Exam 10: Externalities

Assume that your housemate is very messy.Suppose he gets a $200 benefit from being messy but imposes a $100 cost on you.The Coase theorem would suggest that an efficient solution would be for you to:

Siobhan loves it when there are dried flowers in the kitchen, but Anna hates it.Anna puts a value of $12 on having a flower-free kitchen, while Siobhan puts a value of $14 on having the flowers.If Anna has the right to a flower-free kitchen, whose position will win out?

Some environmentalists argue that we should protect the environment as much as possible, regardless of cost.Which of the following are likely to result from such a disregard for cost? (i) lower levels of nutrition, health care and housing (ii) a lower standard of living (iii) slowing or reversing technological advancement

Graph 10-1 -Refer to Graph 10-1.In the figure shown, an optimal government policy would be a tax on production to the value of:

While economists generally agree that markets are a good way to organise economic behaviour, there are some important exceptions.The exceptions include:

In many cities, a congestion levy is applied to cars entering or parking in busy areas.Which of the following approaches does this represent? (i) regulation to reduce the effects of negative externalities from exhaust fumes (ii) a command-and-control approach to solving the externality problem (iii) a Pigovian approach to solving the externality problem

If the marginal consumer values timber less than the social cost of harvesting it , the timber market will be characterised by a negative production externality.

At any given quantity, the willingness to pay in the market for automobile fuel is reflected in the:

Education has negative externalities for society.

Which of the following are true of tradeable pollution permits? (i) they will be sold by firms that can reduce pollution at low costs (ii) the initial allocation of pollution permits does not matter (iii) they are similar to using Pigovian taxes

Aaron and Katie are building a house.They want to make sure they have a good relationship with the neighbours and do not want to impose any negative externalities on them.Which of the following are measures to avoid negative externalities on Aaron and Katie's neighbours? (i) making sure their windows do not look into the neighbours' yard (ii) carefully insulating their house so that sound doesn't carry when they play loud music (iii) building an environmentally friendly house.

Markets are often inefficient when negative production externalities are present because:

Vaccinations are heavily subsidised in order to get the optimal number of people vaccinated.

A positive consumption externality occurs when:

Despite the appealing logic of the Coase theorem, private actors often fail to resolve on their own the problems caused by externalities.

When a market is in equilibrium and the marginal consumer values a commodity at less than the social cost of producing it, which of the following are true? (i) at market equilibrium the demand curve lies below the social cost curve (ii) reducing production to a level below the equilibrium level could possibly raise total economic wellbeing (iii) the equilibrium price is higher than necessary to insure maximum economic wellbeing

Jack loves surfing but prefers to go in winter instead of summer and always tries to find spots most surfers usually avoid.What could be one of the reasons for which Jack chooses to surf in this way?

Graph 10-3 This graph reflects the market for kiwifruit, where pesticide used by kiwifruit orchardists also unintentionally kills honey bees. -Refer to Graph 10-3.Assume that the kiwifruit orchardists must purchase a pesticide application permit (the cost for the permit is included in private cost) before spraying their fruit.What criteria should the government use in determining whether or not to issue a permit?

Externalities can be solved if parties are able to bargain without cost.