... Chapter Outline and Learning Objectives
5.1 Externalities and Economic Efficiency
Identify examples of positive and negative externalities and use
graphs to show how externalities affect economic efficiency.
5.2 Private Solutions to Externalities: The Coase Theorem
Discuss the Coase theorem and expl ...
... Private Solutions to Externalities: The Coase Theorem
The Problem of Transactions Costs
Transactions costs The costs in time and other resources
that parties incur in the process of agreeing to and carrying
out an exchange of goods or services.
The Coase Theorem
Coase theorem The argument of economi ...
Proposal 5: Eliminating Fossil Fuel Subsidies
... oil production, which has grown, on average, each month by
more than 30,000 barrels per day since January 2009. Thus,
these tax subsidies do not meaningfully increase production,
and as a result they do not stimulate job creation or lower
U.S. oil, petroleum product, and natural gas prices. As large ...
... Shift to the right
– Producers will supply
more of the good at all
Econ 001 - Penn Economics
... 1. No, as they prefer their original point (see partb) to any new possible point.
2. Yes, as now they can consume at points that were not possible before.
If just state: always gains from trade: 3 points
e. Assume trade is no longer available.
Since jobs related to software development pay better, t ...
... growing US trade deficit. He suggests that the US should deal with this by
levying an across-the-board tax on all imports. Will this work to reduce the trade
deficit? Explain why or why not, including your reasoning and any conditions
upon which the result may depend.
Ans: Since the trade deficit is ...
HW #8: Due Monday, 27th June
... 7. Suppose the government wants to limit imports of a certain good. Is it preferable to use an import quota
or a tariff? Why?
Changes in domestic consumer and producer surpluses are the same under import quotas and
tariffs. There will be a loss in (domestic) total surplus in either case. However, wi ...
ECNS 301 Fall 2014 Exam #: 2
... (c) What are the substitution effects and income effects associated with the price subsidy for both y and f ?
Solution: The total effect for y is 18 − 6 = 12. The total effect for f is
36 − 12 = 24. Remember that the Slutsky equation tells us that the total effect
is the substitution effect plus the ...
... 35) The above picture shows the demand and supply curves in the wooden table market.
Which of the following statement is false?
a. A decrease in the price of wood causes a shift in the supply curve from S1 to S2.
b. An improvement in wood carving technology causes a shift in the supply curve from
... Farmers lose $40 billion of
total revenue on the
original quantity because
the price falls.
They gain only $10 billion
from the increased quantity.
Because demand for wheat
is inelastic, total revenue
decreases—to $50 billion.
Economics 101 L
... a) Is a firm in a competitive industry considered a price taker or a price setter? Explain what this means.
Price taker. This means that the firm does not have any power to set the price for the good in the
market. Whatever price the market determines is the price that the firm must charge.
b) Is a ...
Market Basics - RIT
... In the diagram above, the consumer surplus is the area of the upper left triangle ($12.50)
while the producer surplus is the area of the lower left triangle ($12.50). Social welfare is
the sum of all participants in the market ($12.50 + $12.50 = $25)
The addition of taxes causes each consumer to pay ...
... Consumer surplus increases with the tariff; producer surplus decreases with the tariff
Consumer surplus decreases with the tariff; producer surplus increases with the tariff
Consumer surplus increases with the tariff; producer surplus decreases with the tariff
Consumer surplus increases with the tar ...
Exam 1 Spring 2004
... By how much would the poultry tax reduce consumer surplus + producer surplus? (2
points) An alternative to the excise tax is for the buyers and sellers to simply pay the
government money. How much money would buyers and sellers as a group be willing to
pay instead of having the tax? (1 point)
The lo ...
... Use the no-tax demand and supply curve to
measure aggregate surplus in the absence of a
The tax reduces the amount bought and sold to
the quantity at which the distance between the
supply and demand curves is T
Since quantity bought and sold is higher
without the tax, so is aggregate surplus
... For a small food-importing country, it suffers from the subsidy-reducing policy of the
large country since the world price becomes higher, which means a decline of terms
of trade for the small country. On the other hand, if the small economy cuts tariff, it
can reduce the efficiency loss as long as ...
... The amount might be exceptionally high, but the practice of granting subsidies is not
exceptional. While tariffs gradually declined since the 1960s, industrial subsidies have become
increasingly important (Ford and Suyker 1990, 2). Yet, the extent of government subsidization of
industry varies from ...
A subsidy is a form of financial aid or support extended to an economic sector (or institution, business, or individual) generally with the aim of promoting economic and social policy. Although commonly extended from Government, the term subsidy can relate to any type of support - for example from NGOs or implicit subsidies. Subsidies come in various forms including: direct (cash grants, interest-free loans) and indirect (tax breaks, insurance, low-interest loans, depreciation write-offs, rent rebates).Furthermore, they can be broad or narrow, legal or illegal, ethical or unethical. The most common forms of subsidies are those to the producer or the consumer. Producer/Production subsidies ensure producers are better off by either supplying market price support, direct support, or payments to factors of production. Consumer/Consumption subsidies commonly reduce the price of goods and services to the consumer. For example, in the US at one time it was cheaper to buy gasoline than bottled water.Whether subsidies are positive or negative is typically a normative judgment. As a form of economic intervention, subsidies are inherently contrary to the market's demands. However, they can also be used as tools of political and corporate cronyism.