Exam 17: Externalities and Public Goods

The production of toilet paper in a perfectly competitive market is characterized by the inverse supply curve (marginal cost curve) P = 4Q, where Q is measured in millions of 4-roll packs per month. The inverse demand for toilet paper is P = 10 - 6Q. The market equilibrium price of toilet paper is ____ and the market equilibrium quantity is ____ million packs.

The following companies all manufacture widgets and dump tons of glop into the air. The government wants to halve total pollution but does not know how much it will cost each company. If the government employs a tradable permit scheme in which it gives the same number of permits to each manufacturer at no cost, the total cost of cleanup for Polluters-R-Us after the exchange of permits is $____.

The inverse demand for energy-efficient refrigerators is P = 2,000 - 10Q, where Q measures refrigerators per month. The inverse supply of energy-efficient refrigerators is P = 10Q. a. Solve for the market equilibrium price and quantity. b. Suppose the use of an energy-efficient refrigerator reduces carbon dioxide emissions, generating an external marginal benefit of $100. What is the socially optimal quantity of energy-efficient refrigerators?

Mushroom farms emit unpleasant odors that affect third parties. The marginal cost of the odors is MC = 4Q, where Q is the quantity of fumes emitted. Mushroom farmers can reduce odors by using various techniques and technologies; the marginal abatement cost is MAC = 1,200 - 36Q. a. Suppose the quantity of odor emission is 33. Is that too much or too little? b. Suppose the quantity of odor emission is 15. Is that too much or too little? c. What is the efficient quantity of odor emission?

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; 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 _____.

The following companies all manufacture widgets and dump tons of glop into the air. The government wants to halve total pollution but does not know how much it will cost each company. If the government employs a tradable permit scheme in which it gives the same number of permits to each manufacturer at no cost, the total cost of cleanup for Really Dirty Industries, after the exchange of permits, is $____.

The following companies all manufacture widgets and dump tons of glop into the air. The government wants to halve total pollution but does not know how much it will cost each company to clean it up. Determine the total cost of the cleanup if the government employs a uniform reduction scheme.

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. The government wants to correct the negative externality associated with remote-control drone flights by taxing operators $20 per flight. If the proposed tax accurately reflects their marginal external costs, the deadweight loss associated with unrestricted remote-control drone flights is _____.

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 creates a negative externality, where the external marginal cost is constant at $2. To achieve the socially optimal output level, the government can implement a tax in the amount of $____.

A tradable permit system:

Which of the following factors could mitigate the tragedy of the commons? I. Pigouvian taxes II. government quotas III. the elimination of private property rights in a common resource

(Figure: Output Levels II) The socially optimal output level could be achieved by a government quota of:

The market for flu shots is given by the following inverse demand and supply equations: P = 40 - 0.40Q P = 0.40Q Where P is the price per flu shot and Q measures the daily quantity of flu shots. The external marginal benefit of a flu shot is $8. The socially optimal number of daily flu shots is:

(Table: Benefits and Costs of Lawn Mowing) Answer the following question. According to the figure above, the socially optimal outcome is _____ mowing(s) per month.

The production of toilet paper in a perfectly competitive market is characterized by the inverse supply curve (marginal cost curve) P = 4Q, where Q is measured in millions of 4-roll packs per month. The inverse demand for toilet paper is P = 10 - 6Q. a. Solve for the market equilibrium price and quantity. b. If the production of toilet paper causes an external marginal cost of 50 cents per 4-pack, what are the socially optimal price and quantity of toilet paper?

(Table: Pollution from Firms) Suppose that each firm is emitting 10 units of pollution, for a total of 20 units. The government would like to decrease total pollution to 10 units by giving each firm five tradable pollution permits. Under the tradable permit system, Firm A will emit ____ units of pollution.

Recreation centers offer a place for young people to play sports and engage in other activities at a marginal cost of MC = 0.25Q. The inverse demand curve for recreation centers is given by P = 10 - 0.25Q, where P is the price of entry and Q measures hundreds of entrants. Recreation centers generate positive externalities because they help get young people off the street and engaged in productive activities. In this case, an action that the government could take to move toward the socially optimal outcome is to implement ____.

Hamid and Lee are neighbors. Hamid has a barking dog that he keeps in his backyard for property protection; he values the dog at $600. Lee despises the constant barking, because it costs him $800 in lost sleep. a. If Hamid has a legal right to own a barking dog, is there a Coase solution to this problem? b. Because Hamid speaks Farsi and Lee speaks Korean, they need an interpreter to handle negotiations regarding the dog. Is there a Coase solution to this problem if the interpreter costs $70? How about if the interpreter charges $210?

The production of toilet paper in a perfectly competitive market is characterized by the inverse supply curve (marginal cost curve) P = 4Q, where Q is measured in millions of 4-roll packs per month. The inverse demand for toilet paper is P = 10 - 6Q. If the production of toilet paper causes an external marginal cost of 50 cents per 4-pack, the socially optimal price of toilet paper is $____ and the socially optimal quantity of toilet paper is ____ million.

The following companies all manufacture widgets and dump tons of glop into the air. The government wants to halve total pollution but does not know how much it will cost each company. Determine the total cost of the cleanup if the government employs a tradable permit scheme in which it gives the same number of permits to each manufacturer at no cost.