Exam 10: Externalities

A technology spillover is a type of negative externality.

Suppose that Maria wants to dine at a fancy restaurant,but the only available table is in the smoking section.Maria dislikes the smell of cigarette smoke.She notices that only one person,John,is smoking in the smoking section.Maria values the absence of smoke at $25.John values the ability to smoke in the restaurant at $15.Which of the following represents an efficient solution in the absence of transaction costs?

Figure 10-2 -Refer to Figure 10-2.Suppose that the production of soccer balls creates a social cost which is depicted in the graph above.Without any government regulation,what price will the firm charge per soccer ball?

Suppose that Maria wants to dine at a fancy restaurant,but the only available table is in the smoking section.Maria dislikes the smell of cigarette smoke.She notices that only one person,John,is smoking in the smoking section.Maria values the absence of smoke at $25.John values the ability to smoke in the restaurant at $20.In order for Maria to pay John not to smoke,she will need to tip the waiter $10 to facilitate the transaction.Which of the following represents an efficient solution?

Private solutions may not be possible due to the costs of negotiating and enforcing these solutions.Such costs are called

Tradable pollution permits

Firms that are involved in more than one type of business could be evidence of an attempt to

The best remedy for market failure is often

In a market characterized by externalities,the market equilibrium fails to maximize the total benefit to society as a whole.

Suppose that meat producers create a negative externality.What is the relationship between the equilibrium quantity and the socially optimal quantity of meat to be produced?

When the social cost curve is above a product's supply curve,

In some cases,tradable pollution permits may be better than a corrective tax because

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 railroad is not liable for any damage caused to the crops.Assume that there are no transaction costs.Which of the following characterizes the efficient outcome?

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

Chad's maple tree hangs over Amy's fence and drops leaves into her yard each autumn.The benefit to Chad of lower utility bills due to the tree's shade in the summer is $300.The cost to Amy of having her lawn cleaned and reseeded is $350.Based on the Coase theorem,

Suppose that cookie producers create a positive externality equal to $2 per dozen.Further suppose that the government offers a $2 per-dozen subsidy to the producers.What is the relationship between the equilibrium quantity and the socially optimal quantity of cookies to be produced?

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

An optimal tax on pollution would result in which of the following?

Figure 10-4 -Refer to Figure 10-4.Without government intervention,the equilibrium quantity would be

A positive externality will cause a market to produce