Exam 10: Externalities

Graph 10-3 This graph reflects the market for kiwifruit, where pesticide used by kiwifruit orchardists also unintentionally kills honey bees. -Refer to Graph 10-3. At the private market outcome, the equilibrium price of kiwifruit will be:

Graph 10-3 This graph reflects the market for kiwifruit, where pesticide used by kiwifruit orchardists also unintentionally kills honey bees. -Refer to Graph 10-3. Assume that the kiwifruit orchardists must purchase a pesticide application permit (the cost for the permit is included in private cost) before spraying their fruit. What criteria should the government use in determining whether or not to issue a permit?

Using a supply-demand diagram, demonstrate how a positive consumption externality leads to market inefficiency.

Assume that your housemate is very messy. Suppose he gets a $200 benefit from being messy but imposes a $100 cost on you. The Coase theorem would suggest that an efficient solution would be for you to:

A positive consumption externality occurs when:

If the marginal consumer values timber less than the social cost of harvesting it , the timber market will be characterised by a negative production externality.

Which of the following is true of the Coase theorem?

In which of the following situations may tradeable pollution permits be preferred to Pigovian taxes? (i) where they internalise the externality of pollution (ii) where regulatory agencies do not know the demand curve for pollution (iii) where the government is not interested in generating maximum revenue from polluting firms

Despite the appealing logic of the Coase theorem, private actors often fail to resolve on their own the problems caused by externalities.

Encouraging firms to increase production via a subsidy will tend to be socially optimal when:

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

If the government were to impose a fee of $10 000 for each unit of air pollution released by a steel mill, this policy would be considered a:

Paul owns a mushroom farm. The smell from the farm reduces the value of adjacent houses by a total of $30 000. Suppose that the benefit of the mushroom farm to Paul is $20 000. Assuming that Paul has the legal right to own the farm, a possible private solution to this problem is that:

The impact of one person's actions on the wellbeing of a bystander is called:

Graph 10-4 -Refer to Graph 10-4. The equivalence of a Pigovian tax and a pollution permit would require that:

Explain the difference between market equilibrium and social optimum.

When weighing the costs and benefits of pollution, the costs always exceed the benefits because the benefit equals zero.

If alcohol creates negative consumption externalities then the market equilibrium level of alcohol consumption will be:

Irrespective of whether an externality is positive or negative, all solutions share the same goal of: