Exam 16: Externalities, Public Goods, and Common Resources

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. ________, 60 bags of fertilizer will be produced.

Governments often ________ activities that generate external ________.

It is assumed that the marginal benefit of consumption

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 not allowed to trade permits, what is the total cost of the pollution reduction?

If the government wishes to encourage firms to internalize externalities, they should tax activities resulting in ________ externalities and subsidize activities resulting in ________ externalities.

A positive externality exists when the actions of one party impose benefits on a second party.

Private goods are

Refer to the information given in Table 16.7 below to answer the question that follows. Table 16.7 Units of Person A's Person B's Public Good Willingness to Pay willingness to Pay 1 \ 25 \ 30 2 15 25 3 0 15 -Refer to Table 16.7. A point on the market demand curve for this public good would be: at a price of ________ quantity demanded would be ________.

If a tax is placed on perfectly competitive firms that impose external costs on society, the firm's marginal cost curve will shift ________ and the industry supply curve will shift to the ________.

Public goods are

My roommate ________. This is an example of an external benefit.

Air pollution generated by a steel mill is an example of

Refer to the information in Figure 16.5 below to answer the question(s) that follow. Figure 16.5 Figure 16.5 shows the marginal benefits of emitting pollution for the only two chemical companies in an industry, Alpha Chemicals and Beta Chemicals. Before any tax on pollution emissions is imposed, each company views pollution as being free. -Refer to Figure 16.5. The government decides to impose a tax on pollution emissions to cut total emissions in this industry in half, and based on this decision it has set the tax at $100 per ton of emissions. Following the implementation of this tax, Alpha will reduce its emissions to ________ tons.

________ goods are rival in consumption and their benefits are excludable.

________ is(are) an example of selling externality rights.

Ronald Coase argued that property rights should never be assigned to the party that is generating a negative externality.

Your upstairs neighbor has the right to practice his clog dancing at night. But you find the best time to study is at night, and the noise from the clog dancing makes it hard for you to concentrate. You tell your neighbor that you will wash his car every week if he does not practice his clog dancing at night and he agrees to this. This is an example of the

Assume there are two people in a society. Person A is willing to pay $70 to have one unit of a public good produced and Person B is willing to pay $80 to have one unit of a public good produced and $70 to have two units produced. As a result, for ________ unit(s) of this public good, society would be willing to pay a price of ________.

If the marginal cost of producing a public good is less than society's total willingness to pay per unit, then

Because people can enjoy the benefits of public goods whether they pay for them or not, they are usually unwilling to pay for them. This is known as the