Exam 5: Externalities, environmental Policy, and Public Goods

Consider a chemical plant that discharges toxic fumes over a nearby community.To reduce the emissions of toxic fumes the firm can install pollution abatement devices.Figure 5-8 shows the marginal benefit and the marginal cost from reducing the toxic fumes emissions. -Refer to Figure 5-8.What is the economically efficient level of pollution reduction?

The demand curve for a public good is also called the

Companies producing toilet paper bleach the paper to make it white.The bleach is discharged into rivers and lakes and causes substantial environmental damage.Figure 5-9 illustrates the situation in the toilet paper market. -Refer to Figure 5-9.An efficient way to get the firm to produce the socially optimal output level is