Exam 10: Externalities

According to the Coase theorem, which of the following conditions must hold, in order for private solutions to externalities to be possible? (i) bargaining costs are small (ii) property ownership/rights cannot be defined (iii) the number of parties involved is large

The Coase theorem suggests that efficient solutions to externalities can be arrived at through bargaining. Under what circumstances does this fail to produce a solution?

Suppose that a steel factory emits a certain amount of air pollution and that this pollution constitutes a negative externality. The social cost of producing the steel includes the:

Some environmentalists argue that we should protect the environment as much as possible, regardless of cost. Which of the following are likely to result from such a disregard for cost? (i) lower levels of nutrition, health care and housing (ii) a lower standard of living (iii) slowing or reversing technological advancement

When correcting for an externality, command-and-control policies are always preferable to market-based policies.

The Internet is a good example of a negative externality because it has aspects which may be inappropriate for some users.

Which of the following is true of positive consumption externalities?

In many cities, vacant lots are required to be mowed on a regular basis. Which of the following approaches does this represent? (i) regulation to reduce the effects of negative externalities from weeds and vermin (ii) a command-and-control approach to solving the externality problem (iii) a Pigovian approach to solving the externality problem

Taxation is often able to correct market externalities at a lower cost than regulations designed to achieve the same goal.

Why are public policy solutions such as Pigovian taxes and subsidies preferred to regulatory policies?

Graph 10-5 -Refer to Graph 10-5. A policy that restricts the use of a mobile phone while driving an automobile would best be applied to a market characterised by:

At any given quantity, the willingness to pay in the market for automobile fuel is reflected in the:

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 your housemate to:

Both pollution permits and Pigovian taxes are viewed as cost-effective ways to keep the environment clean.

By creating a 'child-free zone', a restaurant could attempt to account for the costs that children impose on others.

Why are tradeable pollution permits considered to be a more efficient way to reduce pollution than Government regulation?

When dealing with consumption externalities, government can potentially correct the market failure:

Airports can generate a negative externality with the noise the landing aircraft makes on neighbourhoods. Policies to reduce this noise problem include:

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

When a production externality has a beneficial effect on a bystander at the market equilibrium: