Exam 5: Externalities, Environmental Policy, and Public Goods

Figure 5-2 Figure 5-2 shows a market with a negative externality. -Refer to Figure 5-2. The deadweight loss due to the externality is represented by the area

How does the construction of a market demand curve for a private good differ from that for a public good?

Compare two situations. (A) A firm is not legally responsible for damages that result from air pollution caused by its production of steel. (B) A firm is legally responsible for damages that result from its production of steel. Ronald Coase argued that

Which of the following describes how a negative externality affects a competitive market?

Figure 5-13 Figure 5-13 illustrates the market for gasoline before and after the government imposes a tax to bring about the efficient level of gasoline production. -Refer to Figure 5-13. The efficient equilibrium price of gasoline is ________ per gallon.

A modern example of the tragedy of the commons is the forests in many poor countries.

Explain how mandatory seat belt laws may reduce the negative externalities of risky behavior.

Figure 5-11 Coal burning utilities release sulfur dioxide and nitric acid which react with water to produce acid rain. Acid rain damages trees and crops and kills fish. Because the utilities do not bear the cost of the acid rain they overproduce the quantity of electricity. This is illustrated in Figure 5-11. -Refer to Figure 5-11. S1 represents the supply curve that reflects the private cost of production and S2 represents the supply curve that reflects the social cost of production. One way to internalize the external cost generated by utilities is to impose a Pigovian tax on the production of electricity. What is the size of the Pigovian tax that will internalize the cost of the externality?

Figure 5-2 Figure 5-2 shows a market with a negative externality. -Refer to Figure 5-2. The marginal benefit of the last unit produced is represented by the price

Figure 5-2 Figure 5-2 shows a market with a negative externality. -Refer to Figure 5-2. The efficient output level is

What is an externality?

Figure 5-6 Figure 5-6 shows the market for measles vaccinations, a product whose use generates positive externalities. -Refer to Figure 5-6. What is the economically efficient output level?

Which of the following is an example of a common resource?

If there is pollution in producing a product, then the market equilibrium price is too high and equilibrium quantity is too low.

Anyone can purchase sulfur dioxide emissions allowances on the Chicago Mercantile Exchange. Several environmental groups have raised money to buy allowances (which they subsequently destroy). As part of their fund-raising, these groups have urged contributors to buy the allowances as gifts. As one newspaper story put it, "For the environmentalist in your life, here's a gift that is sold by the ton, fits in an envelope and will last forever." Source for quote: Randall Edwards, "Dear Santa: Please Bring Me Sulfur Dioxide for Christmas," Columbus Dispatch, December 19, 1999. What would be the impact on the price of the emission allowances in the market?

If the marginal benefit of reducing emissions of some air pollutant is greater than the marginal cost,

State whether each of the following goods and services is nonrival, nonexcludable or both: a. A toll road b. A public park c. A lighthouse d. An art museum e. A radio broadcast of "A Prairie Home Companion"

The efficient output level of a public good occurs where the

Figure 5-9 Companies producing toilet paper bleach the paper to make it white. The bleach is discharged into rivers and lakes and causes substantial environmental damage. Figure 5-9 illustrates the situation in the toilet paper market. -Refer to Figure 5-9. Let's suppose the government imposes a tax of $50 per ton of toilet paper to bring about the efficient level of production. What happens to the market price of toilet paper?

One problem with using a command-and-control approach to pollution reduction is that the monitoring costs may be too high.