Exam 5: Externalities, environmental Policy, and Public Goods

Ronald Coase was awarded the 1991 Nobel Prize in Economics primarily for addressing problems related to externalities.Which of the following describes Coase's work?

Ronald Coase is famous for the Coase Theorem,which is based on the premise that there is an economically efficient level of pollution reduction.Many economists believe that the tradable emissions allowance program that has been used to deal with the problem of acid rain has been successful in reducing emissions of sulfur dioxide in an economically efficient manner.Why isn't this program an example of the Coase Theorem?

In an effort to maintain privacy and enhance property values, three home owners, Deidre, Eugene and Farhad, are considering leasing a portion of adjoining vacant land for a private park. Table 5-1 shows each person's willingness to pay for each quantity of the land. a. Complete the column in Table 5-1 b. Graph the marginal social benefit curve. c. Suppose the landowner is willing to lease a portion of her land according to the following supply schedule given in Table 5-2. On the same diagram, graph the supply curve. d. What is the optimal quantity of land that homeowners should lease? Explain your answer. e. Explain why a park of 5 acres is not optimal.

According to Steven Cheung: "Pollination contracts usually include stipulations regarding the number and strength of ...[bee] colonies,the rental fee per hive,the time of delivery...the protection of bees from pesticides,and the strategic placing of hives." Cheung cites this as evidence that

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?

How does a positive externality in consumption reduce economic efficiency?

Private costs

The social cost of a good or service is the cost borne by the producer.

Which of the following displays these two characteristics: rivalry and nonexcludability?

The social cost of cutting trees for firewood in a government forest is

Consider the stock of ocean tuna which is massively overfished.It is rational for an individual to exploit the resource rather than to conserve the stock because

Figure 5-5 Figure 5-5 shows a market with an externality. The current market equilibrium output of Q₁ is not the economically efficient output. The economically efficient output is Q₂. -Refer to Figure 5-5.Suppose the current market equilibrium output of Q₁ is not the economically efficient output because of an externality.The economically efficient output is Q₂.In that case,diagram shows

Some environmentalists have criticized tradable emissions allowances on the grounds that they give permit holders a license to pollute.Furthermore,environmentalists argue that those who sell their permits receive a monetary benefit from their contribution to polluting the environment.Use economic reasoning to evaluate this criticism.

Which of the following conditions holds in an economically efficient competitive market equilibrium?

A positive externality results when

A product is considered to be rivalrous if

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 criteria should be used to evaluate if government intervention in a market for the purpose of environmental protection is justified?

Figure 5-10 Chicken pox vaccinations for toddlers benefit society by protecting young children and by preventing an epidemic of the disease. Thus, the social benefits of chicken pox vaccinations exceed the private benefit for any quantity of vaccinations as illustrated in Figure 5-10. -Refer to Figure 5-10.What is the value of the net gain to society as a result of subsidizing chicken pox vaccinations?

Figure 5-5 Figure 5-5 shows a market with an externality. The current market equilibrium output of Q₁ is not the economically efficient output. The economically efficient output is Q₂. -Refer to Figure 5-5.If,because of an externality,the economically efficient output is Q₂ and not the current equilibrium output of Q₁,what does D₂ represent?