Exam 5: Externalities, Environmental Policy, and Public Goods

Figure 5-15 Figure 5-15 shows the market for Atlantic salmon, a common resource.The current market equilibrium output of Q₁ is not the economically efficient output.The economically efficient output is Q₂. -Refer to Figure 5-15.The current market equilibrium output is partly the result of overfishing.In that case, what does S₂ represent?

Consider a situation in which a utility company emits high levels of sulfur dioxide and the company is not liable for the damages its pollution causes.According to the Coase theorem, government action is ________ to achieve an ________ amount of pollution.

How does the construction of a market demand curve for a private good differ from that for a public good?

It is difficult for a private market to provide the economically efficient quantity of a public good because

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?

Economists argue that the level of pollution should be

In economics, the optimal level of pollution is

Consider the following methods of pollution reduction: A.the government sets a target for maximum emissions B.the government mandates the installation of specific pollution abatement equipment C.the government imposes a per unit tax on the good that creates pollution D.the government gives firms a tax rebate for every unit of pollution abated Which of the above is an example of a command-and-control approach to reducing pollution?

Figure 5-15 Figure 5-15 shows the market for Atlantic salmon, a common resource.The current market equilibrium output of Q₁ is not the economically efficient output.The economically efficient output is Q₂. -Refer to Figure 5-15.The current market equilibrium output is partly the result of overfishing.In that case, what does S₁ represent?

Figure 5-9 Companies producing toilet paper bleach the paper to make it white.The bleach is discharged into rivers and lakes and causes substantial environmental damage.Figure 5-9 illustrates the situation in the toilet paper market. -Refer to Figure 5-9.The private profit-maximizing output level is

Explain how mandatory seat belt laws may reduce the negative externalities of risky behavior.

Figure 5-7 -Refer to Figure 5-7.Which of the following statements is true?

Medical research that results in a cure for a serious disease produces positive externalities.What is the impact of this positive externality on economic efficiency?

The Coase theorem states that

In economics, the optimal level of pollution is the level for which the net benefit from reducing the pollution is the greatest.

Which of the following describes how a positive externality affects a competitive market?

State and local governments subsidize college students with grants and low-interest loans.The loans and subsidies are examples of

Figure 5-2 Figure 5-2 shows a market with a negative externality. -Refer to Figure 5-2.The efficient output level is

Assume that production from an electric utility caused acid rain and that the government imposed a tax on the utility equal to the cost of the acid rain.This is an example of

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.What is the area that represents the cost of eliminating an additional 1 million tons?