Exam 10: Externalities

Suppose that a negative externality is created by the production of good X. Which of the following statements is correct?

The tax on gasoline causes deadweight losses, as is the case with all taxes.

Figure 10-9 -Refer to Figure 10-9. Which graph represents a market with a positive externality?

If an objective of public policy is to allocate pollution to those factories that face the highest cost of reducing it, then that objective could be achieved by

Suppose that electricity producers create a negative externality equal to $5 per unit. Further suppose that the government gives a $5 per-unit subsidy to producers. What is the relationship between the equilibrium quantity and the socially optimal quantity of electricity to be produced?

The Coase theorem states that

Which of the following is an example of an externality?

Which of the following suggests that private markets can be effective in dealing with externalities?

Figure 10-9 -Refer to Figure 10-9. Which graph represents a market with no externality?

Which of the following statements about the Coase theorem is true?

Figure 10-2. The graph depicts the market for plastic. -Refer to Figure 10-2. Suppose that the production of plastic creates a social cost which is depicted in the graph above. Without any government regulation, what price will the firm charge per unit of plastic?

Economists Edward Glaeser and Matthew Kahn studied carbon emissions in different parts of the United States. On the basis of what they found, they concluded that environmentalists should be in favor of

When firms internalize a negative externality, the market supply curve shifts to the left.

Suppose that Charles wants to dine at a fancy restaurant, but the only available table is in the smoking section. Charles dislikes the smell of cigarette smoke. He notices that only one person, Sam, is smoking in the smoking section. Charles values the absence of smoke at $40. Sam values the ability to smoke in the restaurant at $15. Which of the following represents an efficient solution in the absence of transaction costs?

Scenario 10-4 The demand curve for fire extinguishers slopes downward and the supply curve for fire extinguishers slopes upward. The production of the 500th fire extinguisher entails the following: • a private cost of $10; • an external cost of $0; • a private value of $9; • an external benefit of $3. • -Refer to Scenario 10-4. Is the socially-optimal quantity of fire extinguishers less than, equal to, or greater than 500? Explain.

With a corrective tax, the supply curve for pollution is

When externalities cause markets to be inefficient,

At any given quantity, the cost of the marginal seller is the height of the _______.

Suppose that electricity producers create a negative externality equal to $6 per unit. Further suppose that the government imposes a $8 per-unit tax on the producers. What is the relationship between the after-tax equilibrium quantity and the socially optimal quantity of electricity to be produced?

Figure 10-12 -Refer to Figure 10-12. Which of the following is an appropriate label for Line 2?