Exam 10: Externalities

Figure 10-13. On the graph, Q represents the quantity of plastics and P represents the price of plastics. -Refer to Figure 10-13. If 250 units of plastics are produced and consumed, then the

Which of the following is NOT a way of internalizing technology spillovers?

Suppose that large-scale pork production has the potential to create ground water pollution. Why might this type of pollution be considered an externality?

Suppose that smoking creates a negative externality. If the government imposes a per-cigarette tax equal to the per-cigarette externality, then

Corrective taxes that are imposed upon the producer of a nasty smell can be successful in reducing that smell because the tax makes the producer

Figure 10-12 -Refer to Figure 10-12. Which of the following is an appropriate label for Line 1?

Firms that are involved in more than one type of business could be evidence of an attempt to

Alexander lives in an apartment building and gets a $250 benefit from playing his stereo. Mary, who lives next door to Alexander and often loses sleep due to the loud music coming from Alexander's stereo, bears a $350 cost from the noise. Mary would like to offer Alexander some money to turn down the volume on his stereo. If Mary had to hire a lawyer to draw up the contract, what is the maximum amount she could pay to the lawyer to ensure that both Alexander and Mary would benefit from the agreement?

Wally owns a dog whose barking annoys Wally's neighbor, Corrine. Suppose that the benefit of owning the dog is worth $700 to Wally and that Corrine bears a cost of $500 from the barking. Assuming Wally has the legal right to keep the dog, a possible private solution to this problem is that

Suppose that flower gardens create a positive externality equal to $1 per plant. What is the relationship between the equilibrium quantity and the socially optimal quantity of plants grown?

​Figure 10-20. ​ -​Refer to Figure 10-20. This market is characterized by a negative externality.

Figure 10-15 -Refer to Figure 10-15. Which graph illustrates a corrective tax?

Dog owners do not bear the full cost of the noise their barking dogs create and often take too few precautions to prevent their dogs from barking. Local governments address this problem by

In the case of a technology spillover, internalizing a positive externality will cause the supply curve of an industry to

Figure 10-11 -Refer to Figure 10-11. "The social value of the last unit produced exceeds the private cost of the last unit produced by $13.50." This statement is correct at which quantity of output?

Table 10-3 -Refer to Table 10-3. The market equilibrium quantity of output is

The likelihood of successful private solutions to problems caused by externalities depends, in part, upon the number of interested parties. Briefly explain.

​Figure 10-20. ​ -Refer to Figure 10-20. The graph depicts the market for fertilizer. This market would benefit from a

Two firms, A and B, each currently dump 50 tons of chemicals into the local river. The government has decided to reduce the pollution and from now on will require a pollution permit for each ton of pollution dumped into the river. It costs Firm A $100 for each ton of pollution that it eliminates before it reaches the river, and it costs Firm B $50 for each ton of pollution that it eliminates before it reaches the river. The government gives each firm 20 pollution permits. Government officials are not sure whether to allow the firms to buy or sell the pollution permits to each other. What is the total cost of reducing pollution if firms are not allowed to buy and sell pollution permits from each other? What is the total cost of reducing pollution if the firms are allowed to buy and sell permits from each other?

When market activity generates a negative externality, the level of output in the market equilibrium is lower than the socially optimal level.