Exam 10: Externalities: When the Price Is Not Right

The market for honey is:

If a steel manufacturer does NOT bear the entire cost of the sulfur dioxide it emits, it will:

Which of the following correctly describes what a Pigouvian subsidy is?

One advantage of regulation as a method for reducing pollution is that the government can determine the maximum quantity of pollution that is legally allowed.

A chemical bathroom cleaner has an ingredient X that allows the cleaner to lather well and remove stains. The cost of producing a bottle of this bathroom cleaner is $3.60, but the bottle retails for $5.50. When consumers use the bathroom cleaner, the lather that gets washed down the drain escapes into the environment and releases allergens that cause respiratory problems for people. What is the social cost of a bottle of this cleaner?

1329(Table: Sulfur Dioxide) The table sets forth the sulfur dioxide emissions along with the costs of reducing sulfur dioxide emissions for two industries. Suppose the government gives each industry 100 tradeable allowances; each allowance allows for 1 ton of sulfur dioxide emissions. Explain how the industries will trade the allowances and the range of prices that the allowances will trade for. What is the final allocation of allowances between the industries? How many tons of sulfur dioxide are removed from the air and at what cost? Table: Sulfur Dioxide

Social surplus is consumer surplus:

An external cost is a cost paid by:

In an efficient market, the supply curve will decrease by the amount of the external cost.

If a market for tradeable allowances exists, a company that has used up its own allowances can:

Reference: Ref 10-1 (Table: Costs of Antibiotics) Refer to the table. The deadweight loss in the market could be eliminated if the government:

Markets are often inefficient when external costs are present because:

What is the importance of the Clean Air Act of 1990?

Briefly list some private and public solutions to the existence of externalities (negative or positive) in markets.

Reference: Ref 10-2 (Figure: Market with External Cost) Suppose that the figure displays the demand and supply curves for dry cleaning, a service that creates pollution. The external cost of dry cleaning is:

Government solutions to externality problems include: I. Pigouvian taxes. II. tradeable allowances. III. command and control.

Ideally, a market should maximize:

Under the Clean Air Act of 1990, the EPA distributes pollution allowances to generators of electricity, and firms trade allowances as they see fit. The EPA's tradeable allowances program has resulted in:

When the government intervenes in markets with external costs, it does so in order to:

Reference: Ref 10-4 (Figure: Market for Bathroom Cleaner) The figure shows a market for cans of bathroom cleaner that causes environmental damage, imposing costs on people other than the consumers and producers of the cleaner. What is the efficient quantity in this market?