Exam 17: Externalities and Public Goods

Use the following to answer question: Figure 17.15 -(Figure 17.15) Suppose that the demand curves for two consumers of good X are presented in the graph. The marginal cost of producing good X is MC = $9.

Mushroom farms emit unpleasant odors that affect third parties. The marginal cost of the odors is MC = 4Q, where Q is the quantity of fumes emitted. Mushroom farmers can reduce odors by using various techniques and technologies; the marginal abatement cost is MAC = 1,200 - 36Q.

Competitive markets _____ goods with negative externalities and _____ provide goods with positive externalities.

Use the following to answer question: Figure 17.10 -(Figure 17.10) The socially optimal output level could be achieved by a government quota of:

Recreation centers offer a place for young people to play sports and do other activities at a marginal cost of MC = 0.25Q. The inverse demand curve for recreation centers is given by P = 10 - 0.25Q, where P is the price of entry and Q measures hundreds of entrants. Recreation centers generate positive externalities because they help get young people off the street and engaged in productive activities. The external marginal benefits are EMB = 1 + 0.06Q.

If consuming a good with a positive externality, a person will likely consider only the _____ marginal benefits of consumption, which causes _____ consumption than is socially optimal.

Use the following to answer question: Figure 17.3 -(Figure 17.3) Which of the following statements is (are) TRUE?

Suppose that dry-cleaning 100 blouses carries a social marginal cost of $900 and an external marginal cost of $300. What is the private marginal cost of dry-cleaning 100 blouses?

Suppose the demand curve for steel is Q = 100 - P, where P is the price per unit of steel and Q measures millions of units of steel. The private marginal cost of producing steel is MC = 5Q + 40, while the external marginal cost of producing steel is $12. In a perfectly competitive steel industry, the deadweight loss is:

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 maximum permit price (whole dollar amount), the number of permits traded, and the revenue and costs of trading permits if the government employs a tradable permit scheme in which it gives the same amount of permits to each manufacturer at no cost.

Which of the following statements is (are) TRUE?

The _____ problem occurs when consumers want to freely consume a public good that others have provided.

A good is rival if:

Use the following to answer question: Table 17.4 -(Table 17.4) Answer the following questions.

Suppose the market for dry cleaning has an inverse demand of P = 12 - 0.10Q and an inverse supply curve (MC) of P = 0.10Q, 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 80 cents. To correct the market inefficiency, the government could set a quota on the number of laundered pieces of clothing equal to:

Which of the following factors could mitigate the tragedy of the commons?

The market for wheat is characterized by the following inverse demand and supply equations: P = 540 - 1.5Q P = MC = 3Q Where P is the price per metric ton of wheat and Q measures the daily quantity of wheat in metric tons. Because of fertilizer runoff, the external marginal cost is constant at $90 per metric ton of wheat. What is the socially optimal quantity of wheat?

Which of the following statements is (are) TRUE?

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 to clean it up. Determine the total cost of the cleanup if the government employs a uniform reduction scheme.

Assume the social marginal benefit of remote-control drone flights is given by SMB = 200 - 2Q and the marginal cost is given by MC = 3Q + 50. The government wants to correct the negative externality associated with remote-control drone flights by taxing operators $20 per flight. What deadweight loss is associated with unrestricted remote-control drone flights if the proposed tax accurately reflects their marginal external costs?