer 1

(positive externalities) beneficial spillovers to a third party, who did not purchase the good or service that provided the externalities.

Question 2

free rider

Answer 2

an actor who wants others to pay for the public good and then plan to use the good themselves.

Question 3

intellectual property

Answer 3

the body of law including patents, trademarks, copyrights, and trade secret law that protect the right of inventors to produce and sell their inventions.

Question 4

non-excludable

Answer 4

a good or service is non-excludable when it is costly or impossible to exclude someone from using the good, and this hard to charge for it.

Question 5

non-rivalrous

Answer 5

a good or service is non-rivalrous when more than one person can use the good or service simultaneously.

Question 6

positive externalities

Answer 6

beneficial spillovers to a third party or parties that result form a market transaction.

Question 7

private benefits

Answer 7

benefits that provide benefit to the individual. It can also refer to profits for a firm.

Question 8

private rates of return

Answer 8

occur when the estimated rates of return go primarily to an individual.

Question 9

public good

Answer 9

a good or service that is non-excludable and non-rival. National defense is an example.

Question 10

social benefits

Answer 10

the sum of private and external benefits.

Question 11

social rate of return

Answer 11

the social rate of return is when the estimated rates of return go primarily to society.

Question 12

additional external costs

Answer 12

costs incurred by a third party outside the production process when a unit of output is produced. Also known as an negative production externality.

Question 13

biodiversity

Answer 13

the full spectrum of animal and plant genetic material in a particular ecosystem.

Question 14

command-and-control regulations

Answer 14

laws that specify allowable quantities of pollution and that also may detail which pollution control technologies one must use.

Question 15

externality

Answer 15

a market exchange that affects a third party who is outside or ‘external’ to the exchange. This is sometimes also called spillover.

Question 16

international externalities

Answer 16

impacts on a third party who do not live in the country where the market exchange takes place.

Question 17

market failure

Answer 17

occurs when a market, on its own, does not allocate resources efficiently in a way that balances social costs and benefits.

Question 18

marketable permit program

Answer 18

allow a firm to emit a certain amount of pollution but only if they have a permit to do so.

Question 19

negative externality

Answer 19

a situation where a third party, outside the market transaction, suffers from a market transaction by others.

Question 20

pollution charge

Answer 20

a tax imposed on the quantity of pollution that a firm emits.

Question 21

positive externalities

Answer 21

where a third party, outside the market transaction, benefits from a market transaction by others.

Question 22

property rights

Answer 22

legal rights of ownership on which others are not allowed to infringe without paying compensation.

Question 23

social costs

Answer 23

costs that include both the direct and private cots incurred by firms and also additional costs incurred by third parties outside the production process. It measures the total cost to all members of society.

negative externalities increase social cost while positive externalities lower it.

Question 24

the problem of pollution typically arises in ( ) economies around the world.

Answer 24

high or low income

Question 25

while the traditional approach of US government policies for environmental protection has had some level of success, some economists are proposing changes to

Answer 25

a range of more flexible, market oriented pollution control policies.

Question 26

to be effective, command-and-control environmental regulation required

Answer 26

government environmental agencies to oversee all environmental laws

Question 27

the objective of imposing a higher pollution tax is to

Answer 27

provide adequate incentive for firms to reduce their emissions by more

Question 28

why do private markets fail to account for externalities

Answer 28

decision makers in the market fail to take into account the external effect of their behaviour

Question 29

certain schools of economic thought suggest that a ( ) would reduce pollution in a ( ), when compared to command-and-control regulation

Answer 29

pollution tax; flexible, more cost-effective way

Question 30

a tax on gasoline in an example of

Answer 30

a pollution tax

Question 31

market oriented tool ( ) for firms to take the social costs of pollution into account and ( ) in reacting to these incentives.

Answer 31

create incentives; allow firms some flexibility

Question 32

many economists would view market competition as supporting the invention of new technology because it

Answer 32

encourages creation of products with desirable characteristics

Question 33

the production of too few products or services with positive externalities is an example of

Answer 33

market failure

Question 34

if a small electric automobile manufacturer is able to gain the social return generated by its electric motor, its demand for financial capital would

Answer 34

shift to the right

Question 35

studies have found that the original inventor receives ( ) from innovations, whole other businesses and new product users receive the rest of the benefit

Answer 35

one third to one half of the total economic benefits.

Question 36

because of the legal protection for intellectual property rights, a firm has a better chance of recouping the costs of research if it pursues

Answer 36

applied technological research

Question 37

for a positive externality, ( ) than the social benefits

Answer 37

private benefits of an action are less

Question 38

free riders occur when there are

Answer 38

positive externalities

Question 39

what represents one of the methods that the government can use to promote technology?

Answer 39

protection of intellectual property

Question 40

what group of people if most closely associated with the free rider problem?

Answer 40

consumers who obtain a good without paying for it

Question 41

to help prevent market failure, governments often provide free education to all citizens. Education is considered a ( )

Answer 41

merit good

Question 42

if a firm's efforts to be technologically innovative will create a positive externality, then that firm will likely ( )

Answer 42

have less incentive to innovate to the extent that the whole of society desires.

Question 43

if the maintenance fees for a lighthouse are paid in full each year by charging port fees, then the lighthouse is ( )

Answer 43

nonrivalrous and nonexcludable

Question 44

economists view market competition as supporting the invention of new technology because it ( )

Answer 44

encourages creation of products with desirable characteristics

Question 45

the federal government funds ( ) of the nation's basic research, much of which ( )

Answer 45

about half; conducted at colleges and universities

Question 46

the production of too few products or services with positive externalities is an example of ( )

Answer 46

market failure

Question 47

if a small electric car manufacturer is bale to gain the social return generated by its electric motor, its demand for financial capital would ( )

Answer 47

shift to the right

Question 48

the original inventor receives ( ) from innovations, while other businesses and new product users receive the rest of the benefit ( )

Answer 48

1/4 to 1/3 of the total economic benefits

Question 49

for a positive externality, the ( ) than the social benefits

Answer 49

private benefits of an action are less

Question 50

a complementary approach to supporting R&D that does not involve the government's close scrutiny of particular R&D projects is to give firms ( )

Answer 50

a reduction in corporate taxes based on amount of R&D performed

Question 51

one difficulty with direct government support of R&D is that it involves government decisions about

Answer 51

which of the vast number of proposed projects are worthwhile.

Question 52

what is a product that individuals cannot be excluded from using?

Answer 52

a public good

Question 53

generally, market competition and technology can ( )

Answer 53

support each other

Question 54

although a lack of information can cause a market to fail, why might some market participants withhold information from others?

Answer 54

the participants who withholds information maintains an advantage

Question 55

ideally, a patent should cover a long enough period of time for the inventor to ( ), but that period should not be so long that it allows the inventor to ( )

Answer 55

earn a hearty return; charge a high monopoly price permanently

Question 56

how does the cost of financial capital influence innovative research and development activities in a competitive market?

Answer 56

at a low cost, firms demand a large quantity, as R&D projects will likely return a higher rate.

Question 57

economists argue that if privately owned firms were required to pay the social costs of their pollution, the result would be ( )

Answer 57

each would create less pollution

Question 58

if the government were to impose a fee of $50,000 for each unit of air pollution released by a coal mine, what term would be used for this policy?

Answer 58

a pollution tax