Exam 18: Externalities, Open-Access, and Public Goods

-The above figure shows the market for steel ingots. If the market is competitive, and the government institutes a $100 specific tax on steel, then

A public good in which exclusion is possible is called

-The above figure shows the payoff matrix for two firms. A chemical firm must choose between a low level of production which yields one ton of pollution into a nearby lake and a high level of production which yields two tons of pollution into the nearby lake. A private beach on the lake must decide whether to operate or not. Increased pollution reduces the number of people who wish to visit the beach. If the chemical firm owns the lake, and the beach owner must pay $10 to keep the chemical firm at just one ton of pollution, then

In the presence of a negative externality generated by producing a good, a competitive market will produce more of that good than is socially optimal.

-The above figure shows the market for steel ingots. The optimal quantity of pollution

In the presence of a negative externality, a specific tax can achieve the social optimum because

Monopolizing the sale of liquor

In a competitive market, a negative externality creates a deadweight loss because

If a production process creates pollution, a competitive market produces excessive pollution because

The total demand for a public good is found by

Suppose two neighbors share a park. One neighbor, Al, leaves trash in the park. This bothers the other neighbor, Bert. According to Coase's Theorem, one necessary condition to alleviate the externality is that

Explain why the social demand curve for a public good is the vertical sum of the demand curves of each individual.

If a product provides a positive externality, a duopoly

A specific tax in a monopoly market equal to the marginal harm of pollution

If a production process creates positive externalities, a competitive market produces too few positive externalities because the producer

Which of the following goods has the property of rivalry?

Consider a housing development built near an existing airport. After the houses are occupied, homeowners complain that the airport imposes a negative externality on them and it should be moved or otherwise limited. Is the airport a negative externality?

The existence of externalities is due mainly to the fact that

Which of the following is an example of internalizing an externality?

Over-fishing of common fishing grounds happens because fishing grounds are a common property and social and private incentive are the same.