Exam 10: Externalities

A dentist shares an office building with a radio station. The electrical current from the dentist's drill causes static in the radio broadcast, causing the radio station to lose $10,000 in profits. The radio station could put up a shield at a cost of $30,000; the dentist could buy a new drill that causes less interference for $6,000. Either would restore the radio station's lost profits. What is the economically efficient outcome?

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?

Figure 10-12 -Refer to Figure 10-12. Which of the following is an appropriate label for Line 1?

At any given quantity, the willingness to pay in the market for gasoline is reflected in the

If the government wanted to ensure that the market reaches the socially optimal equilibrium in the presence of a technology spillover, it should

Some government policies provide incentives for private decision makers to choose to solve the problem of externalities on their own. What term do we use to describe such policies?

In some parts of the United States, sugar beets are grown and harvested. The process of producing usable sugar from the beets generates foul-smelling smoke. A government policy that limits the emission of smoke by sugar- beet-processing firms is an example of

When a particular negative externality affects a very large number of people, it is likely that

Figure 10-18. The graph represents a corrective tax to reduce pollution. On the axes, Q denotes the quantity of pollution and P represents the price of pollution. -Refer to Figure 10-18. The tax depicted on the graph

Figure 10-9 -Refer to Figure 10-9, Panel (b) and Panel (c). The overuse of antibiotics leads to the development of antibiotic- resistant diseases. Therefore, a government policy that internalized the externality would move the quantity of antibiotics used from point

Suppose a new market for tradable pollution permits is created. As long as there is a free market for the pollution rights, the final allocation will be , regardless of the initial allocation of permits.

To enhance the well-being of society, a social planner will encourage firms to increase production when

Scenario 10-3 Suppose the equation for the demand curve in a market is where is the quantity demanded and is the price. Also, suppose the equation for the supply curve in the same market is , where is the quantity supplied. -Refer to Scenario 10-3. What are the market equilibrium quantity and price?

Figure 10-7 -Refer to Figure 10-7. To internalize the externality in this market, the government should

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

Does the phenomenon of externalities strengthen the argument that we should rely upon the "invisible hand" of the marketplace, or does it weaken that argument?

Suppose that beef producers create a negative externality. What is the relationship between the equilibrium quantity of beef and the socially optimal quantity of beef?

William engages in an activity that influences the well-being of a bystander. In which of the following instances does an externality arise?

Negative externalities occur when one person's actions

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. If there are no subsidies, what is the relationship between the equilibrium quantity of university research and the optimal quantity of university research produced?