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Exam 10: Externalities

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Question 81

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

A) the cost of bargaining is small.
B) property rights aren't clearly defined.
C) the number of parties involved is sufficiently large.
D) the initial distribution of legal rights favors the person being adversely affected by the externality.

E) A) and B)
F) A) and C)

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Question 82

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Sabrina installed a wooden sculpture in her front yard. A negative externality arises if the sculpture

A) creates a safety hazard for neighborhood children.
B) decreases the value of Sabrina's home.
C) is visually appealing to Sabrina's neighbors.
D) increases the value of other properties in the neighborhood.

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

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Question 83

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When we identify public policies toward externalities, we contrast command-and-control policies with what other type of policies?

Figure 10-4 -Refer to Figure 10-4. The overuse of antibiotics leads to the development of antibiotic-resistant diseases. Therefore, the market for antibiotics is shown in

Suppose a tax is imposed on producers of aluminum as a means of internalizing the externality associated with aluminum production. If the tax accurately reflects the external costs of pollutants released into the atmosphere, then the new supply curve for aluminum coincides with which other curve?

Using a supply and demand diagram, demonstrate how a positive externality leads to market inefficiency. How might the government help to eliminate this inefficiency?

An externality is the uncompensated impact of

Suppose the government levies a corrective tax on firms that pollute in order to limit the quantity of pollution. Under this policy, does the demand curve for pollution rights determine the quantity of pollution, or does it determine the price of pollution?

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?

Figure 10-1 -Refer to Figure 10-1. This graph represents the tobacco industry. Without any government intervention, the equilibrium price and quantity are

A congestion toll imposed on a highway driver to force the driver to take into account the increase in travel time she imposes on all other drivers is an example of internalizing the externality.

Figure 10-3 -Refer to Figure 10-3. What is the socially optimal quantity of output in this market?

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

In which of the following cases is the Coase theorem most likely to solve the externality?

To determine the optimal level of output in a market with negative externalities, a benevolent social planner would look for the level of output at which private cost equals private value.

If the government were to limit the release of air pollution produced by a glue factory to 75 parts per million, the policy would be considered a

Dioxin emission that results from the production of paper is a good example of a negative externality because

The Environmental Protection Agency (EPA) requires that firms in a certain industry adopt a particular technology to reduce the emission of pollutants. Is this requirement a command- and-control policy or is it a market-based policy?

When externalities are present, reaching an efficient outcome is especially difficult when the number of interested parties is large.

Scenario 10-3 ​ Suppose the equation for the demand curve in a market is P = 120 - (1/5) Q^D , where Q^D is the quantity demanded and $P$ is the price. Also, suppose the equation for the supply curve in the same market is P = (1/10) Q^S , where Q^S is the quantity supplied. -Refer to Scenario 10-3. Suppose there is an external cost of $12 associated with the production of each unit of the good. What are the socially optimal quantity and price?