Exam 18: Externalities and Public Goods

Use the following statements to answer this question: I. Majority-voting always leads to an economically efficient outcome. II. Majority-voting may generate too much or too little of a particular public good.

Scenario 18.1: It is the factory's choice whether to install a filter. It is the choice of the nearby fishermen whether to install a treatment plant. Dollar figures show profit. The factory and the fishermen can negotiate costlessly, and no one else is affected by the result. Factory Fishermen A: No filter or treatment plant $10,000 $2,000 B: Filter; no treatment plant $6,000 $10,000 C: No filter; treatment plant $10,000 $4,000 D: Filter; treatment plant $6,000 $6,000 -Under Scenario 18.1, suppose the body of water lies on an international boundary, and the fishermen speak a different language than the factory managers. The efficient outcome cannot be achieved if the cost of hiring translators for both parties:

Dry cleaning of clothing produces air pollutants. Therefore, in the market for dry cleaning services, the equilibrium price

Transferable permits allow emission reduction to be achieved

The marginal social cost and private cost curves for a particular common property resource are upward sloping. What happens to the gap between teh actual quantity and the socially optimal quantity as the demand for the resource becomes more inelastic?

Which of the following factors influence the appropriate value for the social rate of discount used in NPV analysis of stock externalities?

A consumer or producer who does not pay for use of a nonexclusive good but expects others to pay is known as a:

The city of Econoville has 100 residents who each have the identical demand function for park area: P = 10 - Q. The marginal cost of providing parks is MC(Q) = 10 + 10Q. Park area is a public good. That is, if the city of Econoville provides park area, all of the residents can enjoy the area. If the city of Econoville does not offer public park area, how much area of parks will each individual resident maintain on their own? What is the optimal level of public parks in Econoville?

Consider a situation in which the government has limited information about costs and benefits of pollution abatement associated with a given industry. However, it is known that the marginal social cost curve for emissions is much steeper than the marginal cost of abatement curve (in absolute terms). In this situation, which method of emissions control is preferable when the greatest concern is with accuracy of control rather than the cost of control? That is, should a fee be used or should a standard be used? Explain.

Which of the following is NOT an example of a common property resource?

A firm will avoid producing additional emissions whenever the fee is

Scenario 18.1: It is the factory's choice whether to install a filter. It is the choice of the nearby fishermen whether to install a treatment plant. Dollar figures show profit. The factory and the fishermen can negotiate costlessly, and no one else is affected by the result. Factory Fishermen A: No filter or treatment plant $10,000 $2,000 B: Filter; no treatment plant $6,000 $10,000 C: No filter; treatment plant $10,000 $4,000 D: Filter; treatment plant $6,000 $6,000 -In the case in Scenario 18.1, the Coase theorem specifies that

Menell's study showed that in terms of effectiveness,

In general, the current stock of pollutants (S_t) may be modeled as S_t = E_t + (1 - d)S_t-1 where d is the ________ and E_t is the ________.

The government provides public education because

Ms. Moneynickel has a monopoly in oil refinement in the local market. The demand for Ms. Moneynickel's oil is: P = 65 - q. The relevant marginal revenue function is: MR(q) = 65 - 2q. Ms. Moneynickel's marginal cost function is: MC(q) = 8. In the refinement of oil, Ms. Moneynickel emits pollution that has the marginal external cost function: MEC(q) = 2. What level of output will Ms. Moneynickel select to maximize profits? What is the marginal social cost of Ms. Moneynickel's profit maximizing output? What do consumers pay for Ms. Moneynickel's refined oil? Is this level of output efficient? Should more or less oil be refined to reach the optimum output level? Should the local government charge Ms. Moneynickel a pollution fee for each unit of oil she refines?

When there are externalities, economic efficiency can be achieved without government intervention

Visitors to National Parks cause damage and increased maintenance costs on the parks. The marginal external cost of visitors is: MEC(q) = 1.5q, where q is the number of visitors to National Parks in thousands. The marginal benefit to visitors of attending National Parks is: MB(q) = 75 - 0.5q. If the Parks do not charge a fee, how many visitors will attend the National Parks. What is the optimal level of park visitation? If the National Parks were to establish a park visitation fee, what is the optimal level of the fee?

A positive externality is shown by a marginal social benefit (MSB) curve that is

For some fisheries in the U.S., the state or federal government imposes "gear restrictions" that limit the size of boats, nets, or other equipment that may be used to harvest the fish in a given body of water. The purpose of the gear restrictions is to: