Exam 10: Externalities

Thurman is a writer who works from his home. Thurman lives next door to Phil, the drummer for a local band. Phil needs a lot of practice to earn $250, which is his share of the band's profit. Thurman gets distracted by Phil's drumming but he needs to get his writing done to earn $500 for his current article. Which of the following is an efficient solution?

Buyers and sellers neglect the external effects of their actions when deciding how much to demand or supply.

Regulations to reduce pollution

If the government were to limit the release of air pollution produced by a glue factory to 75 parts per million, the policy would be considered a

Figure 10-7 -Refer to Figure 10-7. Which quantity represents the social optimum for this market?

Does the restoration of historic buildings create a positive externality or does it create a negative externality?

Assume that your roommate is very messy. Suppose she gets a $25 benefit from being messy but imposes a $50 cost on you. The Coase theorem would suggest that an efficient solution would be for you to

Figure 10-4 -Refer to Figure 10-4. If this market is currently producing at Q₄, then total economic well-being would be maximized if output

Figure 10-12 -Refer to Figure 10-12. Which of the following is an appropriate label for Line 1?

Figure 10-9 -Refer to Figure 10-9, Panel (b) and Panel (c). The installation of a scrubber in a smokestack reduces the emission of harmful chemicals from the smokestack. Therefore, the external benefit of smokestack scrubber installation is represented by

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. If the government charged a fee of $84 per unit of pollution, how many units of pollution would the firms eliminate altogether?

Which of the following statements about the Coase theorem is true?

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

Some government policies provide incentives for private decision makers to choose to solve the problem of externalities on their own. What term do we use to describe such policies?

Figure 10-4 -Refer to Figure 10-4. The socially optimal quantity would be

Cameron lives in an apartment building and gets a $700 benefit from playing his stereo. Renee, who lives next door to Cameron and often loses sleep due to the music coming from Cameron's stereo, bears a $1,000 cost from the noise. At which of the following offers from Renee could both Renee and Cameron benefit from the silencing of Cameron's stereo?

An externality

Scenario 10-3 Suppose the equation for the demand curve in a market is , where is the quantity demanded and is the price. Also, suppose the equation for the supply curve in the same market is , where is the quantity supplied. -Refer to Scenario 10-3. What are the market equilibrium quantity and price?

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?

A benevolent social planner would prefer that the output of good x be decreased from its current level if, at the current level of output of good x,