Exam 10: Externalities

Suppose that Bill wants to dine at a fancy restaurant, but the only available table is in the smoking section. Bill dislikes the smell of cigarette smoke. He notices that only one person, Peter, is smoking in the smoking section. Bill values the absence of smoke at $15. Peter values the ability to smoke in the restaurant at $10. In order for Bill to pay Peter not to smoke, he will need to tip the waiter $10 to facilitate the transaction. Which of the following represents an efficient solution?

Suppose that flu shots create a positive externality equal to $8 per shot. Further suppose that the government offers a $6-per-shot subsidy to producers. What is the relationship between the equilibrium quantity and the socially optimal quantity of flu shots produced?

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

Which of the following statements is not correct?

A corrective tax is also known as:

In a market economy, government intervention

Market failure can be caused by

In markets, the invisible hand allocates resources efficiently

Barking dogs cannot be considered an externality because externalities must be associated with some form of market exchange.

Figure 10-4 -Refer to Figure 10-4. If all external costs were internalized, then the market's equilibrium output would be

Gretchen is a writer who works from her home. Gretchen lives next door to Randall, the trumpet player for a local band. Randall needs lots of practice to earn his share of the band's profit, which will amount to $350. Gretchen gets distracted by Randall's trumpet playing but she needs to get her writing done to earn $570 for her current article. If Gretchen needs to hire a lawyer to help her reach an agreement with Randall, then what price is Gretchen willing to pay the lawyer?

If only a few people are affected by an externality, then it is likely that

All remedies for externalities share the goal of

The difference between social cost and private cost is a measure of the

Figure 10-1 -Refer to Figure 10-1. This graph represents the tobacco industry. Without any government intervention, the equilibrium price and quantity are

Which of the following policies is the government most inclined to use when faced with a positive externality?

The likelihood of successful private solutions to problems caused by externalities depends, in part, upon the number of interested parties. Briefly explain.

Scenario 10-3 Suppose the equation for the demand curve in a market is where is the quantity demanded and is the price. Also, suppose the equation for the supply curve in the same market is , where is the quantity supplied. -Refer to Scenario 10-3. What are the market equilibrium quantity and price?

The best remedy for market failure is often

If the government were to limit the release of air pollution produced by a glue factory to 75 parts per million, the policy would be considered a