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Exam 10: Externalities

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Question 161

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Which of the following problems can not be alleviated by a gasoline tax?

A) traffic congestion
B) traffic accidents
C) the undersupply of goods that produce positive externalities
D) air pollution

E) C) and D)
F) B) and D)

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Question 162

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Two firms, A and B, each currently emit 100 tons of chemicals into the air. The government has decided to reduce the pollution and from now on will require a pollution permit for each ton of pollution emitted into the air. The government gives each firm 40 pollution permits, which it can either use or sell to the other firm. It costs Firm A $200 for each ton of pollution that it eliminates before it is emitted into the air, and it costs Firm B $100 for each ton of pollution that it eliminates before it is emitted into the air. After the two firms buy or sell pollution permits from each other, we would expect that Firm A will emit

A) 20 fewer tons of pollution into the air, and Firm B will emit 100 fewer tons of pollution into the air.
B) 100 fewer tons of pollution into the air, and Firm B will emit 20 fewer tons of pollution into the air.
C) 50 fewer tons of pollution into the air, and Firm B will emit 50 fewer tons of pollution into the air.
D) 20 more tons of pollution into the air, and Firm B will emit 100 fewer tons of pollution into the air.

E) B) and D)
F) All of the above

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Question 163

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Externalities tend to cause markets to be

If we know that the supply curve for good x fails to reflect the total cost to society of producing that good, then we know that

When an externality is present, the market equilibrium is

Figure 10-2. The graph depicts the market for plastic. -Refer to Figure 10-2. The private value of the 200^th unit of plastic exceeds the social cost of the 200^th unit of plastic by

Table 10-3 -Refer to Table 10-3. Taking into account private and external costs, the maximum total surplus that can be achieved in this market is

An example of a private solution to externalities is charities. The government encourages this private solution by allowing ___________ .

Patent protection is one way to deal with technology spillovers.

Suppose a Pigovian tax is imposed on a market that is characterized by one or more externalities. Is this a command-and-control policy or is it a market-based policy?

When a driver enters a crowded highway he increases the travel times of all other drivers on the highway. This is an example of a negative externality.

Laws that are passed that either require or forbid certain behaviors are examples of command-and-control policies.

A local manufacturing plant that emitted sulfur dioxide was forced to stop production because it did not comply with local clean air standards. This decision provides an example of

Suppose the Environmental Protection Agency issues pollution permits in order to limit the quantity of pollution. Under this policy, is the supply of pollution rights perfectly elastic or is it perfectly inelastic?

Flu shots provide a positive externality. Suppose that the market for vaccinations is perfectly competitive. Without government intervention in the vaccination market, which of the following statements is correct?

Most economists prefer regulation to taxation because regulation corrects market inefficiencies at a lower cost than taxation does.

Figure 10-12 -Refer to Figure 10-12. The graph, as drawn, could apply to the market for

Suppose the government imposes a tax in a certain market in order to internalize an externality. This type of policy is based on which of the Ten Principles of Economics?

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?

If an externality is present in a market, economic efficiency may be enhanced by