microchapter10 - RikkiNorton Microeconomics Chapter10...

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Rikki Norton Microeconomics Chapter 10 Discussion Questions (1, 3, 4, 5, 6) 1. According to the Coase theorem you and your roommate will eventually bargain about the  smoking in the room issue. If clean air is worth more of a value to you then smoking is worth to  your roommate then the result will be no smoking in the room. However, if you roommate values  smoking at a higher value then you do clean air then he will continue to smoke. As long as  transaction costs do not prevent an agreement from taking place your outcome will be efficient.  The outcome can be reached by one paying the other for the right to smoke, or to not smoke.  3. Many externalities can be solved without the help of the government because of moral code,  social sanctions, charities, merging firms whose externalities affect each other, or by contract.  4. The supply and demand diagram will show that the social cost of production is higher than  they private cost of production. So then the social cost curve will be above the supply curve, and  the private market will produce too much of a product.  5. Corrective taxes are a tax designed to induce private decision makers to take account of the 
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This note was uploaded on 03/14/2011 for the course POLSCI 1123 taught by Professor Thompson during the Spring '11 term at Oklahoma State.

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microchapter10 - RikkiNorton Microeconomics Chapter10...

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