Exam 10: Externalities

Table 10-1 The following table shows the private value, private cost, and external cost for various quantities of output in a market. -Refer to Table 10-1. What is the socially-optimal quantity of output in this market?

According to the Coase theorem, private parties can solve the problem of externalities if

If the production of computer chips yields greater technology spillovers than the production of potato chips, the government should

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

Scenario 10-4 The demand curve for fire extinguishers slopes downward and the supply curve for fire extinguishers slopes upward. The production of the 500^th fire extinguisher entails the following: -a private cost of $10; -an external cost of $0; -a private value of $9; -an external benefit of $3. - -Refer to Scenario 10-4. In order to maximize the total benefit of fire extinguishers to society as a whole, should the number of fire extinguishers produced be less than, equal to, or greater than 500? Explain.

When Monique drives to work every morning, she drives on a congested highway. What Monique does not realize is that when she enters the highway each morning she increases the travel time of all other drivers on the highway. In this case, the external cost of Monique's highway trip

Figure 10-11 -Refer to Figure 10-11. Which of the following statements is correct?

Figure 10-9 -Refer to Figure 10-9. Which graph represents a market with no externality?

In what sense do externalities cause the "invisible hand" of the marketplace to fail?

Two firms, A and B, each currently dump 20 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. The government gives each firm 10 pollution permits, which it can either use or sell to the other firm. 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. After the two firms buy or sell pollution permits from each other, we would expect that

Corrective taxes are more efficient than regulations for keeping the environment clean.

Figure 10-4 -Refer to Figure 10-4. Without government intervention, the equilibrium quantity would be

Table 10-4 -Refer to Table 10-4. The market equilibrium quantity of output is

Despite the appealing logic of the Coase theorem, private actors often fail to resolve on their own the problems caused by externalities.

Figure 10-10 -Refer to Figure 10-10. An increase in output from 120 units to 160 units would

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. Suppose the government wants to reduce pollution from 16 units to 8 units and auctions off 8 pollution permits to achieve this goal. Which of the following is a likely auction price of the permits?

Table 10-4 -Refer to Table 10-4. Take into account private and external costs and assume the quantity of output is always a whole number (that is, fractional units of output are not possible). The maximum total surplus that can be achieved in this market is

Scenario 10-1 The demand curve for gasoline slopes downward and the supply curve for gasoline slopes upward. The production of the 1,000^th gallon of gasoline entails the following: -a private cost of $3.10; -a social cost of $3.55; -a value to consumers of $3.70. -Refer to Scenario 10-1. Let Q represent the number of gallons of gasoline and let P represent the price of a gallon of gasoline. Which of the following statements is correct?

Figure 10-4 -Refer to Figure 10-4. If this market is currently producing at Q2, then total economic well-being would increase if output

Beverly owns a rabbit and receives a $600 benefit from owning it. Sometimes Beverly's rabbit makes its way onto the lawn of her neighbor, Charles, and eats the vegetables in Charles' garden. This intrusion by the rabbit costs Charles $400. Can both individuals become better off if Charles pays Beverly some amount of money to get rid of the rabbit? Explain.