Exam 5: Externalities, Environmental Policy, and Public Goods

When products that create positive externalities are produced, at the market equilibrium output, the social benefit generated by consuming the product exceeds the private benefit.

Common resources differ from public goods in that

Figure 5-13 Figure 5-13 illustrates the market for gasoline before the government imposes a tax to bring about the efficient level of gasoline production. -Refer to Figure 5-13. The efficient equilibrium quantity of gasoline is ________ million gallons per month.

Government-imposed quantitative limits on the amount of pollution firms are allowed to produce is an example of

Medical research that results in a cure for a serious disease produces positive externalities. What is the impact of this positive externality on economic efficiency?

When a tax on output is imposed to internalize the external costs of pollution, the supply curve shifts down by the amount of the tax.

Kenneth Chay and Michael Greenstone examined the impact of reductions in air pollution since the passage of the Clean Air Act of 1970. Which of the following statements summarizes their findings?

In the city of Alvarez, with the exception of guide dogs for blind people, all dogs are banned from its three public parks, regardless of whether the animals are leashed. Many residents are pushing for a change in policy. Canine lover Sara Northridge observed, "There are 800 or more homes here. There are three parks within 10 minutes, and almost everyone has a dog, but we can't take our dogs there." Others fear that allowing dogs would detract from their enjoyment of the parks. Tim Cortis retorted, "We're not preventing dog lovers from enjoying the park, just come without your dog." Which of the following is a way of dealing with the problem by assigning property rights to a particular group?

Figure 5-15 Figure 5-15 shows the market for Atlantic salmon, a common resource. The current market equilibrium output of Q₁ is not the economically efficient output. The economically efficient output is Q₂. -Refer to Figure 5-15. The current market equilibrium output is partly the result of overfishing. In that case, what does S₂ represent?

If there is pollution in producing a product, then the market equilibrium price

Figure 5-9 Companies producing toilet paper bleach the paper to make it white. The bleach is discharged into rivers and lakes and causes substantial environmental damage. Figure 5-9 illustrates the situation in the toilet paper market. -Refer to Figure 5-9. The efficient output is

Economists generally favor the use of tradable emission allowances to reduce pollution. However, the use of these allowances has been criticized by some environmentalists. Which of the following describes this criticism?

What is a private benefit from consumption? What is a social benefit from consumption? When is the private benefit from consumption equal to the social benefit from consumption?

An external benefit is created when you pursue a college education.

Assume that emissions from electric utilities contribute to pollution in the form of acid rain. Which of the following describes how this affects the market for electricity?

Figure 5-4 Suppose there are several paper mills producing paper for a market. These mills, located upstream from a fishing village, discharge a large amount of wastewater into the river. The waste material affects the number of fish in the river and the use of the river for recreation and as a public water supply source. Figure 5-4 shows the paper market. Use this Figure to answer the following question(s). -Refer to Figure 5-4. What does S₁ represent?

A public good is a good that is both rival and excludable.

When there is a negative externality, the competitive output is greater than the economically efficient output level.

Overuse of a common resource may be avoided by all of the following methods except

Figure 5-5 Figure 5-5 shows a market with an externality. The current market equilibrium output of Q₁ is not the economically efficient output. The economically efficient output is Q₂. -Refer to Figure 5-5. If, because of an externality, the economically efficient output is Q₂ and not the current equilibrium output of Q₁, what does D₁ represent?