Exam 10: Externalities

Suppose planting flowering shrubs creates a positive externality equal to $7 per shrub. Further suppose that the local government offers a $7 per-shrub subsidy to planters. The number of shrubs that are planted is then

Figure 10-13. On the graph, Q represents the quantity of plastics and P represents the price of plastics. Multiple Choice - Section 02: Public Policies toward Externalities -Refer to Figure 10-13. If 250 units of plastics are produced and consumed, then the

Which of the following is true of markets characterized by positive externalities?

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

Suppose that a firm produces electricity by burning coal. The production process creates a negative externality of air pollution. If the firm does not internalize the cost of the externality, it will produce where

Figure 10-19 -Refer to Figure 10-19. How many units of the good are produced in a market equilibrium?

Figure 10-6 -Refer to Figure 10-6. Which price represents the equilibrium price of the product in this market?

When externalities exist, buyers and sellers

Which of the following statements is correct about a market in which pollution is emitted?

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

Figure 10-3 -Refer to Figure 10-3. The social cost curve is above the supply curve because

When correcting for an externality, command-and-control policies are always preferable to market-based policies.

Scenario 10-2 The demand curve for restored historic buildings slopes downward and the supply curve for restored historic buildings slopes upward. The production of the 50th restored historic building entails the following: • a private cost of $800,000; • a private value of $650,000; • a social value of $800,000. -Refer to Scenario 10-2. Is the socially optimal quantity of restored historic buildings less than, equal to, or greater than 50?

Alexander lives in an apartment building and gets a $250 benefit from playing his stereo. Mary, who lives next door to Alexander and often loses sleep due to the loud music coming from Alexander's stereo, bears a $350 cost from the noise. Mary would like to offer Alexander some money to turn down the volume on his stereo. If Mary had to hire a lawyer to draw up the contract, what is the maximum amount she could pay to the lawyer to ensure that both Alexander and Mary would benefit from the agreement?

Does the restoration of historic buildings create a positive externality or does it create a negative externality?

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 market-equilibrium quantity of fire extinguishers less than, equal to, or greater than 500? Explain.

When the production of a good results in a positive externality, the social value curve is

Flu shots provide a positive externality. Suppose that the market for vaccinations is perfectly competitive. Without government intervention in the vaccination market, which of the following statements is correct?

Tradable pollution permits

Suppose the government levies a corrective tax on firms that pollute in order to limit the quantity of pollution. Under this policy, does the demand curve for pollution rights determine the quantity of pollution, or does it determine the price of pollution?