Exam 5: Externalities, Environmental Policy, and Public Goods

Economist A.C.Pigou argued that to deal with a negative externality in production, the government should impose a tax equal to the cost of the externality.What did Pigou believe should be done in the case of a positive externality in consumption? How would his recommendation impact the demand and market equilibrium for the product which is generating the positive externality?

State whether each of the following goods and services is nonrival, nonexcludable or both: a.A toll road b.A public park c.A lighthouse d.An art museum e.A radio broadcast of "A Prairie Home Companion"

The Coase theorem states that

Assume that production from an electric utility caused acid rain.If the government imposed a tax on the utility equal to the marginal external cost of the acid rain, the government's action would

Offering to pay the passenger in front of you to keep her from reclining her airplane seat is an example of

Economic incentives are designed to make individual self-interest coincide with social interest.According to economists, which of the following methods of pollution control best uses economic incentives to reduce pollution?

Which of the following is an example of a common resource?

If you burn your trash in the backyard in spite of regulations against it, then you are

Which of the following conditions holds in an economically efficient competitive market equilibrium?

Which of the following is an example of a product that is nonexcludable and rival?

Figure 5-3 -Refer to Figure 5-3.The size of marginal external benefits can be determined by

A modern example of the tragedy of the commons is the forests in many poor countries.

Figure 5-16 Amit and Bree are the only two homeowners on an isolated private road. Both agree that installing street lights along the road would be beneficial and want to do so. Figure 5-16 shows their willingness to pay for different quantities of street lights, the market demand for street lights, and the marginal cost of installing the street lights. -Refer to Figure 5-16.How much is Bree willing to pay per street light to have 4 street lights installed?

Figure 5-13 Figure 5-13 illustrates the market for gasoline before the government imposes a tax to bring about the efficient level of gasoline production. -Refer to Figure 5-13.The market equilibrium quantity of gasoline is ________ million gallons per month.

Figure 5-11 Coal burning utilities release sulfur dioxide and nitric acid which react with water to produce acid rain. Acid rain damages trees and crops and kills fish. Because the utilities do not bear the cost of the acid rain, they overproduce the quantity of electricity. This is illustrated in Figure 5-11. -Refer to Figure 5-11.S₁ represents the supply curve that reflects the marginal private cost of production and S₂ represents the supply curve that reflects the marginal social cost of production.One way to internalize the external cost generated by utilities is to impose a Pigovian tax on the production of electricity.What is the size of the Pigovian tax that will internalize the cost of the externality?

When a tax on output is imposed to internalize the external costs of pollution, the supply curve shifts down by the amount of the tax.

Figure 5-8 Consider a chemical plant that discharges toxic fumes over a nearby community. To reduce the emissions of toxic fumes the firm can install pollution abatement devices. Figure 5-8 shows the marginal benefit and the marginal cost from reducing the toxic fumes emissions. -Refer to Figure 5-8.Suppose the emissions reduction target is currently established at 8 million tons.Should society undertake to reduce an additional 1 million tons so that the total reduction is 9 million tons?

Which of the following is an example of a common resource?

Which of the following exemplifies the tragedy of the commons?

Which of the following is an example of a positive externality?