Exam 10: Externalities

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. The tax depicted on the graph

Figure 10-10 -Refer to Figure 10-10. "The social cost of the last unit produced exceeds the value to buyers of the last unit produced by $3." This statement is correct at which quantity of output?

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?

Altering incentives so that people take account of the external effects of their actions

Use a graph to illustrate the quantity of pollution that would be emitted (a) after a corrective tax has been imposed and (b) after tradable pollution permits have been imposed. Could these two quantities ever be equivalent?

Assume that your roommate is very messy. According to campus policy, you have a right to live in an uncluttered apartment. Suppose she gets an $80 benefit from being messy but imposes a $60 cost on you. The Coase theorem would suggest that an efficient solution would be for your roommate to

Positive externalities

Two types of private solutions to the problem of externalities are

Private markets fail to reach a socially optimal equilibrium when negative externalities are present because

When a transaction between a buyer and seller directly affects a third party, the effect is called an externality.

Economists believe that the optimal level of pollution is zero.

Table 10-5 The following table shows the marginal costs for each of four firms (A, B, C, and D) to eliminate units of pollution from their production processes. For example, for Firm A to eliminate one unit of pollution, it would cost $54, and for Firm A to eliminate a second unit of pollution it would cost an additional $67. -Refer to Table 10-5. If the government wanted to eliminate exactly 11 units of pollution, which of the following fees per unit of pollution would achieve that goal?

Figure 10-9 -Refer to Figure 10-9, Panel (b) and Panel (c). The installation of a scrubber in a smokestack reduces the emission of harmful chemicals from the smokestack. Therefore, a government policy that internalized the externality would move the quantity of smokestack scrubbers installed from point

In many cases selling pollution permits is a better method for reducing pollution than imposing a corrective tax because

An externality exists whenever

Figure 10-19 -Refer to Figure 10-19. The social optimum can be reached if

Which of the following is an example of a positive externality?

Suppose that a negative externality is created by the production of good X. Which of the following statements is correct?

When a market is characterized by an externality, the government

All externalities