Exam 5: Externalities, Environmental Policy, and Public Goods

When production generates a negative externality, the true cost of production is the

A positive externality causes

What are transactions costs? Why do transactions costs create difficulties in finding a private solution to the problem of pollution?

Figure 5-6 Figure 5-6 shows the market for measles vaccinations, a product whose use generates positive externalities. -Refer to Figure 5-6. Why is there a deadweight loss?

A tragedy of the commons occurs when a resource is

Figure 5-8 Consider a chemical plant that discharges toxic fumes over a nearby community. To reduce the emissions of toxic fumes the firm can install pollution abatement devices. Figure 5-8 shows the marginal benefit and the marginal cost from reducing the toxic fumes emissions. -Refer to Figure 5-8. Suppose the emissions reduction target is currently established at 8 million tons. Should society undertake to reduce an additional 1 million tons so that the total reduction is 9 million tons?

An important difference between the demand for a private good and the demand for a public good is that

The first economist to systematically analyze market failure was

When there is an externality in a market,

Figure 5-15 Figure 5-15 shows the market for Atlantic salmon, a common resource. The current market equilibrium output of Q1 is not the economically efficient output. The economically efficient output is Q2. -Refer to Figure 5-15. The current market equilibrium output is partly the result of overfishing. In that case, what does S1 represent?

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 actual price of gasoline paid by consumers after the tax is implemented is ________ per gallon.

Economists generally favor the use of tradable emissions allowances to reduce pollution. However, the use of these allowances has been criticized by some environmentalists. Which of the following describes this criticism?

Economists working at federal government agencies have estimated that the marginal social cost of carbon is about

For-profit producers will produce only private goods because

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

If the social cost of producing a good or service exceeds the private cost,

Figure 5-7 -Refer to Figure 5-7. What is the incremental cost of increasing the quantity of pollution reduction from QB to QE units?

Suppose a tax equal to the value of the marginal external cost at the optimal output is imposed on a pollution generating good. All of the following will result from the tax except

Figure 5-15 Figure 5-15 shows the market for Atlantic salmon, a common resource. The current market equilibrium output of Q1 is not the economically efficient output. The economically efficient output is Q2. -Refer to Figure 5-15. Identify the area that shows the deadweight loss from overfishing.

Article Summary According to a study by the Center for Neighborhood Technology, homes located within one-half mile of frequently-used public transportation held their value much better during the recent housing market downturn than did those without easy access to public transportation, and the greater home values reflect greater demand for neighborhoods in close proximity to public transportation. In addition to higher home values, the study found that close proximity to public transportation offers lower transportation costs, a wider variety of travel options, and access to more employment opportunities. Source: Meg Handley, "Study: Proximity to Public Transit Boosts Home Values," U.S. News & World Report, March 22, 2013. -The private cost of a good or service is the cost borne by the producer.