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Exam 10: Externalities

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Question 101

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At any given quantity, the willingness to pay of the marginal buyer is the height of the __________.

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Question 102

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Assume each gallon of gasoline that is produced gives rise to an external cost of $1.25. On any given day, the production of the 10,000^th gallon of gasoline entails a private value of $4.00 and a social cost of $3.50. What is the private cost of the 10,000^th gallon?

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For each gallon, the social co...

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Question 103

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The Coase theorem suggests that efficient solutions to externalities can be determined through bargaining. Under what circumstances will private bargaining fail to produce a solution?

Markets sometimes fail to allocate resources efficiently.

Corrective taxes enhance efficiency, but the cost to administer them exceeds the revenue they raise for the government.

What are the three externalities that are associated with driving cars and trucks?

Negative externalities lead markets to produce

Figure 10-4 -Refer to Figure 10-4, Graph (b) and Graph (c) . The overuse of antibiotics leads to the development of antibiotic-resistant diseases. Therefore, the socially optimal quantity of antibiotics is represented by point

A market for pollution permits can efficiently allocate the right to pollute by using the forces of supply and demand.

Figure 10-7 -Refer to Figure 10-7. This graph shows the market for pollution when permits are issued to firms and traded in the marketplace. The equilibrium price of pollution is

Suppose the Environmental Protection Agency uses a corrective tax to set a price for pollution. Under this policy, is the supply curve for pollution rights vertical or is it horizontal?

Table 10-1 ​ $\begin{array} { | c | c | c | c | } \hline \begin{array} { c } \text { Quantity } \\\text { (Units) }\end{array} & \begin{array} { c } \text { Private Value } \\\text { (Dollars) }\end{array} & \begin{array} { c } \text { Private Cost } \\\text { (Dollars) }\end{array} & \begin{array} { c } \text { External Cost } \\\text { (Dollars) }\end{array} \\\hline 1 & 28 & 12 & 4 \\\hline 2 & 26 & 14 & 4 \\\hline 3 & 24 & 16 & 4 \\\hline 4 & 22 & 18 & 4 \\\hline 5 & 20 & 20 & 4 \\\hline 6 & 18 & 22 & 4 \\\hline 7 & 16 & 24 & 4 \\\hline\end{array}$ -Refer to Table 10-1. How large would a corrective tax need to be to move this market from the equilibrium outcome to the socially optimal outcome?

Figure 10-6 ​ -Refer to Figure 10-6. In order to reach the social optimum, the government could

Figure 10-4 -Refer to Figure 10-4, Graph (b) and Graph (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

Which theorem asserts that private economic actors can often solve the problem of externalities among themselves?

Table 10-3 ​ ​ $\begin{array} { | c | c | c | c | } \hline \begin{array} { c } \text { Quantity } \\\text { (Units) }\end{array} & \begin{array} { c } \text { Private Value } \\\text { (Dollars) }\end{array} & \begin{array} { c } \text { Private Cost } \\\text { (Dollars) }\end{array} & \begin{array} { c } \text { External Benefit } \\\text { (Dollars) }\end{array} \\\hline 1 & 22 & 12 & 10 \\\hline 2 & 20 & 15 & 10 \\\hline 3 & 18 & 18 & 10 \\\hline 4 & 16 & 21 & 10 \\\hline 5 & 14 & 24 & 10 \\\hline 6 & 12 & 27 & 10 \\\hline\end{array}$ -Refer to Table 10-3. Taking into account private and external benefits, the total surplus to society at the socially efficient quantity is

A benevolent social planner would prefer that the output of good x be decreased from its current level if, at the current level of output of good x,

Which of the following statements is not correct?

Figure 10-2 -Refer to Figure 10-2. If all external costs were internalized, then the market's output would be

Which of the following is NOT a way of internalizing technology spillovers?