ECON 201 - Exam 2 - UTK –
./ ./ ./ ./ ./ ./ ./
./ Bueckman Questions With Correct Answers
./ ./ ./ ./
Market./Failure./-
./ correct./answer./✔✔When./the./market./fails./to./allocate./society's./resources./efficiently
Externality./Consumption./-./correct./answer./✔✔self-
interested./buyers./and./sellers./neglect./the./external./costs./of./their./actions
Externalities./-./correct./answer./✔✔
the./effect./of./a./market./exchange./on./a./third./party./who./is./outside./to./the./exchange
Negative./Externalities./effect./on./Market./Quantity./-./correct./answer./✔✔
if./negative,./the./market./quantity./is./larger./than./socially./desireable
Positive./Externality./effect./on./Market./Quantity./-./correct./answer./✔✔
if./positive,./the./market./quantity./is./smaller./tan./socially./desireable
How./to./find./social./cost./=./-./correct./answer./✔✔Private./MC./+./Marginal./External./Cost
Internalizing./the./Externality./-./correct./answer./✔✔
altering./incentives./so./people./consider./the./external./effects./of./their./actions
Private./Benefit/WTP./-./correct./answer./✔✔What./a./good./is./worth./to./the./buyer
External./benefit./-./correct./answer./✔✔
the./value./of./the./positive./impact./on./bystanders;./difference./between./new./demand./curve./an
d./old./demand./curve
, How./to./find./social./value./-./correct./answer./✔✔Private./Value./+./external./benefit
Public./Policies./(4)./-./correct./answer./✔✔Command-and-Control
Market-Based
Corrective./taxes/subsidies
Tradeble./Pollution./Permits
Command-and-control./policies./-./correct./answer./✔✔regulate./behavior./directly
market-based./policies./-./correct./answer./✔✔provide./incentives./to./private./decision-
makers./to./change./behavior
Tradable./Pollution./permits./-./correct./answer./✔✔issued./with./a./face./"pollution./value"
The./Coase./Theorem./-./correct./answer./✔✔
if./private./parties./can./costlessly./bargain./over./the./allocation./of./resources,./they./can./solve./th
e./externalities./problem./on./their./own
Why./private./transactions./do./not./always./work./(3)./-./correct./answer./✔✔Transaction./Costs
Stubbornness
Coordination./Problems
Transactions./costs./-./correct./answer./✔✔
costs./incurred./in./the./provess./of./agreeing./to./and./following./through./on./a./bargain
Stubbornness./-./correct./answer./✔✔
even./if./a./beneficial./agreement./is./possible./each./part./may./hold./out./for./a./better./deal
./ ./ ./ ./ ./ ./ ./
./ Bueckman Questions With Correct Answers
./ ./ ./ ./
Market./Failure./-
./ correct./answer./✔✔When./the./market./fails./to./allocate./society's./resources./efficiently
Externality./Consumption./-./correct./answer./✔✔self-
interested./buyers./and./sellers./neglect./the./external./costs./of./their./actions
Externalities./-./correct./answer./✔✔
the./effect./of./a./market./exchange./on./a./third./party./who./is./outside./to./the./exchange
Negative./Externalities./effect./on./Market./Quantity./-./correct./answer./✔✔
if./negative,./the./market./quantity./is./larger./than./socially./desireable
Positive./Externality./effect./on./Market./Quantity./-./correct./answer./✔✔
if./positive,./the./market./quantity./is./smaller./tan./socially./desireable
How./to./find./social./cost./=./-./correct./answer./✔✔Private./MC./+./Marginal./External./Cost
Internalizing./the./Externality./-./correct./answer./✔✔
altering./incentives./so./people./consider./the./external./effects./of./their./actions
Private./Benefit/WTP./-./correct./answer./✔✔What./a./good./is./worth./to./the./buyer
External./benefit./-./correct./answer./✔✔
the./value./of./the./positive./impact./on./bystanders;./difference./between./new./demand./curve./an
d./old./demand./curve
, How./to./find./social./value./-./correct./answer./✔✔Private./Value./+./external./benefit
Public./Policies./(4)./-./correct./answer./✔✔Command-and-Control
Market-Based
Corrective./taxes/subsidies
Tradeble./Pollution./Permits
Command-and-control./policies./-./correct./answer./✔✔regulate./behavior./directly
market-based./policies./-./correct./answer./✔✔provide./incentives./to./private./decision-
makers./to./change./behavior
Tradable./Pollution./permits./-./correct./answer./✔✔issued./with./a./face./"pollution./value"
The./Coase./Theorem./-./correct./answer./✔✔
if./private./parties./can./costlessly./bargain./over./the./allocation./of./resources,./they./can./solve./th
e./externalities./problem./on./their./own
Why./private./transactions./do./not./always./work./(3)./-./correct./answer./✔✔Transaction./Costs
Stubbornness
Coordination./Problems
Transactions./costs./-./correct./answer./✔✔
costs./incurred./in./the./provess./of./agreeing./to./and./following./through./on./a./bargain
Stubbornness./-./correct./answer./✔✔
even./if./a./beneficial./agreement./is./possible./each./part./may./hold./out./for./a./better./deal
