Exam 17: Externalities

Most governments subsidize basic education because

When people make decisions about the quantity of education to undertake, they balance the marginal social benefit against the marginal private cost.

-The table above shows costs and benefits arising from college education. There is no government involvement and the schools are competitive. a) Draw the marginal social cost, marginal private benefit, and marginal social benefit curves. b) How many students are enrolled and what is the tuition? c) What is the efficient level of enrollment? d) What is the deadweight loss? Why does it arise? e) If the government provides the efficient amount of education, how many school places does it offer and what is the tuition? Explain your answer. f) If the government provides the efficient amount of education, of the tuition paid by a student what does the government pay and what does what a student pay?

The figure shows the supply curve (S) and the demand curve (D) for college education. The external benefit from college education is $6,000 per student per year and is constant. -In the figure above, with no government involvement and if the colleges are competitive, how many students are enrolled?

If a product has zero external costs, then marginal social cost equal marginal private cost.

The cost of producing an additional unit of a good or service that is borne by the producer of that good or service is the

Which of the following applies to the tragedy of the commons? I. In the absence of government action, there is an absence of incentives to prevent the overuse of the common resource. II) When consumers take account of the marginal social benefit and marginal social cost, overuse of the resource occurs. III) Even with government action, it is impossible for an efficient level of output to be achieved.

The marginal social cost is the cost of producing an additional unit of a good or service that falls on people other than the producer of the good or service.

-Attractive landscaping increases the property values of surrounding homes, creating a marginal benefit. The figure above represents the market for monthly landscaping contracts. a) What is the marginal social benefit of the 40th contract? Of the 60th contract? b) What is the marginal private benefit of the 40th contract? c) What is the marginal external benefit of the 40th contract? d) What is the unregulated competitive equilibrium price and quantity? e) What is the efficient quantity? f) What is the amount of the deadweight loss?

When property rights are assigned and transactions costs are low

-The figure above shows the costs associated with producing paper. When paper is produced, there is some pollution runoff into a lake. If paper production is 4 tons per week, the outcome is ________.

-In the above figure, if the market is competitive and unregulated, output will be

The Atlantic City Expressway is a highway that runs from outside Philadelphia to Atlantic City, New Jersey. It is notoriously congested during the summer weekends when many people are driving to the beach about the same time. Because drivers who decide to take this road ignore the impact of their driving on overall traffic congestion the result is ________ cars on the road than the efficient number of cars and a deadweight loss is ________.

If the production of a good creates pollution, then the

The HPV vaccine protects against human papillomavirus (HPV) that causes cancer. It protects both the person getting the vaccine and the sexual partners of that person. When calculating the marginal social benefit of the vaccine, it is necessary to include

The marginal social cost, MSC, of producing a good or service equals

-The above figure shows the marginal private cost curve, marginal social cost curve, and marginal social benefit curve for cod, a common resource. The market equilibrium with no government intervention is ________.

-The table above shows the marginal costs and marginal benefits of college education. If the market for college education is perfectly competitive and unregulated, how many students are enrolled in college?

-The table above describes the market for paper. The production of paper produces pollution. There are no external benefits. Now suppose a Pigovian tax is successfully implemented and the efficient quantity of paper is produced. What is the total tax revenue collected by the government per week?

Which condition(s) must exist for the Coase theorem to hold? I. Property rights must exist. II) Transactions costs must be measurable. III) A small number of parties must be involved.