Exam 10: Externalities

Once tradable pollution permits have been allocated to firms,

If the government were to limit the release of air pollution produced by a glue factory to 75 parts per million, the policy would be considered a

Dick owns a dog whose barking annoys Dick's neighbor Jane. Dick receives personal benefit from owning the dog, and Jane bears a cost of Dick's ownership of the dog. Assuming Jane has the legal right to peace and quiet, which of the following statements is correct?

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. Could the government impose a tax or provide a subsidy to move the market to the social optimum? If your answer is "Yes," should it be a tax or should it be a subsidy?

Figure 10-9 -Refer to Figure 10-9, Panel b). The market equilibrium price is

When a market is characterized by an externality, the government

Suppose a new market for tradable pollution permits is created. As long as there is a free market for the pollution rights, the final allocation will be , regardless of the initial allocation of permits.

When market activity generates a negative externality, the level of output in the market equilibrium is lower than the socially optimal level.

The supply curve for a product reflects the

Private solutions may not be possible due to the costs of negotiating and enforcing these solutions. Such costs are called

Most economists prefer regulation to taxation because regulation corrects market inefficiencies at a lower cost than taxation does.

Which of the following is not a negative externality associated with driving cars?

Table 10-4 -Refer to Table 10-4. Taking into account private and external costs, total surplus in the market equilibrium amounts to

When the social cost curve is above a product's supply curve,

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 $69 per unit of pollution, how many units of pollution would the firms eliminate altogether?

The patent system gives firms greater incentive to engage in research and other activities that advance technology.

Figure 10-10 -Refer to Figure 10-10. The graph represents a market in which

Suppose that cigarette smokers create a negative externality. Further suppose that the government imposes a tax on cigarettes equal to the per-unit externality. What is the relationship between the after-tax equilibrium quantity and the socially optimal quantity of cigarettes?

Two firms, A and B, each currently emit 100 tons of chemicals into the air. The government has decided to reduce the pollution and from now on will require a pollution permit for each ton of pollution emitted into the air. The government gives each firm 40 pollution permits, which it can either use or sell to the other firm. It costs Firm A $200 for each ton of pollution that it eliminates before it is emitted into the air, and it costs Firm B $100 for each ton of pollution that it eliminates before it is emitted into the air. After the two firms buy or sell pollution permits from each other, we would expect that Firm A will emit

A cost imposed on someone who is neither the consumer nor the producer is called a