Exam 10: Externalities

A negative externality

Patents do not

Which of the following suggests that private markets can be effective in dealing with externalities?

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

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.

When a policy succeeds in giving buyers and sellers in a market an incentive to take into account the external effects of their actions, the policy is said to

Suppose that coal producers create a negative externality equal to $5 per ton of coal. What is the relationship between the equilibrium quantity of coal and the socially optimal quantity of coal?

The tax on cigarettes is an example of

Figure 10-4 -Refer to Figure 10-4. If this market is currently producing at Q4, then total economic well-being would be maximized if output

Wally owns a dog whose barking annoys Wally's neighbor, Corrine. Suppose that the benefit of owning the dog is worth $700 to Wally and that Corrine bears a cost of $500 from the barking. Assuming Wally has the legal right to keep the dog, a possible private solution to this problem is that

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 there an external cost associated with the restoration of the 50th historic building, or is there an external benefit? What is the amount of that external cost or external benefit?

Table 10-4 -Refer to Table 10-4. The social cost of the 2nd unit of output that is produced is

Despite the appealing logic of the Coase theorem, private actors often fail to resolve on their own the problems caused by externalities.

Figure 10-9 -Refer to Figure 10-9, Panel (c). The market equilibrium quantity is

Assume that your roommate is very messy. According to campus policy, you have a right to live in an uncluttered apartment. Suppose she gets an $80 benefit from being messy but imposes a $60 cost on you. The Coase theorem would suggest that an efficient solution would be for your roommate to

Refer to Figure 10-12. An alternative label for the quantity would be

Figure 10-2. The graph depicts the market for plastic. -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?

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?

In a market economy, government intervention

When Monique drives to work every morning, she drives on a congested highway. What Monique does not realize is that when she enters the highway each morning she increases the travel time of all other drivers on the highway. In this case, the external cost of Monique's highway trip