Exam 17: Externalities and Public Goods

Government regulators want to limit pesticide runoff to its efficient level. Unfortunately, government regulators are uncertain how marginal abatement costs behave with changes in runoff, but fortunately, they do know that marginal abatement costs are less sensitive to changes in runoff than marginal costs of pollution. In this situation, the use of a _____ leads to a smaller deadweight loss than a _____.

What is the nature of the positive externality associated with research and development (R&D)?

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 by issuing tradable pollution permits to each firm. What is the total cost (TAC_S + TAC_M) of reducing emissions by 1,000 tons?

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. In a perfectly competitive environment, the equilibrium price per flight would be _____ and the equilibrium number of flights would be _____.

Manny Metal produces 300 tons of sulfur dioxide emissions, and Silk Steel produces 550 tons. The marginal abatement cost (MAC) of reducing sulfur dioxide: Manny Metal: MAC_M = 10 + 3e_M Silk Steel: MAC_S = 50 + e_S Government regulators want to reduce total sulfur dioxide emissions to 650 tons, a 200-ton reduction. If the government gives each firm 325 tradable pollution permits, Manny Metal emits _____ tons and Silk Steel emits _____ tons.

Mr. Leghorn lives next door to Mr. Fudd. During hunting season, Mr. Fudd likes to shoot rabbits in his backyard, which activity he values at $900. The noise from the shooting disturbs Mr. Leghorn and prevents him from taking afternoon naps, which he values at $500. If Mr. Leghorn has the legal right to stop Mr. Fudd from hunting, the socially optimal outcome is for:

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 generates a negative externality, where the external marginal cost is constant at $2. To achieve the socially optimal output level, the government wants to implement a quota. What size should the quota be?

The island nation of Maldives has 70,000 households. Each household receives a marginal benefit from Coast Guard security of MB = 60 - 0.30Q, where Q measures the number of patrolling Coast Guard ships. What is the total marginal benefit of the tenth patrolling ship?

A small neighborhood is considering hiring a security firm to patrol the neighborhood. Ten families in the neighborhood would each get a marginal benefit of MB = 10 - h, where h is daily hours of patrol. The marginal cost of patrol is constant at $20 per hour. What is the socially optimal number of patrol hours?

Use the following to answer question: Figure 17.4 -(Figure 17.4) The output level under perfect competition is _____, while the socially optimal output level is _____.

A tradable permit system:

Use the following to answer question: Figure 17.9 -(Figure 17.9) Suppose that eating asparagus reduces the incidence of contagious disease. The external marginal benefit of asparagus is $3. To achieve the socially optimal quantity of asparagus, the government should:

Minnesota has two oil refineries that emit methane gas. The Bend refinery emits 300 units of methane, and the Park refinery emits 900 units. Government regulators would like to reduce total methane emissions from 1,200 to 900 units. Bend's total abatement and marginal abatement cost are TC_B = 400Q_B + 4Q_B² and MAC_B = 400 + 8Q_B, where Q is units of methane. Park's total abatement cost and marginal abatement cost are TC_P = 40Q_P + 2Q_P² and MAC_P = 10 + 4Q_P.

Use the following to answer question: Figure 17.11 -(Figure 17.11) The government wants to set the socially optimal level of nitrogen runoff, and government regulators believe that the actual marginal benefit of pollution (MBP) is given by the estimated MBP curve. The deadweight loss associated with a quota is _____, while the deadweight loss from a Pigouvian tax is _____.

Consider the vaccine for human papillomavirus (HPV), a sexually transmitted disease that causes cervical cancer and genital warts.

Use the following to answer question: Table 17.1 -(Table 17.1) According to the table, what is the socially optimal output level?

In the case of producing a good with a negative externality, a firm will likely consider only the _____ marginal costs of production, leading to production of _____.

Use the following to answer question: Figure 17.1 -(Figure 17.1) The external marginal cost is:

Use the following to answer question: Figure 17.14 -(Figure 17.14) The graph shows the marginal benefit curves for two consumers of a public good.

Suppose that at the current level of pollution the marginal abatement cost is $30,000 and the marginal cost of pollution is $80,000. This economy is producing: