Exam 10: Externalities: When the Price Is Not Right

If transaction costs are low and property rights are clearly identifiable, an efficient market equilibrium can be achieved even when externalities exist.

The Centers for Disease Control and Prevention (CDC) wants at least 90 percent of the population vaccinated against preventable diseases, since the chance of a disease outbreak decreases as vaccine coverage increases. We can conclude that:

If the government were to limit the release of air-pollution produced by a steel mill to 50 parts per million, the policy would be considered a:

Nobel Prize-winning economist James Meade argued that the market for honey was inefficient because pollination is a(n):

Which of the following best creates incentives to reduce the pollution generated by washing machines?

Which method achieves the lowest per-gallon cost of reducing water consumption?

In a market, the presence of an external cost causes the market equilibrium output to exceed the efficient level of output.

The proposition that, private parties with clearly defined property rights and low transaction costs can resolve externalities problems on their own is called the:

Which of the following statements about taxes is incorrect?

Markets are always able to find solutions to externality problems, and thus maximize social surplus.

Explain and graphically illustrate why underuse of vaccines is not efficient, and how the inefficiency may be improved.

Externalities are:

Explain in your own words: 1) What is an externality? and 2) What is the difference between a negative and positive externalities. Provide examples.

Reference: Ref 10-3 (Figure: Efficient Market Outcome) Refer to the figure. Which point represents the efficient equilibrium?

Assume an EPA official observes the following situation in a small town on the banks of a river. The town depends heavily on fish for its food and is heavily dependent on coal for its power. A coal factory on the banks of the river empties pollutants into the river causing health problems among the residents and the fish to develop toxic residues in their livers and other organs. Which of the following solutions should the EPA choose to mitigate this negative externality problem (at least in the short run)? I. levy taxes on the coal factory's production of pollutants II. levy taxes on the consumers' consumption of fish III. create a market for tradeable allowances IV. subsidize firms that produce clean fish

The social cost of antibiotic consumption equals the private cost of producing antibiotics plus the cost of increased bacterial resistance to antibiotics.

Transaction costs:

Which of these statements is TRUE in the case of externalities? I. In the case of externalities, prices do not reflect the true cost or benefit of the product. II. In the case of externalities, prices sometimes send the wrong signals about a market. III. Externalities discourage new producers from entering the industry since the price always remains about the efficient price.

As bees make honey, they pollinate fruits and vegetables, which is an important benefit to farmers. Since pollination is an external benefit of honey production, what are the incentives for beekeepers to maintain efficient production of honey?

The main difference between tradable allowances and taxes is: