Exam 10: Externalities

Ty lives in an apartment building and gets a benefit from playing his stereo. Olivia, who lives next door to Ty and often loses sleep due to the loud music coming from Ty's stereo, bears a cost from the noise. Olivia is threatening to call the police to force Ty to turn down his stereo. Under which of the following conditions would Ty be able to offer Olivia some amount of money to keep her from calling the police and to allow him to continue to play his stereo loudly?

Education yields positive externalities. For example, a more educated population

Figure 10-19 -Refer to Figure 10-19. Note that the lines labeled "Demand" and "Social Value"are parallel. Also, the slopes of the lines on the graph reflect the following facts: 1) Private value and social value decrease by $1.00 with each additional unit of the good that is consumed, and 2) private cost increases by $1.40 with each additional unit of the good that is produced. Thus, when the 59th unit of the good is produced and consumed, social well-being increases by

Firms that can reduce pollution easily would be willing to sell their pollution permits.

Thurman is a writer who works from his home. Thurman lives next door to Phil, the drummer for a local band. Phil needs a lot of practice to earn $250, which is his share of the band's profit. Thurman gets distracted by Phil's drumming but he needs to get his writing done to earn $500 for his current article. Which of the following is an efficient solution?

The goal of industrial policy should be that

Describe the circumstances under which it would be better for the government to sell pollution permits than to levy a corrective tax.

Suppose the socially-optimal quantity of good x is 2,500 units and the market-equilibrium quantity of good x is 3,000 units. When 2,500 units of good x are produced, the

One drawback to industrial policy is that

Government intervention that aims to promote technology-enhancing industries is called

Markets sometimes fail to allocate resources efficiently.

A negative externality will cause a private market to produce

Which of the following require firms to pay to pollute? i) corrective taxes Ii) tradable pollution permits Iii) pollution regulations

When the government reduces my income tax by $0.30 for every $1.00 that I contribute to a charity, the government is effectively

Corrective taxes cause deadweight losses, reducing economic efficiency.

With pollution permits, the supply curve for pollution rights is

Regulations to reduce pollution

When a driver enters a crowded highway he increases the travel times of all other drivers on the highway. This is an example of a negative externality.

University researchers create a positive externality because what they discover in their research labs can easily be learned by others who haven't contributed to the research costs. Suppose that the federal government gives grants to these researchers equal to the their per-unit production externality. What is the relationship between the equilibrium quantity of university research and the socially optimal quantity of university research produced?

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. In order to maximize the total benefit of fire extinguishers to society as a whole, should the number of fire extinguishers produced be less than, equal to, or greater than 500? Explain.