Exam 17: Externalities and Public Goods

A supermarket chain, Whole Paycheck, is planning on opening a store near a residential neighborhood. The neighbors are opposed to the construction, since they believe increased traffic and other nuisances will decrease their home values. According to the Coase theorem, what is the optimal store size?

Which of the following statements is (are) TRUE?

In the age before free agency, the labor of Major League Baseball (MLB) players was the property of their team owners. The owners had complete control of whether to trade their players away or keep them on the roster. In the period of free agency, players have the right to sell their services to the highest-bidding team. The Coase theorem predicted that:

Inverse demand for a product is given by P = 1,500 - 0.5Q_d while inverse supply is given by P = 300 - Q. The product is generating external marginal benefits equal to $1,000 at every price level. Graph this information. Based on the information, does this product generate a negative or positive externality? Identify any deadweight loss.

The notion that market participants can negotiate an efficient market outcome, assuming negotiating is costless, is known as the:

Use the following to answer question: Figure 17.13 -(Figure 17.13) According to the graph, MCP is the marginal cost of pollution, MAC is the marginal abatement cost, and the government's erroneous estimate of the marginal abatement cost is estimated MAC. Answer the following questions.

For the following situations, use the Coase theorem to explain how a socially efficient solution may arise.

Sweet Steel and Molten Metal produce sulfur dioxide emissions during production. The total abatement cost (TAC) and marginal abatement cost (MAC) for each company: Sweet Steel: TAC_S = 100,000 + 1e_S²; MAC_S = 2e_S Molten Metal: TAC_M = 100,000 + 1.5e_M²; MAC_M = 3e_M Where e_S and e_M represent tons of sulfur dioxide emissions eliminated by each company. Suppose the government wants to eliminate 1,000 tons of sulfur dioxide emissions, so it mandates that each firm cut its emissions by 500 tons. What is the total cost (TAC_S + TAC_M) of reducing emissions by 1,000 tons?

Which of the following statements is (are) TRUE?

The marginal abatement costs (MAC) for Stark and York Paper are MAC_s = 0.2e_s and MAC_Y = 0.25e_Y, where e_s and e_Y represent the amount of emissions cut by each company. The lowest-cost approach to reducing 90 units of emission is for Stark to reduce its emissions by _____ units and York to reduce its emissions by _____ units.

The willingness to pay for a new neighborhood playground is shown in the table. The marginal cost of providing the playground is MC = 300 + 0.5Q, where Q is square feet. What is the efficient quantity of the good?

Bumper-to-bumper traffic on free public roads, a(n) _____ good, is an example of the _____.

The inverse demand for energy-efficient refrigerators is P = 2,000 - 10Q, where Q measures refrigerators per month. The inverse supply of energy-efficient refrigerators is P = 10Q.

There are no externalities in the market for brim hats; therefore, the:

There are three consumers of a public good; their marginal benefits are given by: Consumer 1: MB = 400 - Q Consumer 2: MB = 200 - 2Q Consumer 3: MB = 600 - Q Where Q is the quantity of the public good. The marginal cost of the public good is MC = 600 + 296Q. What is the socially optimal quantity?

Use the following to answer question: Figure 17.5 -(Figure 17.5) Which of the following statements is (are) TRUE?

Use the following to answer question: Figure 17.12 -(Figure 17.12) Answer the following questions.

Use the following to answer question: Table 17.2 -(Table 17.2) In an unregulated market, the quantity produced is _____, and a subsidy of _____ per unit will achieve the socially optimal quantity of _____.

The tragedy of the commons stems from a common resource that people can _____ acquire whose value to people _____ as more people use it.

Use the following to answer question: Figure 17.7 -(Figure 17.7) Which of the following statements is TRUE?