Exam 10: Externalities

In recent years, the Canadian province of British Columbia has increased its carbon tax. Which of the following statements is correct?

Although regulation and corrective taxes are both capable of reducing pollution, regulation accomplishes this goal more efficiently.

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 market equilibrium quantity of restored historic buildings less than, equal to, or greater than 50?

The Coase theorem states that

Private parties may choose not to solve an externality problem if the transaction costs are large enough.

Two firms, A and B, each currently dump 50 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. 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. The government gives each firm 20 pollution permits. Government officials are not sure whether to allow the firms to buy or sell the pollution permits to each other. What is the total cost of reducing pollution if firms are not allowed to buy and sell pollution permits from each other? What is the total cost of reducing pollution if the firms are allowed to buy and sell permits from each other?

The impact of one person's actions on the well-being of a bystander is called

Figure 10-12 -Refer to Figure 10-12. An alternative label for the line labeled "Supply" would be

Suppose that large-scale pork production has the potential to create ground water pollution. Why might this type of pollution be considered an externality?

According to recent research, the gas tax in the United States is lower than the optimal level.

Figure 10-9 -Refer to Figure 10-9, Panel b) and Panel c). Which of the following is correct?

A positive externality arises when a person engages in an activity that has

Corrective taxes are unlike most other taxes because they

Which of the following is NOT an example of a negative externality?

Figure 10-10 -Refer to Figure 10-10. A decrease in output from 160 units to 120 units would

Assuming transaction costs are small, the Coase theorem would predict that private parties could arrive at an efficient solution for which of the following problems?

Negative externalities lead markets to produce a smaller quantity of a good than is socially desirable, while positive externalities lead markets to produce a larger quantity of a good than is socially desirable.

Which of the following statements is not correct?

Figure 10-17 -Refer to Figure 10-17. How large would a corrective tax need to be to move this market from the equilibrium outcome to the socially-optimal outcome?

The Environmental Protection Agency EPA) cannot reach a target level of pollution through the use of pollution permits.