Exam 10: Externalities

Suppose that candy producers create a positive externality equal to $1 per pound of candy. Further suppose that the government offers a $1-per-pound subsidy to the producers. What is the relationship between the equilibrium quantity and the socially optimal quantity of candy?

If an aluminum manufacturer does not bear the entire cost of the smoke it emits, it will

Suppose that a steel factory emits a certain amount of air pollution, which constitutes a negative externality. If the market does not internalize the externality,

Negative externalities occur when one person's actions

Figure 10-12 -Refer to Figure 10-12. An alternative label for the quantity would be

Suppose the Environmental Protection Agency issues pollution permits in order to limit the quantity of pollution. Under this policy, is the supply of pollution rights perfectly elastic or is it perfectly inelastic?

In a market with positive externalities, the market equilibrium quantity maximizes the welfare of society as a whole.

In terms of their economic effects, which of the following policies toward pollution are most similar to one another?

Figure 10-18. The graph represents a corrective tax to reduce pollution. On the axes, Q denotes the quantity of pollution and P represents the price of pollution. -Refer to Figure 10-18. What is the appropriate label for the downward-sloping line on the graph?

Government can be used to solve externality problems that are too costly for private parties to solve.

If gasoline taxes were significantly increased in the United States, then

Suppose the socially-optimal quantity of good x is larger than the market-equilibrium quantity of good x. Does the production of good x convey a positive externality or does it convey a negative externality?

Honey producers provide a positive externality to orchards because

Figure 10-19 -Refer to Figure 10-19. Each additional unit of the good that is produced yields an external benefit of

If we know that the demand curve for good x fails to reflect the total value to society of that good, then we know that

Which of the following statements is true of both pollution permits and corrective taxes?

Suppose a tax is imposed on producers of aluminum as a means of internalizing the externality associated with aluminum production. If the tax accurately reflects the external costs of pollutants released into the atmosphere, then the new supply curve for aluminum coincides with which other curve?

Which of the following would not be considered a negative externality?

Table 10-2 The following table shows the private value, private cost, and social value for a market with a positive externality. -Refer to Table 10-2. How large would a subsidy need to be in this market to move the market from the equilibrium level of output to the socially-optimal level of output?

At any given quantity, the willingness to pay in the market for gasoline is reflected in the