Exam 10: Externalities

If two parties negotiating a private solution to an externality cost employ a lawyer to help draft the contract, the lawyer's costs are a type of:

Markets are often inefficient when negative production externalities are present because:

Graph 10-5 -Refer to Graph 10-5. Which of the graphs shown best depicts the case of a negative consumption externality?

While economists generally agree that markets are a good way to organise economic behaviour, there are some important exceptions. The exceptions include:

A negative externality exists when:

The most efficient way to achieve reductions in pollution is for each firm to reduce their pollution by the same amount.

Which of the following statements is most correct about a market that is characterised by a positive production externality?

Suppose people plant flowering trees near their homes to encourage rare native birds to feed. If people believe that an increase in native bird populations is valuable, people who plant these trees:

Graph 10-5 -Refer to Graph 10-5. In the figure shown, which set of graphs depict a situation most likely to benefit from a Pigovian tax?

If only a few people are affected by an externality, then it is likely that:

Medical research is often presented as an example of a positive externality. Which of the following options available to policymakers would encourage producers of medical knowledge to provide a socially optimal level of production? (i) imposing price ceilings on selected medical procedures (ii) placing taxes on the sale of prescription drugs (iii) providing subsidies to these firms

Markets are inefficient when positive production externalities are present because:

Internalising a positive production externality through a government subsidy will cause the industry's supply curve to:

In Australia, hunting regulations for kangaroos are closely monitored and enforced. This is an example of a policy:

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

Organisers of an outdoor concert in a park surrounded by residential neighbourhoods are likely to consider the noise and traffic cost to residential neighbourhoods when they assess the financial viability of the concert venture.

Environmental groups are often interested in leasing their own land for oil exploration and production but are strongly opposed to the government leasing its land for similar development activities. Explain this apparent contradiction.

Assuming that transaction costs are small, the Coase theorem is likely to be helpful in articulating a solution to:

What is meant by 'internalising' an externality? How can a negative externality be internalised?

Dick owns a dog whose barking annoys Dick's neighbour Jane. Dick receives personal benefit from owning the dog and Jane bears a cost of Dick's ownership of the dog. Assuming that Dick has the legal right to keep the dog, which of the following statements is true?