Exam 10: Externalities

When externalities are present, reaching an efficient outcome is especially difficult when the number of interested parties is large.

In the case of a technology spillover, the government can encourage firms to internalize a positive externality by

When producers operate in a market characterized by negative externalities, a tax that forces them to internalize the externality will

When the government reduces my income tax by $0.30 for every $1.00 that I contribute to a charity, the government is effectively

Which of the following is NOT an example of a negative externality?

Mary and Cathy are roommates. Mary assigns a $30 value to smoking cigarettes. Cathy values smoke-free air at $15. Which of the following scenarios is a successful example of the Coase theorem?

Before the flu season begins, Jeremy gets a flu shot. As a result, Jeremy and several of his friends and relatives avoid the flu for the entire flu season. It would make sense to argue that

When the government uses a command-and-control policy to solve an externality, it

Table 10-4 -Refer to Table 10-4. The last unit of output for which private value exceeds social cost is the

Suppose that beef producers create a negative externality. What is the relationship between the equilibrium quantity of beef and the socially optimal quantity of beef?

Figure 10-15 -Refer to Figure 10-15. The supply of pollution permits is

Alexander lives in an apartment building and gets a $250 benefit from playing his stereo. Mary, who lives next door to Alexander and often loses sleep due to the loud music coming from Alexander's stereo, bears a $350 cost from the noise. Mary would like to offer Alexander some money to turn down the volume on his stereo. If Mary had to hire a lawyer to draw up the contract, what is the maximum amount she could pay to the lawyer to ensure that both Alexander and Mary would benefit from the agreement?

If a market is characterized by a positive externality that is not the result of a technology spillover,

Describe the circumstances under which it would be better for the government to sell pollution permits than to levy a corrective tax.

Most taxes distort incentives and move the allocation of resources away from the social optimum. Why do corrective taxes avoid the disadvantages of most other taxes?

With pollution permits, the supply curve for pollution rights is

Employing a lawyer to draft and enforce a private contract between parties wishing to solve an externality problem is an example of

The term market failure refers to

Figure 10-6 -Refer to Figure 10-6. Which quantity represents the socially-optimal quantity of output in this market?

Two firms, A and B, each currently dump 50 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 will sell 40 pollution permits for $75 each. 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. Neither firm produces any less output, but they both conform to the law. It is likely that between the cost of permits and the cost of additional pollution abatement,