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Chapter 5: Q 7 (page 120)

Consider a nation with a government that does not provide people with property rights for a number of items and that fails to enforce the property rights it does not assign for the remaining items. Would externality be more or less in this nation than in a country such as the United States? Explain.

Short Answer

Expert verified

The externality will be more for the nation as compared to the United States.

Step by step solution

01

Step 1. Define Externality.

An externality is a consequence of an economic activity that affects the third party. For example, pollution is an externality.

02

Step 2. Externality more or less.

The externality will be more for the nation as compared to the United States.

People will be opening shops wherever they can and will be illegally using items that do not have any property rights. Which will lead to a greater setback for the citizens of the nation.

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Most popular questions from this chapter

How might the federal or state governments act to try to boost the external benefits arising from inoculations against the measles virus?

Suppose that the U.S. government determines that cigarette smoking creates social costs not reflected in the current market price and equilibrium quantity of cigarettes. A study has recommended that the government can correct the externality effect of cigarette consumption by paying farmers not to plant tobacco used to manufacture cigarettes. It also recommends raising the funds to make these payments by increasing taxes on cigarettes. Assuming that the government is correct that cigarette smoking creates external costs, evaluate whether the study’s recommended policies might help correct this negative externality.

Why do you think that the federal government requires rail operators to mount expensive horns and sound them at prescribed decibel levels at all street crossings?

Based on your answer to Question 5-17, if Pennsylvania's government aims to correct the steel market's negative externality via an effluent fee, is the appropriate fee higher or lower now than steel producers have adopted the new technique? Why or why not?

Suppose that the current price of a tablet device is \(300 and that people are buying 1 million devices per year. The government decides to begin subsidizing the purchase of new tablet devices. The government believes that the appropriate price is \)260 per tablet, so the program offers to send people cash for the difference between \(260 and whatever the people pay for each tablet they buy.

(a) If no consumers change their tablet-buying behavior, how much will this program cost the taxpayers?

(b) Will the subsidy cause people to buy more, fewer, or the same number of tablets? Explain.

(c) Suppose that people end up buying 1.5 million tablets once the program is in place. If the market price of tablets does not change, how much will this program cost the taxpayers?

(d) Under the assumption that the program causes people to buy 1.5 million tablets and also causes the market price of tablets to rise to \)320, how much will this program cost the taxpayers?

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