Exam 20: Public Goods and Externalities

In the figure given below,the competitive supply curve of a commodity is given by S₁,the private marginal benefit curve is D₁,the marginal social benefit curve is D₂,and the MB_E curve reflects the marginal external benefits. -In Figure 20-2,the efficient output is:

Competitive markets are unlikely to produce the efficient quantity of a public good because:

Suppose there are two chemicals manufacturing firms,A and B,in the city of Maltova which release 10 units and 8 units of toxic wastes every year in the absence of any restriction.The government of Maltova then imposes a tax of $5,000 per million ton of toxic waste on the factories.Explain with the help of a suitable figure that although the same tax is imposed on both the factories,and the government is unaware of each firm's marginal costs,the government is able to reduce pollution by 11 units with minimum cost.

When a positive externality generated from the production of a good has not been internalized,then:

Which of the following helps to achieve efficiency in production?

In the figure given below,the competitive supply curve of a commodity is given by S₁,the private marginal benefit curve is D₁,the marginal social benefit curve is D₂,and the MB_E curve reflects the marginal external benefits. -From Figure 20-2,we can conclude that to help the market attain the efficient level of output,the government should:

Tradable permits that establish a maximum amount of pollution and then allow firms to trade pollution quota permits among them:

Which of the following categories of goods is nonrival in consumption and satisfies the nonexclusion condition?

The combined or market demand curve for a public good is:

The Coase theorem states that when transaction costs are low and property rights are enforced,then:

Which of the following is true with respect to the rationing problem in case of a public good?

Suppose good A is a public good.The marginal cost of providing 5 units of this good is $300.The marginal benefit derived from the consumption of 5 units by 3 individuals X,Y,and Z are $75,$125,and $100 respectively.Assuming that X,Y,and Z are the only consumers of good A,which of the following will hold true?

Patents generally encourage firms to invest in research and development when:

Assume that the economy of Wonderland has only two individuals: Rhea and Ron.The table given below shows the marginal benefit received by these two individuals from the consumption of different units of a public good.Given that the marginal cost of producing the public good is $500,calculate the efficient amount of the public good to be produced.Also illustrate your answer graphically. Units Rhea Ron 0 400 700 1 300 600 2 200 500 3 100 400 4 0 300 5 0 200 6 0 100 7 0 0

Suppose an electric utility company expects to earn $1 million in profit each year.In the process of producing electricity,pollutants emitted by the firm's smokestacks impose costs of $50 per year on each of 10,000 neighboring residents.A smokestack scrubber that would eliminate 80% of the damage can be purchased for $200,000,but needs to be replaced each year. ( A)Should the utility remain in business? Explain.

The efficient output of a public good is determined at the point where:

Jack benefits from keeping four dogs whose barking bothers his neighbor Jane.If Jane has the legal right to a quiet neighborhood,and mutual bargaining is expensive,which of the following will hold true?

Which of the following is a point of similarity between public goods and the goods that generate an external benefit?

Which of the following activities entails an external cost?

Suppose there are steel manufacturing firms (firm A and firm B)in a city which release 20 units and 16 units of pollutants every year in the absence of any restriction.The government then issues tradable permits to pollute to each of the firms.The overall emission level allowed through the permits was set at 6 units for each firm.Explain with the help of a suitable figure that how the government achieves a target of reducing pollution by 24 units in the least costly way.