Exam 10: Externalities

When Monique drives to work every morning, she drives on a congested highway. What Monique does not realize is that when she enters the highway each morning she increases the travel time of all other drivers on the highway. In this case, the external cost of Monique's highway trip

Suppose the Environmental Protection Agency uses a corrective tax to set a price for pollution. Under this policy, is the supply curve for pollution rights vertical or is it horizontal?

Suppose that elementary education creates a positive externality. If the government does not subsidize education, then

Suppose that cookie producers create a positive externality equal to $2 per dozen. What is the relationship between the equilibrium quantity and the socially optimal quantity of cookies to be produced?

The Environmental Protection Agency (EPA) cannot reach a target level of pollution through the use of pollution permits.

Corrective taxes cause deadweight losses, reducing economic efficiency.

Figure 10-10 -Refer to Figure 10-10. A decrease in output from 160 units to 120 units would

Scenario 10-2 The demand curve for restored historic buildings slopes downward and the supply curve for restored historic buildings slopes upward. The production of the 50^th restored historic building entails the following: • a private cost of $800,000; • a private value of $650,000; • a social value of $800,000. -Refer to Scenario 10-2. Could the government impose a tax or provide a subsidy to move the market to the social optimum? If your answer is "Yes," should it be a tax or should it be a subsidy?

Table 10-2 The following table shows the private value, private cost, and social value for a market with a positive externality. -Refer to Table 10-2. What is the equilibrium quantity of output in this market?

Table 10-5 The following table shows the marginal costs for each of four firms (A, B, C, and D) to eliminate units of pollution from their production processes. For example, for Firm A to eliminate one unit of pollution, it would cost $54, and for Firm A to eliminate a second unit of pollution it would cost an additional $67. -Refer to Table 10-5. Suppose the government wants to reduce pollution from 16 units to 8 units and auctions off 8 pollution permits to achieve this goal. Which of the following is a likely auction price of the permits?

A local manufacturing plant that emitted sulfur dioxide was forced to stop production because it did not comply with local clean air standards. This decision provides an example of

Which of the following is a way to address an externality problem?

Scenario 10-2 The demand curve for restored historic buildings slopes downward and the supply curve for restored historic buildings slopes upward. The production of the 50^th restored historic building entails the following: • a private cost of $800,000; • a private value of $650,000; • a social value of $800,000. -Refer to Scenario 10-2. Is there an externality associated with this market? If your answer is "Yes," is the externality positive or negative?

Suppose the Environmental Protection Agency issues pollution permits in order to limit the quantity of pollution. Under this policy, is the supply of pollution rights perfectly elastic or is it perfectly inelastic?

A paper plant produces water pollution during the production process. If the government forces the plant to internalize the negative externality, then the

The Coase theorem suggests that efficient solutions to externalities can be determined through bargaining. Under what circumstances will private bargaining fail to produce a solution?

Government intervention in the economy with the goal of promoting technology-producing industries is known as patent policy.

Table 10-3 -Refer to Table 10-3. The social value of the 4^th unit of output that is produced is

Figure 10-12 -Refer to Figure 10-12. An alternative label for the line labeled "Supply" would be

Externalities tend to cause markets to be