Exam 5: Externalities, environmental Policy, and Public Goods

Some environmentalists have criticized tradable emission allowances on the grounds that they give permit holders a license to pollute.Furthermore,environmentalists argue that those who sell their permits receive a monetary benefit from their contribution to polluting the environment.Use economic reasoning to evaluate this criticism.

Assume that production from an electric utility caused acid rain.If the government imposed a tax on the utility equal to the marginal external cost of the acid rain,the government's action would

Figure 5-3 -Refer to Figure 5-3.The size of marginal external benefits can be determined by

Which of the following is an example of a Pigovian tax?

Goods can be classified on the basis of whether their consumption is

Applying Coase's theorem,if the cost to you from having the airplane seat in front of you reclined is ________ the benefit to the reclining passenger,you should ________.

Common resources differ from public goods in that

Amit and Bree are the only two homeowners on an isolated private road.Both agree that installing street lights along the road would be beneficial and want to do so.Figure 5-16 shows their willingness to pay for different quantities of street lights,the market demand for street lights,and the marginal cost of installing the street lights. -Refer to Figure 5-16.How much is Bree willing to pay per street light to have 4 street lights installed?

Figure 5-3 -Refer to Figure 5-3.In the absence of any government intervention,the private market

Define the tragedy of the commons.Give three examples of common resources.Briefly explain why common property resources are subject to overuse.

Ronald Coase is famous for the Coase Theorem,which is based on the premise that there is an economically efficient level of pollution reduction.Many economists believe that the tradable emissions allowance program that has been used to deal with the problem of acid rain has been successful in reducing emissions of sulfur dioxide in an economically efficient manner.Why isn't this program an example of the Coase Theorem?

State and local governments subsidize college students with grants and low-interest loans.The loans and subsidies are examples of

Figure 5-13 illustrates the market for gasoline before and after the government imposes a tax to bring about the efficient level of gasoline production. -Refer to Figure 5-13.The market equilibrium quantity of gasoline is ________ million gallons per month.

Which of the following is a possible solution when a scarce resource is subject to the tragedy of the commons?

Figure 5-2 shows a market with a negative externality. -Refer to Figure 5-2.The size of marginal external costs can be determined by

A negative externality is an example of market failure.The root of the problem lies in the definition and enforcement of property rights.Explain.

A modern example of the tragedy of the commons is the forests in many poor countries.

All of the following are examples of public goods except

Figure 5-7 -Refer to Figure 5-7.What is the incremental cost of increasing the quantity of pollution reduction from QB to QE units?

Suppose a tax equal to the value of the marginal external cost at the optimal output is imposed on a pollution generating good.All of the following will result from the tax except