Exam 10: Externalities

Figure 10-9 -Refer to Figure 10-9. The installation of a scrubber in a smokestack reduces the emission of harmful chemicals from the smokestack. Therefore, the market for smokestack scrubbers is shown in

In what sense do externalities cause the "invisible hand" of the marketplace to fail?

The social cost of pollution includes the private costs of the producers plus the costs to those bystanders adversely affected by the pollution.

When the government uses a command-and-control policy to solve an externality, it

Figure 10-10 -Refer to Figure 10-10. Taking into account private and external costs, the maximum total surplus that can be achieved in this market is

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

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. Does the production of fire extinguishers convey a positive externality, a negative externality, or neither?

When producers operate in a market characterized by negative externalities, a tax that forces them to internalize the externality will

When a negative externality exists in a market, the cost to producers

Two firms, A and B, each currently dump 20 tons of chemicals into the local river. The government has decided to reduce the pollution and from now on will require a pollution permit for each ton of pollution dumped into the river. The government gives each firm 10 pollution permits, which it can either use or sell to the other firm. It costs Firm A $100 for each ton of pollution that it eliminates before it reaches the river, and it costs Firm B $50 for each ton of pollution that it eliminates before it reaches the river. After the two firms buy or sell pollution permits from each other, we would expect that

Many charities like the Sierra Club are established to deal with externalities.

The tax on gasoline

Which of the following is the most effective way to internalize a technology spillover?

The proposition that if private parties can bargain without cost over the allocation of resources, they can solve the problem of externalities on their own, is called

Even if possible, it would be inefficient to prohibit all polluting activity.

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 the government wanted to reduce pollution from 16 units to exactly 6 units. Which one of the following fees per unit of pollution would achieve that goal?

Figure 10-19 -Refer to Figure 10-19. Which of the following quantities decreases as the quantity of the good is increased?

Figure 10-1 -Refer to Figure 10-1. This graph represents the tobacco industry. The socially optimal price and quantity are

In some cases, tradable pollution permits may be better than a corrective tax because

Suppose that an MBA degree creates no externality because the benefits of an MBA are internalized by the student in the form of higher wages. If the government offers subsidies for MBAs, then which of the following statements is correct?