Exam 10: Externalities

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?

One reason that private solutions to externalities do not always work is that

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. What is the socially optimal quantity of plastic?

Private solutions may not be possible due to the costs of negotiating and enforcing these solutions. Such costs are called

Table 10-4 -Refer to Table 10-4. The social cost of the 2^nd unit of output that is produced is

​Figure 10-20. ​ -​Refer to Figure 10-20. The socially optimal price and quantity are $250 and 250 units, respectively.

Suppose that coal producers create a negative externality equal to $5 per ton of coal. What is the relationship between the equilibrium quantity of coal and the socially optimal quantity of coal?

An optimal tax on pollution would result in which of the following?

Figure 10-9 -Refer to Figure 10-9. The installation of a scrubber in a smokestack reduces the emission of harmful chemicals from the smokestack. Therefore, the market for smokestack scrubbers is shown in

Using a supply and demand diagram, demonstrate how a negative externality leads to market inefficiency. How might the government help to eliminate this inefficiency?

Suppose that elementary education creates a positive externality. If the government subsidizes education by an amount equal to the per-unit externality it creates, then

Private parties may choose not to solve an externality problem if the transaction costs are large enough.

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

Table 10-6 The following table shows the total 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 $46, and for Firm A to eliminate two units of pollution, it would cost a total of $103. -Refer to Table 10-6. If the government charged a fee of $93 per unit of pollution, how many units of pollution would the firms eliminate altogether?

In Singapore, littering fines are strictly enforced. This is an example of a policy that

That some firms are engaged in more than one type of business is explained, in some cases, by

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 socially-optimal quantity of fire extinguishers less than, equal to, or greater than 500? Explain.

Which of the following is not a negative externality associated with driving cars?

Because there are positive externalities from higher education,

Sheryl sits on her patio and plays her guitar while her neighbors are outside. Sheryl neither pays nor receives any compensation for playing her guitar. Under what condition does her guitar-playing give rise to a positive externality?