Exam 10: Externalities- When the Price Is Not Right

Use the following to answer questions: Table: Costs of Antibiotics Quantity of Antibiotics Marginal Benefit to Buyers Marginal Cost to Sellers External Cost Marginal Social Cost 1 \ 25 \ 5 \ 10 ? 2 \ 20 \ 10 \ 10 ? 3 \ 15 \ 15 \ 10 ? 4 \ 10 \ 20 \ 10 ? 5 \ 5 \ 25 \ 10 ? -(Table: Costs of Antibiotics) Refer to the table. The marginal social cost of the fifth unit is:

Which of answer best explains how the market for tradable allowances in pollution works?

In the case of an external cost, marginal private cost:

If a tin of sardines creates a noxious odor for non-sardine-eaters equivalent to $1 per tin, it follows that the market produces:

An externality is either an external cost or external benefit that spills over to bystanders.

Use the following to answer questions: Figure: Market for Bathroom Cleaner -(Figure: Market for Bathroom Cleaner) Refer to the figure. The figure shows a market for cans of a bathroom cleaner that causes environmental damage, imposing costs on people other than the consumers and producers of the cleaner. If consumers were taxed such that they only purchased the efficient quantity of the product, how much deadweight loss would be removed from this market?

Use the following to answer questions: Figure: Softella -(Figure: Softella) Refer to the figure. The figure shows a market for medicated tissues. Assume that the only use for these tissues is to wipe and clean one's hands, thus preventing germs from spreading to other people. If the government were to subsidize the users of these tissues, what would be the efficient quantity in this market?

The text identifies one major disadvantage to command and control methods of resolving externalities that can, however, sometimes be an advantage. What is it?

Use the following to answer questions: Figure: Softella -(Figure: Softella) Refer to the figure. The figure shows a market for medicated tissues. Assume that the only use for these tissues is to wipe and clean one's hands, thus preventing germs from spreading to other people. What is the dollar amount of the external benefit (per box) that is created by the use of this product?

Which statement correctly describes what a Pigouvian subsidy is?

The command and control method is a ______ solution to the externality problem.

What is the importance of the Clean Air Act of 1990?

What negative externality does antibiotic use create?

Use the following to answer questions: Figure: Palm Oil -(Figure: Palm Oil) Refer to the figure. Indonesian palm oil producers deforest tropical rainforests to grow the plants that excrete the oil. With this externality, what is the deadweight loss (if any) of producing palm oil?

If in an attempt to correct an externality the government sets a Pigouvian tax too high, the equilibrium quantity will be:

Edgar's expected private benefit from the flu shot is $15, and it would cost him $20 to get vaccinated. Therefore, which statement is correct?

If you are a government official, under which of the following situations would you opt for a command and control solution to an externality problem? I. Lack of running water in part of the country is exacerbating the spread of cholera in the population. II. Foreign ships are dumping toxic wastes in the waters off your country's shores. III. A large number of banks fail due to excessive risk taking.

Explain and graphically illustrate why underuse of vaccines is not efficient and how the inefficiency may be improved.

Transaction costs:

Bees produce honey for beekeepers but also pollinate crops for farmers. In the absence of pollination compensation, this external benefit: