Exam 10: Externalities

Suppose that an MBA degree creates no externality because the benefits of an MBA are internalized by the student in the form of higher wages. If the government offers subsidies for MBAs, then which of the following statements is correct?

Which of the following is an example of a positive externality?

The social cost of pollution includes the private costs of the producers plus the costs to those bystanders adversely affected by the pollution.

Table 10-5 The following table shows the marginal costs for each of four firms (A, B, C, and D) to eliminate units of pollution from their production processes. For example, for Firm A to eliminate one unit of pollution, it would cost $54, and for Firm A to eliminate a second unit of pollution it would cost an additional $67. -Refer to Table 10-5. If the government wanted to eliminate exactly 11 units of pollution, which of the following fees per unit of pollution would achieve that goal?

Tradable pollution permits

Figure 10-15 -Refer to Figure 10-15. The supply of pollution permits is

An example of a private solution to externalities is charities. The government encourages this private solution by allowing .

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

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

Table 10-5 The following table shows the marginal costs for each of four firms (A, B, C, and D) to eliminate units of pollution from their production processes. For example, for Firm A to eliminate one unit of pollution, it would cost $54, and for Firm A to eliminate a second unit of pollution it would cost an additional $67. -Refer to Table 10-5. If the government charged a fee of $69 per unit of pollution, how many units of pollution would the firms eliminate altogether?

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. Suppose there is an external cost of $12 associated with the production of each unit of the good. What is the social cost of producing 30 units of the good?

Thurman is a writer who works from his home. Thurman lives next door to Phil, the drummer for a local band. Phil needs a lot of practice to earn $250, which is his share of the band's profit. Thurman gets distracted by Phil's drumming but he needs to get his writing done to earn $500 for his current article. Which of the following is an efficient solution?

Transaction costs

The concept of external cost is associated with a negative externality, but not with a positive externality.

Suppose that electricity producers create a negative externality equal to $6 per unit. Further suppose that the government imposes a $8 per-unit tax on the producers. What is the relationship between the after-tax equilibrium quantity and the socially optimal quantity of electricity to be produced?

Figure 10-9 -Refer to Figure 10-9, Panel (b) and Panel (c). The installation of a scrubber in a smokestack reduces the emission of harmful chemicals from the smokestack. Therefore, the socially optimal quantity of smokestack scrubbers is represented by point

Figure 10-19 -Refer to Figure 10-19. Each additional unit of the good that is produced yields an external benefit of

A negative externality will cause a private market to produce

If the social value of producing robots is greater than the private value of producing robots, the private market produces too few robots.

If the government were to limit the release of air pollution produced by a glue factory to 75 parts per million, the policy would be considered a