Exam 17: Externalities and Public Goods

Use the following to answer question: Figure 17.6 -(Figure 17.6) Under perfect competition, the deadweight loss is given by area:

The demand curve and supply curve for a good are given by Q^D = 100 - 5P and Q^S = 1.25P - 2.5. Suppose the production of this good creates a negative externality, where the external marginal cost is constant at $2.

Suppose that Billy McGee owns the Internet domain www.ironmaiden.com. Iron Maiden, the legendary British heavy metal band, was given the rights to the name by the World Intellectual Property Organization. Iron Maiden values the domain name at $250,000 and Billy McGee values the domain name at $330,000. The Coase theorem suggests that:

The marginal cost of pollution is MC = 2Q, while the marginal abatement cost is MAC = 12 - Q. Government regulators incorrectly estimate the marginal abatement cost at MAC_E = 9 - Q. The level of pollution, measured in tons of glop, is Q.

Use the following to answer question: Table 17.6 -(Table 17.6) Tick off the appropriate categories for each good.

The production of toilet paper in a perfectly competitive market is characterized by the inverse supply curve (marginal cost curve) P = 4Q, where Q is measured in millions of 4-roll packs per month. The inverse demand for toilet paper is P = 10 - 6Q.

Which of the following statements is (are) TRUE?

The market for flu shots is given by the following inverse demand and supply equations: P = 40 - 0.40Q P = 0.40Q Where P is the price per flu shot and Q measures the daily quantity of flu shots. The external marginal benefit of a flu shot is $8. The socially optimal number of daily flu shots is:

Use the following to answer question: Figure 17.8 -(Figure 17.8) If the socially optimal quantity of the good is 200 pounds, there is a _____ externality, so the government should enact a _____ per pound to increase market efficiency.

Use the following to answer question: Table 17.3 -(Table 17.3) What is the efficient quantity of the public good?

Use the following to answer question: Figure 17.2 -(Figure 17.2) Suppose the external marginal cost is constant at $5 per unit. Price (demand) equals social marginal cost at output level:

Suppose the market for dry cleaning has an inverse demand of P = 10 - 0.15Q and an inverse supply curve (MC) of P = 0.05Q, where P is the price per article of clothing and Q is the quantity of clothing laundered. Suppose the external marginal cost of dry cleaning is $1. If the government tries to correct the negative externality by placing a $1 tax on each laundered piece of clothing, buyers will pay _____ and sellers will receive _____, net of the tax.

Rosa and Tomas are neighbors. Rosa loves to barbeque but Tomas is allergic to barbecue smoke. They have been neighbors for years and know each other well, often chatting across their picket fence. Tomas values clean air at $100. If Rosa has the right to barbecue, predict the outcome of the situation using the Coase theorem.

Many livestock farmers give antibiotics to their herds. The antibiotics help breed drug-resistant bacteria, making them less effective. This harms future users of antibiotics, who will be using less-effective drugs.

Hamid and Lee are neighbors. Hamid has a barking dog that he keeps in his backyard for property protection; he values the dog at $600. Lee despises the constant barking, because it costs him $800 in lost sleep.

Consider three consumers of a public good with the following marginal benefit of consumption: Consumer 1: MB₁ = 5 - 2Q Consumer 2: MB₂ = 4 - Q Consumer 3: MB₃ = 3 - Q

The market for toilet paper is characterized by the following inverse demand and supply equations: P = 100 - Q P = MC = 2Q - 197.3 Where P is the price per roll of toilet paper and Q measures millions of rolls of toilet paper. The external marginal cost is 30 cents for each roll of toilet paper produced. The socially optimal price of toilet paper is _____ cents higher than the price under perfect competition.

The following companies all manufacture widgets and dump tons of glop into the air. The government wants to halve total pollution but does not know how much it will cost each company. Determine the total cost of the cleanup if the government employs a tradable permit scheme in which it gives the same amount of permits to each manufacturer at no cost.

Use the following to answer question: Table 17.5 -(Table 17.5) Suppose that each firm is emitting 10 units of pollution, for a total of 20 units. The government would like to decrease total pollution to 10 units by giving each firm five tradable pollution permits.

Chia, Inc. has a marginal abatement cost curve of MAC_C = 115 - 5Q, where Q represents fertilizer runoff measured in parts per million (ppm) cleaned up; however, regulators incorrectly believe that it is actually MAC_E = 110 - 10Q. If the marginal cost of pollution is given by MCP = 15Q, illustrate the area of deadweight loss generated with a quantity restriction on pollution of 4.4 ppm based on regulators' incorrect estimation of abatement costs.