Exam 17: Externalities

All of the following are devices that governments can use to achieve a more efficient allocation of resources in the presence of external benefits EXCEPT

One way of overcoming the problem of the commons is to make it private property.

List and briefly define the three methods government can use to cope with an external cost, such as pollution.

Producing paper creates pollution. There is no externality in the consumption of paper. The efficient quantity of paper is when the

Suppose unregulated production of pesticides results in an equilibrium price and quantity of $400 and 1,000 tons per day, respectively, and a marginal external cost of $10 a ton. a) If the government were to eliminate the external cost by using taxes, what should the tax equal? b) Would the government action described above affect the quantity of pesticides produced? If yes, how? If no, why not?

Generating electricity using coal creates air pollution. This industry, if left unregulated, will produce at an inefficient market equilibrium where

-Attractive landscaping increases the property values of surrounding homes, creating a marginal benefit. The figure above represents the market for monthly landscaping contracts. a) What is the marginal social benefit of the 40th contract? Of the 60th contract? b) What is the marginal private benefit of the 40th contract? c) What is the marginal external benefit of the 40th contract? d) What is the unregulated competitive equilibrium price and quantity? e) What is the efficient quantity? f) What is the amount of the deadweight loss?

Generating electricity using coal creates air pollution. This industry, if left unregulated, will produce at an inefficient market equilibrium because

The marginal social cost is

-The figure above shows the market for education. Education has an external benefit. a) If the market is competitive and left unregulated, how many students will be enrolled per year? b) What is the efficient number of students? c) In the figure, show the effect of a government private subsidy that moves the market to the efficient number of students. What is the amount of the subsidy and what tuition must the students pay?

-In the figure above, if the market is unregulated, at the equilibrium output the marginal external cost is

If the marginal social benefit of a good equals the marginal private benefit of the good, then the marginal external benefit of the good

Consider a market in which there is an external benefit. The inefficient market equilibrium is such that

A private subsidy has what effect on the amount of a good or service produced? Is a private subsidy an appropriate policy to offset the inefficiency from an external cost or an external benefit?

When external costs are present and government imposes a tax equal to the external marginal cost, then efficiency can be achieved.

If the production of a good creates pollution, then the

One way that government can encourage the production of goods or services that have external benefits is to subsidize the good or service.

Vouchers create the efficient outcome only if production is such that the marginal social cost

-The above figure shows the marginal benefits and marginal costs of a college education. If a subsidy of $5,000 is paid to the colleges, then colleges charge tuition of

-The table above shows the marginal private benefit, marginal social benefit, and marginal cost of education at the College of Epsilon. What subsidy per student will the college require to take in the efficient number of students?