Exam 10: Externalities

Negative externalities lead markets to produce a smaller quantity of a good than is socially desirable,while positive externalities lead markets to produce a larger quantity of a good than is socially desirable.

The least expensive way to clean up the environment is for all firms to reduce pollution by an equal percentage.

A gasoline tax is designed to correct each of the following problems except

Reaching an efficient bargain is difficult when the

Figure 10-1 -Refer to Figure 10-1.This graph represents the tobacco industry.Without any government intervention,the equilibrium price and quantity are

Two firms,A and B,each currently dump 50 tons of chemicals into the local river.The government has decided to reduce the pollution and from now on will require a pollution permit for each ton of pollution dumped into the river.It costs Firm A $100 for each ton of pollution that it eliminates before it reaches the river,and it costs Firm B $50 for each ton of pollution that it eliminates before it reaches the river.The government gives each firm 20 pollution permits.Government officials are not sure whether to allow the firms to buy or sell the pollution permits to each other.What is the total cost of reducing pollution if firms are not allowed to buy and sell pollution permits from each other? What is the total cost of reducing pollution if the firms are allowed to buy and sell permits from each other?

Figure 10-1 -Refer to Figure 10-1.This graph represents the tobacco industry.The socially optimal price and quantity are

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

Suppose that elementary education creates a positive externality.If the government does not subsidize education,then

Research into new technologies

When the government intervenes in markets with externalities,it does so in order to

When the social cost curve is above a product's supply curve,

Suppose that Bill wants to dine at a fancy restaurant,but the only available table is in the smoking section.Bill dislikes the smell of cigarette smoke.He notices that only one person,Peter,is smoking in the smoking section.Bill values the absence of smoke at $15.Peter values the ability to smoke in the restaurant at $10.In order for Bill to pay Peter not to smoke,he will need to tip the waiter $10 to facilitate the transaction.Which of the following represents an efficient solution?

Table 10-4 The following table shows the total costs for each of four firms (A,B,C,and D)to eliminate units of pollution from their production processes.For example,for Firm A to eliminate one unit of pollution,it would cost $46,and for Firm A to eliminate two units of pollution,it would cost a total of $103. -Refer to Table 10-4.Suppose the government wanted to eliminate exactly 10 units of pollution.Which of the following fees per unit of pollution would achieve that goal?

The Coase theorem states that

University researchers create a positive externality because what they discover in their research labs can easily be learned by others who haven't contributed to the research costs.What could the federal government do to equate the equilibrium quantity of university research and the socially optimal quantity of university research produced?

Corrective taxes cause deadweight losses,reducing economic efficiency.

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

Suppose that electricity producers create a negative externality equal to $6 per unit.Further suppose that the government imposes a $8 per-unit tax on the producers.What is the relationship between the after-tax equilibrium quantity and the socially optimal quantity of electricity to be produced?

Figure 10-10 -Refer to Figure 10-10.The supply of pollution permits is