Exam 15: Externalities, Environmental Policy and Public Goods

Suppose a negative externality exists in a market.If transactions costs are low and parties are willing to bargain, then, according to the Coase theorem,

When negative externalities exist, the competitive market supply curve does not include all of the costs borne by members of society.

Some environmentalists have criticised tradable emissions allowances on the grounds that they give permit holders a license to pollute.Furthermore, environmentalists argue that those who sell their permits receive a monetary benefit from their contribution to polluting the environment.Use economic reasoning to evaluate this criticism.

All of the following are examples of public goods except

When a tax on output is imposed to internalise the external costs of pollution, the supply curve shifts down by the amount of the tax.

When does a negative externality exist?

What does the private market produce when a negative externality exists?

If electric utilities continually reduce their emissions of sulphur dioxide,

Figure 15.1 Figure 15.1 shows a market with an externality.The current market equilibrium output of Q₁ is not the economically efficient output.The economically efficient output is Q₂. -Refer to Figure 15.1.If, because of an externality, the economically efficient output is Q₂ and not the current equilibrium output of Q₁, what does S₁ represent?

Goods differ on the basis of whether their consumption is rival and excludable.Explain the terms 'rivalry' and 'excludability' as they are used to define goods.List the four categories of goods, and define these categories in terms of rivalry and excludability.

For the Coase theorem to work, there must be clear assignment of property rights.

Figure 15.1 Figure 15.1 shows a market with an externality.The current market equilibrium output of Q₁ is not the economically efficient output.The economically efficient output is Q₂. -Refer to Figure 15.1.Suppose the current market equilibrium output of Q₁ is not the economically efficient output because of an externality.The economically efficient output is Q₂.In that case, the diagram shows

An example of a quasi-public good is

The Coase theorem asserts that government intervention is a prerequisite for addressing externality problems.

A product is considered to be non-excludable if

Private solutions to the problem of externalities are most likely when

Figure 15.6 Figure 15.6 shows the market for measles vaccinations, a product whose use generates positive externalities. -Refer to Figure 15.6.What does D₂ represent?

A tragedy of the commons occurs when a resource is

A possible solution when a scarce resource is subject to the tragedy of the commons is

Figure 15.4 Suppose there are several paper mills producing paper for a market.These mills, located upstream from a fishing village, discharge a large amount of wastewater into the river.The waste material affects the number of fish in the river, and the use of the river for recreation and as a public water supply source.Figure 15.4 shows the paper market.Use this Figure to answer the following question(s). -Refer to Figure 15.4.What is the deadweight loss from producing at the market equilibrium?