Exam 10: Externalities

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?

In the case of a technology spillover, internalizing a positive externality will cause the supply curve of an industry to

Suppose that an MBA degree creates no externality because the benefits of an MBA are internalized by the student in the form of higher wages. If the government offers subsidies for MBAs, then which of the following statements is correct?

​Josiah installed a metal sculpture in his front yard. A positive externality arises if the sculpture

Suppose a tax is imposed on producers of aluminum as a means of internalizing the externality associated with aluminum production. If the tax accurately reflects the external costs of pollutants released into the atmosphere, then the new supply curve for aluminum coincides with which other curve?

Transaction costs

Figure 10-5 -Refer to Figure 10-5. Which price and quantity combination represents the social optimum?

Scenario 10-4 The demand curve for fire extinguishers slopes downward and the supply curve for fire extinguishers slopes upward. The production of the 500^th fire extinguisher entails the following: • a private cost of $10; • an external cost of $0; • a private value of $9; • an external benefit of $3. -Refer to Scenario 10-4. Is the market-equilibrium quantity of fire extinguishers less than, equal to, or greater than 500? Explain.

Suppose that Bill wants to dine at a fancy restaurant, but the only available table is in the smoking section. Bill dislikes the smell of cigarette smoke. He notices that only one person, Peter, is smoking in the smoking section. Bill values the absence of smoke at $15. Peter values the ability to smoke in the restaurant at $10. In order for Bill to pay Peter not to smoke, he will need to tip the waiter $10 to facilitate the transaction. Which of the following represents an efficient solution?

Table 10-4 -Refer to Table 10-4. The table represents a market in which

Figure 10-18. The graph represents a corrective tax to reduce pollution. On the axes, Q denotes the quantity of pollution and P represents the price of pollution. -Refer to Figure 10-18. The tax depicted on the graph

Figure 10-19 -Refer to Figure 10-19. Note that the lines labeled "Demand" and "Social Value"are parallel. Also, the slopes of the lines on the graph reflect the following facts: (1) Private value and social value decrease by $1.00 with each additional unit of the good that is consumed, and (2) private cost increases by $1.40 with each additional unit of the good that is produced. Thus, when the 74th unit of the good is produced and consumed, social well-being

​Sophia sits behind Gabriel on an airplane. Gabriel owns the right to recline his seat and values this right at $10. Sophia values a non-reclined seat in front of her at $40. Assuming no transaction costs, which of the following represents an efficient solution?

In some situations, private economic actors cannot solve the problem of externalities among themselves because of substantial _________ costs.

Figure 10-12 -Refer to Figure 10-12. Which of the following is an appropriate label for Line 2?

If the government wanted to ensure that the market reaches the socially optimal equilibrium in the presence of a technology spillover, it should

Suppose the market-equilibrium quantity of good x is larger than the socially-optimal quantity of good x. Does the production of good x convey a positive externality or does it convey a negative externality?

Does research into new technologies create a positive externality or does it create a negative externality?

When one firm sells its pollution permit to another firm,

Assume each college degree that is granted conveys an external benefit of $3,500. The granting of the 500^th college degree entails a private cost of $15,000 and a private value of $25,000. What is the social value of the 500^th college degree?