Exam 10: Externalities

This figure reflects the market for outdoor concerts in a public park surrounded by residential neighborhoods. Figure 10-3 -Refer to Figure 10-3. The difference between the social cost curve and the supply curve reflects the

Markets sometimes fail to allocate resources efficiently.

Figure 10-19 -Refer to Figure 10-19. The socially optimal quantity of output is

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 $85 per unit of pollution, how many units of pollution would the firms eliminate altogether?

Suppose that flower gardens create a positive externality equal to $1 per plant. What is the relationship between the equilibrium quantity and the socially optimal quantity of plants grown?

Which of the following statements is not correct?

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

To produce honey, beekeepers place hives of bees in the fields of farmers. As bees gather nectar, they pollinate the crops in the fields, which increases the yields of these fields at no additional cost to the farmer. What might be a reasonable private solution to this externality, and how might the solution be reached?

Which of the following statements is correct?

University researchers create a positive externality because what they discover in their research labs can easily be learned by others who haven't contributed to the research costs. Suppose that the federal government gives grants to these researchers equal to the their per-unit production externality. What is the relationship between the equilibrium quantity of university research and the socially optimal quantity of university research produced?

Scenario 10-1 The demand curve for gasoline slopes downward and the supply curve for gasoline slopes upward. The production of the 1,000^th gallon of gasoline entails the following: • a private cost of $3.10; • a social cost of $3.55; • a value to consumers of $3.70. -Refer to Scenario 10-1. Let Q_MARKET represent the equilibrium quantity of gasoline, and let Q_OPTIMUM represent the socially optimal quantity of gasoline. Which of the following inequalities is correct?

Which of the following would not be considered a negative externality?

Figure 10-7 -Refer to Figure 10-7. To internalize the externality in this market, the government should

Figure 10-11 -Refer to Figure 10-11. A benevolent social planner would prefer

Which of the following is an example of a positive externality?

Which of the following statements is correct about a market in which pollution is emitted?

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. Suppose there is an external cost of $12 associated with the production of each unit of the good. What particular tax or subsidy would move the market to the social optimum?

Suppose that cigarette smokers create a negative externality. Further suppose that the government imposes a tax on cigarettes equal to the per-unit externality. What is the relationship between the after-tax equilibrium quantity and the socially optimal quantity of cigarettes?

The tax on gasoline causes deadweight losses, as is the case with all taxes.

Which of the following statements is not correct?