Chapter 18

Question 1

Private benefit and cost of activity x

Answer 1

The maximum monetary amount a person would be willing to pay to do activity x and the COST to that person of doing activity x

Question 2

Social benefi

Answer 2

The combined monetary amount people would be willing to pay FOR activity x

(Private benefit + any external benefit)

Question 3

Social cost

Answer 3

The combined cost of activity x
(Private cost + any external cost)

Question 4

Negative externality

Answer 4

If an activity imposes costs on others or creates benefits for others that are not captured in private costs and benefits
For example listening to loud music and annoying the neighbours

Question 5

Positive externality

Answer 5

If an activity imposes costs on others or creates benefits for others that are NOT captured in private costs and benefits
For example turning down the volume to please the neighbours

Question 6

Recall that in a perfectly competitive market the supply curve is the summation

Answer 6

Of marginal costs cross firms

Question 7

Where does a monopolist produce

Answer 7

A monopolist produces where MR = MC

Question 8

The Coase Theorem

Answer 8

When the parties affected by externalities can negotiate costlessly with each other,
An efficient outcome results no matter how the law assigns responsibility to damages

Question 9

The laws governing private property are the means by which we determine …

Answer 9

…Who is responsible for damage

Question 10

Who should be given property rights

Answer 10

Given to those for whom it is most Costly to adjust