Exam 10: Externalities

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 charged a fee of $84 per unit of pollution, how many units of pollution would the firms eliminate altogether?

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 74th unit of the good is produced and consumed, social well-being

The gasoline tax

Social welfare can be enhanced by allowing firms to trade their rights to pollute.

Figure 10-3 -Refer to Figure 10-3. The difference between the social cost curve and the supply curve reflects the

Using a supply and demand diagram, demonstrate how a negative externality leads to market inefficiency. How might the government help to eliminate this inefficiency?

Some government policies provide incentives for private decision makers to choose to solve the problem of externalities on their own. What term do we use to describe such policies?

For the purpose of protecting the environment, upon which of the following approaches do we rely more and more as time goes by?

Assume each gallon of gasoline that is produced gives rise to an external cost of $1.25. On any given day, the production of the 10,000th gallon of gasoline entails a private value of $4.00 and a social cost of $3.50. What is the private cost of the 10,000th gallon?

The likelihood of successful private solutions to problems caused by externalities depends, in part, upon the number of interested parties. Briefly explain.

When negative externalities are present in a market

Buyers and sellers neglect the external effects of their actions when deciding how much to demand or supply.

A positive externality

Figure 10-10 -Refer to Figure 10-10. An increase in output from 120 units to 160 units would

Figure 10-11 -Refer to Figure 10-11. Which of the following magnitudes is constant over all units of output?

Barking dogs cannot be considered an externality because externalities must be associated with some form of market exchange.

Suppose that coal producers create a negative externality equal to $5 per ton of coal. What is the relationship between the equilibrium quantity of coal and the socially optimal quantity of coal?

Table 10-6 The following table shows the total 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 $46, and for Firm A to eliminate two units of pollution, it would cost a total of $103. -Refer to Table 10-6. Suppose there is presently no pollution fee, and the government wishes to eliminate exactly 8 units of pollution. Which of the following fees per unit of pollution would achieve that goal?

Figure 10-11 -Refer to Figure 10-11. A benevolent social planner would prefer

When externalities are present in a market, the well-being of market participants