Exam 16: Externalities, Public Goods, and Common Resources

Refer to the data provided in Table 16.4 below to answer the following question(s). Table 16.4 shows the situation facing two firms, both of which are polluting. Assume that each firm emits 5 units of pollution. Table 16.4 Firm A Firm A Firm A Firm B Firm B Firm B Reduction of Pollution by Firm A MC of reducing pollution for Firm A TC of reducing pollution for Firm A Reduction of Pollution by Firm B MC of reducing pollution for Firm B TC of reducing pollution for Firm B 1 \ 2 \ 2 1 \ 16 \ 16 2 6 8 2 24 40 3 12 20 3 32 72 4 20 40 4 40 112 5 30 70 5 48 160 -Refer to Table 16.4. Suppose the government wants to reduce the total amount of pollution from the current level of 10 to 4. To do this, the government caps each firm's emissions at 2 units and issues 2 permits to each firm. If firms are allowed to trade permits, how many permits will be traded between the two firms?

Relating to the Economics in Practice on page 340: Europe has a carbon tax, and electricity producers are among the largest of the carbon producing firms. The carbon tax increases the costs of the electricity producers, which will shift the ________ curve in the electricity market to the ________.

Due to a firm generating external costs, the government decides to ________ the firm. When this happens, the firm will produce ________ units of output than before the tax was imposed in order to continue maximizing profits.

As pollution emission levels increase, the marginal social cost of pollution

If perfectly competitive firms have to account for external costs of production, then at the equilibrium level of output

Empirically measuring the marginal social benefit of pollution is ________ and empirically measuring the marginal social cost of pollution is ________.

Suppose that you rent a house next to a dog kennel. The kennel holds up to 200 dogs at a time, and these dogs bark all day long. You now have to spend $150 more per month on earplugs and headache medicine because of the noise. You could move to another house far enough away from the factory, but the rent for that house is $125 more than you now pay. The efficient solution to this problem is that

Assuming there are no externalities, if a firm is producing at an output level where the benefits to consumers are less than the cost to the suppliers to produce it, then price

In theory, liability rules for pollution are designed to have the same effect as taxing a polluter.

For the Coase Theorem to work, three conditions must be satisfied: the basic rights must be clearly understood, there must be no impediments to bargaining, and only a few parties are involved.

The Coase theorem states that

Once a ________ good is produced, everyone consumes the same amount, ________ for different individuals.

In any case where there is a positive externality, forming a government agency to solve the problem rarely results in an efficient outcome.

Vaccinating your children is an example of

Refer to the information provided in Figure 16.2 below to answer the question(s) that follow. Figure 16.2 -Refer to Figure 16.2. The ________ imposed as a result of producing the efficient level of cars is $250.

If the government taxes a coal company by an amount equal to the damages of each marginal ton of coal, then the coal company's marginal social cost curve is the same as the marginal ________ curve.

Your roommate has the right to play her harmonica during the day. But you find the best time to study is during the day, and the harmonica playing makes it hard for you to concentrate. You tell your roommate that you will do her laundry every week if she does not play the harmonica during the day and she agrees to this. This is an example of

Refer to the information provided in Figure 16.1 below to answer the question(s) that follow. Figure 16.1 -Refer to Figure 16.1. To force this firm to produce the efficient level of output, the government should impose a tax of

Refer to Scenario 16.1 below to answer the question(s) that follow. SCENARIO 16.1: The marginal benefit for a particular food is described by MB = 30 - q, where q refers to the quantity of the food. The marginal cost of producing the food is described by MC = 2q. There is a negative externality associated with food production and the marginal social cost of food production is MSC = 4q. -Refer to Scenario 16.1. The efficient output level is ________ and the efficient price is ________.

Refer to the information provided in Figure 16.2 below to answer the question(s) that follow. Figure 16.2 -Refer to Figure 16.2. What is the total damage imposed as a result of producing the efficient level of cars?