Exam 10: Externalities

Abe owns a dog; the dog's barking annoys Abe's neighbor, Jenny. Suppose that the benefit of owning the dog is worth $200 to Abe and that Jenny bears a cost of $400 from the barking. Assuming Abe has the legal right to keep the dog, a possible private solution to this problem is that

Figure 10-1 -Refer to Figure 10-1. This graph represents the tobacco industry. The industry creates

A command-and-control policy is another term for a

Which of the following is not a necessary condition for the Coase theorem?

An externality exists whenever

Since restored historic buildings convey a positive externality, local governments may choose to

An externality is

The Coase theorem asserts that the private market will always solve the problem of externalities and allocate resources efficiently

Table 10-5 The following table shows the marginal costs for each of four firms A, B, C, and D) to eliminate units of pollution from their production processes. For example, for Firm A to eliminate one unit of pollution, it would cost $54, and for Firm A to eliminate a second unit of pollution it would cost an additional $67. -Refer to Table 10-5. If the government wanted to reduce pollution from 16 units to 6 units, which of the following fees per unit of pollution would achieve that goal?

Figure 10-12 -Refer to Figure 10-12. The graph, as drawn, could apply to the market for

Scenario 10-1 The demand curve for gasoline slopes downward and the supply curve for gasoline slopes upward. The production of the 1,000th gallon of gasoline entails the following: • a private cost of $3.10; • a social cost of $3.55; • a value to consumers of $3.70. -Refer to Scenario 10-1. Let Q represent the number of gallons of gasoline and let P represent the price of a gallon of gasoline. Which of the following statements is correct?

Figure 10-4 -Refer to Figure 10-4. If all external costs were internalized, then the market's equilibrium output would be

At any given quantity, the willingness to pay of the marginal buyer is the height of the _______.

Which of the following is not correct?

Suppose that flu shots create a positive externality equal to $12 per shot. What is the relationship between the equilibrium quantity and the socially optimal quantity of flu shots produced?

Which of the following policies is the government most inclined to use when faced with a positive externality?

Some environmentalists argue that we should protect the environment as much as possible, regardless of cost. Which of the following is not a likely outcome of pursuing such a course of action?

Figure 10-10 -Refer to Figure 10-10. Which of the following statements is correct?

Suppose that flower gardens create a positive externality equal to $1 per plant. What is the relationship between the equilibrium quantity and the socially optimal quantity of plants grown?

Which of the following illustrates the concept of a negative externality?