Exam 10: Externalities.

Figure 10-19 -Refer to Figure 10-19.Note that the lines labeled "Demand" and "Social Value"are parallel.Also,the slopes of the lines on the graph reflect the following facts: (1)Private value and social value decrease by $1.00 with each additional unit of the good that is consumed,and (2)private cost increases by $1.40 with each additional unit of the good that is produced.Thus,when the 59th unit of the good is produced and consumed,social well-being increases by

What is the difference between command-and-control policies and market-based policies toward externalities?

Which of the following statements is not correct?

Suppose that flu shots create a positive externality equal to $12 per shot.Further suppose that the government offers a $15 per-shot subsidy to producers.What is the relationship between the equilibrium quantity and the socially optimal quantity of flu shots produced?

The Coase theorem asserts that,in the presence of externalities,

When market activity generates a negative externality,the level of output in the market equilibrium is lower than the socially optimal level.

Which of the following is a way to address an externality problem?

Which of the following statements is not correct?

Suppose that Company A's railroad cars pass through Farmer B's corn fields.The railroad causes an externality to the farmer because the railroad cars emit sparks that cause $1,500 in damage to the farmer's crops.There is a special soy-based grease that the railroad could purchase that would eliminate the damaging sparks.The grease costs $1,200.Suppose that the farmer has the right to compensation for any damage that his crops suffer.Assume that there are no transaction costs.Which of the following characterizes the efficient outcome?

Since externalities tend to keep markets from reaching a socially optimal equilibrium,government action

To determine the optimal level of output in a market with negative externalities,a benevolent social planner would look for the level of output at which private cost equals private value.

Which of the following best defines the situation where one firm's research yields knowledge that is used by society as a whole?

Figure 10-1 -Refer to Figure 10-1.This graph represents the tobacco industry.The industry creates

Figure 10-16 -Refer to Figure 10-16.This graph shows the market for pollution when permits are issued to firms and traded in the marketplace.In the absence of a pollution permit system,the quantity of pollution would be

Figure 10-17 -Refer to Figure 10-17.How large would a corrective tax need to be to move this market from the equilibrium outcome to the socially-optimal outcome?

Which of the following is not an advantage of corrective taxes?

According to the Coase theorem,if private parties can bargain without cost,then the private market will solve the problem of externalities.

Suppose that electricity producers create a negative externality equal to $6 per unit.Further suppose that the government imposes a $8 per-unit tax on the producers.What is the relationship between the after-tax equilibrium quantity and the socially optimal quantity of electricity to be produced?

Positive externalities

Using a supply and demand diagram,demonstrate how a positive externality leads to market inefficiency.How might the government help to eliminate this inefficiency?