Exam 5: Externalities, environmental Policy, and Public Goods

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?

For the Coase theorem to work there must be clear assignment of property rights.

Suppose a negative externality exists in a market.If transactions costs are low and parties are willing to bargain then,according to the Coase theorem

Mandatory motorcycle helmet laws are designed to reduce the severity of injuries resulting from motorcycle involvement in traffic accidents.In this sense,these mandatory helmet laws are reducing ________ of risky behavior.

Which of the following represents the true economic cost of production when firms produce goods that cause negative externalities?

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.

The cost borne by a producer in the production of a good or service is called

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

Governments can increase the consumption of a product that creates positive externalities by

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

It is difficult for a private market to provide the economically efficient quantity of a public good because

Figure 5-16 Amit and Bree are the only two homeowners on an isolated private road. Both agree that installing street lights along the road would be beneficial and want to do so. Figure 5-16 shows their willingness to pay for different quantities of street lights, the market demand for street lights and the marginal cost of installing the street lights. -Refer to Figure 5-16.How much is Bree willing to pay to have 4 street lights installed?

If policymakers use a pollution tax to control pollution,the tax per unit of pollution should be set

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

A major problem with using tradable emissions allowance system to control pollution is

When there is a negative externality,the competitive output is more than the economically efficient output level.

Figure 5-3 -Refer to Figure 5-3.The deadweight loss due to the externality is represented by the area

Some policymakers have argue that products like cigarettes,alcohol,and sweetened soda generate negative externalities in consumption.All else equal,if the government decided to impose a tax on soda,the equilibrium quantity of soda would ________ and the equilibrium price of soda would ________.

Figure 5-14 Figure 5-14 shows the market for aviation security. Aviation security generates a positive externality because people who are not airline passengers benefit from aviation security. -Refer to Figure 5-14 to answer the following questions. a. In the absence of any government intervention what is the equilibrium level of security that airlines will supply? Denote this level,Q*.Briefly explain why this quantity is not the economically efficient level of aviation security. b.In the diagram,illustrate the presence of positive externalities in the aviation security market.Label any new curve that you draw. c.On your diagram identify the economically efficient level of aviation security.Denote this level Qe. d.Explain how a government subsidy for the airlines can bring about the economically efficient aviation security level.Be sure to identify the size of the subsidy.

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 market equilibrium output level?