Exam 5: Externalities, Environmental Policy, and Public Goods

What is an externality?

The costs in time and other resources that parties incur in the process of facilitating an exchange of goods and services are called

If electric utilities continually reduce their emissions of sulfur dioxide,

Assume that production from an electric utility caused acid rain. If the government imposed a tax on the utility equal to the marginal external cost of the acid rain, the government's action would

"A competitive market achieves economic efficiency by maximizing the sum of consumer surplus and producer surplus." This statement

Issuing tradable emission allowances to polluting firms will result in those firms polluting more than is socially desirable.

Assume that air pollution from a copper smelter imposes external costs on people who live near the smelter. If the Coase theorem holds and the victims of the pollution could not legally enforce the right of their property not to be damaged, the amount of pollution reduction

Figure 5-11 Coal burning utilities release sulfur dioxide and nitric acid which react with water to produce acid rain. Acid rain damages trees and crops and kills fish. Because the utilities do not bear the cost of the acid rain, they overproduce the quantity of electricity. This is illustrated in Figure 5-11. -Refer to Figure 5-11. S₁ represents the supply curve that reflects the marginal private cost of production and S₂ represents the supply curve that reflects the marginal social cost of production. One way to internalize the external cost generated by utilities is to impose a Pigovian tax on the production of electricity. What is the size of the Pigovian tax that will internalize the cost of the externality?

State and local governments subsidize college students with grants and low-interest loans. The loans and subsidies are examples of

Consider the following characteristics: a. low transactions costs b. small levels of pollution c. high levels of pollution d. clear assignment of property rights Which of the above are assumptions behind the Coase Theorem?

The cost borne by a producer in the production of a good or service is called

Consider the following methods of pollution reduction: a. the government sets a target for maximum emissions b. the government mandates the installation of specific pollution abatement equipment c. the government imposes a per unit tax on the good that creates pollution d. the government gives firms a tax rebate for every unit of pollution abated Which of the above is an example of a command-and-control approach to reducing pollution?

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. Let's suppose the government imposes a tax of $50 per unit of toilet paper to bring about the efficient level of production. What happens to the market price of toilet paper?

If the social cost of producing a good or service exceeds the private cost

Which of the following is an example of a common resource?

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. An efficient way to get the firm to produce the socially optimal output level is

Congressman Murphy made the following proposal: "We should establish policies that completely eliminate air pollution. This is the only way to ensure that none of our citizens suffer the negative effects of air pollution." If Congressman Murphy's proposal was adopted and all forms of air pollution were eliminated, which of the following would be true?

Pollution is an example of a

Ronald Coase was awarded the 1991 Nobel Prize in Economics primarily for addressing problems related to externalities. Which of the following describes Coase's work?

One problem with using a command-and-control approach to pollution reduction is that the monitoring costs may be too high.