Exam 16: Externalities

Assume the federal government determines the total level of pollutants that can be discharged by city industries. A city is able to buy and sell the rights to this total discharge level with other cities. This is an:

The idea that even in the presence of externalities an economy can reach an efficient solution as long as transaction costs of making a deal are low and property rights are well-defined is known as:

Emissions taxes and tradable emissions permits both ensure that any given reduction in total pollution is achieved at the lowest possible cost. This is not the case for environmental standards, since they fail to ensure that those who can reduce pollution most cheaply are in fact the ones to do so.

Pigouvian taxes:

Use the following to answer questions: Figure: Model of a Competitive Market -(Figure: Model of a Competitive Market) Given the figure Model of a Competitive Market, if there are no external benefits or costs, the output at Q will be:

Use the following to answer questions: Figure: The Socially Optimal Quantity of Pollution -(Figure: The Socially Optimal Quantity of Pollution) In the figure The Socially Optimal Quantity of Pollution, without government intervention:

An industry with production that generates external costs produces a quantity of output that is:

An externality is said to be internalized:

Use the following to answer questions: Figure: Efficiency and Pollution -(Figure: Efficiency and Pollution) Look at the figure Efficiency and Pollution. In the absence of government intervention, the marginal social cost of pollution will equal _____ and the marginal social benefit of pollution will equal _____.

The economically efficient level of an externality is zero.

External benefits are associated with the production of batteries. Without government regulation, the market will:

Use the following to answer questions: Figure: Efficiency and Pollution -(Figure: Efficiency and Pollution) Look at the figure Efficiency and Pollution. If the government imposed an environmental standard that did NOT allow the quantity of pollution to exceed 40 tons, there would be:

Use the following to answer questions: Figure: City with Two Polluters -(Figure: City with Two Polluters) Look at the figure City with Two Polluters. If the government issued licenses to emit a total of 1,600 tons of pollution, the market price to emit 1 ton of emissions would equal:

Flu vaccines often provide both private benefits to individuals and positive external benefits to other members of society. As a result, without government intervention one would find:

An advantage of tradable emissions permits is that:

Use the following to answer questions: -(Table: Coal Mine Pollution) The table Coal Mine Pollution shows the marginal social benefit and cost of various amounts of pollution from a coal mine. If 5 tons of pollution is produced:

If the number of available tradable emissions permits increases, the equilibrium price of the permits _____ and the equilibrium quantity _____.

The proposition that if bargaining is costless, the market can achieve an efficient outcome is the:

The socially optimal amount of pollution occurs where the marginal social benefit of pollution is _____ the marginal social cost of pollution.

Externalities exist when individuals impose costs or confer benefits on others but don't have an incentive to take those costs or benefits into account.