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Exam 16: Externalities

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Question 1

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When tradable emissions permits are used,if the demand for goods that produce emissions shifts to the right,the equilibrium price of permits _____ and the equilibrium quantity _____.

A) decreases;increases
B) increases;stays the same
C) decreases;decreases
D) stays the same;increases

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Question 2

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Positive externalities:

A) are similar to negative externalities in their ease of measuring marginal benefits.
B) are likely to be solved with the use of a Pigouvian tax.
C) are difficult to measure since marginal social benefits are hard to observe.
D) result from greater than optimal production of a good.

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C

Question 3

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Use the following to answer question: -(Table: Coal Mine Pollution) Use Table: Coal Mine Pollution.The table shows the marginal social benefit and cost of various amounts of pollution from a coal mine.Suppose that the marginal cost from the production process itself (to the producer) is 0.At the market-determined quantity of pollution,the marginal social cost of pollution is:

According to the Coase theorem,the inefficiencies caused by externalities can be removed by the private sector if individuals enter into appropriately structured deals,provided that the transaction costs of such deals are sufficiently low.

Taxes on sulfur dioxide emissions,excise taxes on gas,and sales taxes are all examples of Pigouvian taxes.

Use the following to answer question: Figure: Efficiency and Pollution -(Figure: Efficiency and Pollution) Use Figure: Efficiency and Pollution.Assume that firms are the only beneficiaries of pollution and that costs are borne solely by others in the society.If this market produced _____ tons of pollution,then _____.

An industry with production that generates external costs produces a quantity of output that is:

Externalities exist when individuals impose costs or confer benefits on others but don't have an incentive to take those costs or benefits into account.

Use the following to answer question: Figure: Efficiency and Pollution -(Figure: Efficiency and Pollution) Use Figure: Efficiency and Pollution.Assume that firms are the only beneficiaries of pollution and that costs are borne solely by others in the society.A Pigouvian tax of $10 per acre of pollution will result in a quantity of pollution for which the:

For the same amount of pollution emitted,an emissions tax is said to be more efficient than is an environmental standard because all polluters:

(Scenario: Private and External Benefits) Use Scenario: Private and External Benefits.How many hours of lawn upkeep will occur in this community,and what will be the marginal private benefit of such upkeep? Scenario: Private and External Benefits A small community finds that tidy lawns and neighborhoods provide both private and external benefits.They determine that the marginal private benefit (MPB) of lawns can be represented by the equation MPB = 50 - 0.5Q,where Q is the number of hours spent on keeping lawns tidy.The marginal private cost (MPC) of such lawn upkeep is represented by the equation MPC = 0.5Q,where Q is again the number of hours engaged in lawn upkeep.

The proposition that,if bargaining is costless and property rights are well-defined,the market can achieve an efficient outcome is the:

The socially optimal amount of pollution occurs where the marginal social benefit of pollution is _____ the marginal social cost of pollution.

Use the following to answer question: -(Table: Externalities from Parks) Use: Table: Externalities from Parks.The table shows the marginal social benefit and the marginal social cost of preserving various amounts of land in a city for a public park.Suppose that parks result in positive benefits to the community as a whole but that the marginal private benefit that any one individual in the community gets from parks is close to 0.If the government wants to achieve the optimum amount of land for the park,it could use a Pigouvian _____ of _____ per park acre.

Use the following to answer question: -(Table: Coal Mine Pollution) Use Table: Coal Mine Pollution.The table shows the marginal social benefit and cost of various amounts of pollution from a coal mine.If 5 tons of pollution is produced,the outcome is _____ because _____.

Markets for the right to pollute are:

Since texting while driving generates a negative externality,banning texting while driving would necessarily be economically efficient.

Which example illustrates an environmental policy that uses tradable pollution permits?

Use the following to answer question: -(Table: Externalities from Parks) Use: Table: Externalities from Parks.The table shows the marginal social benefit and the marginal social cost of preserving various amounts of land in a city for a public park.Suppose that parks result in positive benefits to the community as a whole but the marginal private benefit that any one individual in the community gets from parks is close to 0.Without government intervention,at the amount of land dedicated to the public park the marginal social benefit will be:

As the quantity of pollution rises,its marginal social cost: