Exam 10: Externalities

In a market characterized by externalities, the market equilibrium fails to maximize the total benefit to society as a whole.

Figure 10-15 -Refer to Figure 10-15. Which of the following is not necessary in order for the corrective tax and pollution permit to have equivalent effects?

If education produces positive externalities, we would expect

Two firms, A and B, each currently dump 20 tons of chemicals into the local river. The government has decided to reduce the pollution and from now on will require a pollution permit for each ton of pollution dumped into the river. The government gives each firm 10 pollution permits, which it can either use or sell to the other firm. It costs Firm A $100 for each ton of pollution that it eliminates before it reaches the river, and it costs Firm B $50 for each ton of pollution that it eliminates before it reaches the river. After the two firms buy or sell pollution permits from each other, we would expect that

Figure 10-11 -Refer to Figure 10-11. Taking only private value and private cost into account, total surplus at the market equilibrium amounts to

Since restored historic buildings convey a positive externality, local governments may choose to

To economists, good environmental policy begins by acknowledging one of the Ten Principles of Economics:

The gasoline tax

Honey producers provide a positive externality to orchards because

Figure 10-1 -Refer to Figure 10-1. This graph represents the tobacco industry. The industry creates

Private contracts between parties with mutual interests

Figure 10-16 -Refer to Figure 10-16. This graph shows the market for pollution when permits are issued to firms and traded in the marketplace. The equilibrium price of pollution is

Figure 10-9 -Refer to Figure 10-9, Panel (b). The market equilibrium quantity is

Suppose that electricity producers create a negative externality equal to $5 per unit. Further suppose that the government imposes a $5 per-unit tax on the producers. What is the relationship between the after-tax equilibrium quantity and the socially optimal quantity of electricity to be produced?

When a market experiences a positive externality,

Figure 10-5 -Refer to Figure 10-5. Which of the following statements is correct?

Figure 10-2. The graph depicts the market for plastic. -Refer to Figure 10-2. Suppose that the production of plastic creates a social cost which is depicted in the graph above. Without any government regulation, how much plastic will be produced?

An externality

Which of the following statements about a well-maintained yard best conveys the general nature of the externality?

Figure 10-4 -Refer to Figure 10-4. This market is characterized by