Exam 10: Externalities

In which of the following ways are Pigovian taxes and pollution permits similar? (i) in both cases, firms pay for their pollution.(ii) both internalise the externality of pollution by making it costly to pollute.(iii) each policy allows for a market-based solution.

Graph 10-5 -Refer to Graph 10-5.Which of the graphs shown best depicts the case of a positive consumption externality?

The most efficient way to achieve reductions in pollution is for each firm to reduce their pollution by the same amount.

Consider the following negative production externality as depicted: Identify the social optimum and explain what methods the government could use to achieve this outcome.

In Australia, hunting regulations for kangaroos are closely monitored and enforced.This is an example of a policy:

Negative consumption externalities will have a socially optimal quantity that is smaller than the quantity determined by the private market.

One advantage of allowing a market for pollution permits to control the total amount of pollution released in an area is that:

According to the Coase theorem, which of the following conditions must hold, in order for private solutions to externalities to be possible? (i) bargaining costs are small (ii) property ownership/rights cannot be defined (iii) the number of parties involved is large

Internalising a positive production externality through technology policy:

Assume that your housemate is very messy.(There is no law against being messy.) Suppose she gets a $100 benefit from being messy but imposes a $200 cost on you.The Coase theorem would suggest that an efficient solution would be for you to:

Private parties can negotiate a solution to an externality in all cases.

When the government decides to dredge a bay to let big ships into the port, they are causing:

The owner of a luxury 4WD enjoys a positive externality because the luxury 4WD offers added safety when compared to a small car.

All remedies that attempt to solve an externality problem share the goal of moving the allocation of resources closer to the private optimum.

The problems of externalities are often solved through:

In order for a Pigovian tax to be efficient, it often requires detailed information about:

Once tradeable pollution permits have been allocated to firms:

What is meant by 'internalising' an externality? How can a negative externality be internalised?

Which of the following is true of positive consumption externalities?

When private solutions fail to arise, an externality will: