Exam 10: Externalities

Suppose that a negative externality is created by the production of good X. Which of the following statements is correct?

Scenario 10-2 The demand curve for restored historic buildings slopes downward and the supply curve for restored historic buildings slopes upward. The production of the 50^th restored historic building entails the following: -a private cost of $800,000; -a private value of $650,000; -a social value of $800,000. -Refer to Scenario 10-2. Is the socially optimal quantity of restored historic buildings less than, equal to, or greater than 50?

Figure 10-19 -Refer to Figure 10-19. The social optimum can be reached if

Table 10-1 The following table shows the private value, private cost, and external cost for various quantities of output in a market. -Refer to Table 10-1. How large would a corrective tax need to be to move this market from the equilibrium outcome to the socially-optimal outcome?

Regulations to reduce pollution

Private markets fail to reach a socially optimal equilibrium when negative externalities are present because

Which of the following statements is true of both pollution permits and corrective taxes?

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?

Suppose that Company A's railroad cars pass through Farmer B's corn fields. The railroad causes an externality to the farmer because the railroad cars emit sparks that cause $1,500 in damage to the farmer's crops. There is a special soy-based grease that the railroad could purchase that would eliminate the damaging sparks. The grease costs $1,200. Suppose that the farmer has the right to compensation for any damage that his crops suffer. Assume that there are no transaction costs. Which of the following characterizes the efficient outcome?

Suppose that a firm produces electricity by burning coal. The production process creates a negative externality of air pollution. If the firm does not internalize the cost of the externality, it will produce where

If education produces positive externalities and the government does not intervene in the market, we would expect

Figure 10-19 -Refer to Figure 10-19. Which of the following quantities decreases as the quantity of the good is increased?

Figure 10-10 -Refer to Figure 10-10. The graph represents a market in which

Dioxin emission that results from the production of paper is a good example of a negative externality because

Private parties may choose not to solve an externality problem if the transaction costs are large enough.

Suppose planting flowering shrubs creates a positive externality equal to $7 per shrub. Further suppose that the local government offers a $7 per-shrub subsidy to planters. The number of shrubs that are planted is then

Figure 10-11 -Refer to Figure 10-11. Which of the following statements is correct?

Which of the following policies is not an example of a command-and-control policy?

Table 10-1 The following table shows the private value, private cost, and external cost for various quantities of output in a market. -Refer to Table 10-1. Which of the following statements is correct?

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?