Exam 10: Externalities

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 $5.Which of the following represents an efficient solution in the absence of transaction costs?

Two types of private solutions to the problem of externalities are

Corrective taxes enhance efficiency,but the cost to administer them exceeds the revenue they raise for the government.

Which of the following statements is correct?

Figure 10-9 -Refer to Figure 10-9.Which graph represents a market with no externality?

Figure 10-9 -Refer to Figure 10-9.Which graph represents a market with a negative externality?

Suppose that flu shots create a positive externality equal to $12 per shot.What is the relationship between the equilibrium quantity and the socially optimal quantity of flu shots produced?

What is the difference between command-and-control policies and market-based policies toward externalities?

An externality is

The patent system gives firms greater incentive to engage in research and other activities that advance technology.

Which of the following represents a way that a government can help the private market to internalize an externality?

Figure 10-10 -Refer to Figure 10-10.Which graph illustrates a corrective tax?

In the absence of externalities,the "invisible hand" leads a market to maximize

Table 10-2 The following table shows the private value,private cost,and social value for a market with a positive externality. -Refer to Table 10-2.What is the socially-optimal level of output in this market?

An externality arises when a person engages in an activity that influences the well-being of

Use a graph to illustrate the quantity of pollution that would be emitted (a)after a corrective tax has been imposed and (b)after tradable pollution permits have been imposed.Could these two quantities ever be equivalent?

In many cases the Coase theorem does not work well because

Suppose that flower gardens create a positive externality equal to $1 per plant.What is the relationship between the equilibrium quantity and the socially optimal quantity of plants grown?

Figure 10-2 -Refer to Figure 10-2.Suppose that the production of plastic creates a social cost which is depicted in the graph above.Without any government regulation,how much plastic will be produced?

According to the Coase Theorem,individuals can always work out a mutually beneficial agreement to solve the problems of externalities even when high transaction costs are involved.