Exam 17: Externalities and Public Goods

Suppose that dry cleaning 100 blouses carries a social marginal cost of $900 and an external marginal cost of $300. What is the private marginal cost of dry cleaning 100 blouses?

Chia, Inc. has a marginal abatement cost curve of MAC_C = 115 - 5Q, where Q represents fertilizer runoff measured in parts per million (ppm) cleaned up; however, regulators incorrectly believe that it is actually MAC_E = 110 - 10Q. If the marginal cost of pollution is given by MCP = 15Q, illustrate the area of deadweight loss generated with a quantity restriction on pollution of 4.4 ppm, based on regulators' incorrect estimation of abatement costs.

Which of the following statements is (are) TRUE? I. An inefficiency occurs if there is too much pollution. II. An inefficiency occurs if there is too little pollution. III. It can be efficient for there to be a positive level of pollution.

(Table: Marginal Cost) According to the table, what is the socially optimal output level?

(Figure: Output Levels I) The output level under perfect competition is _____, while the socially optimal output level is _____.

(Table: Benefits and Costs of Lawn Mowing) Answer the following question. According to the figure above, a self-interested person will mow her lawn ____ times during the month and that ____ the socially optimal outcome.

Manny Metal produces 300 tons of sulfur dioxide emissions, and Silk Steel produces 550 tons. The marginal abatement cost (MAC) of reducing sulfur dioxide: Manny Metal: MAC_M = 10 + 3e_M Silk Steel: MAC_S = 50 + e_S Government regulators want to reduce total sulfur dioxide emissions to 650 tons, a 200-ton reduction. If the government gives each firm 325 tradable pollution permits, Manny Metal emits _____ tons and Silk Steel emits _____ tons.

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. Assuming the government implements the appropriate per-unit tax to achieve the socially optimal outcome, buyers pay a price of $_____.

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. a. To achieve the socially optimal output level, what size tax should the government implement? b. Based on your answer to part a, what price will buyers pay and what price will sellers receive net of the tax?

In the case of producing a good with a negative externality, a firm will likely consider only the _____ marginal costs of production, leading to production of _____.

The marginal abatement costs (MAC) for Stark and York Paper are MAC_s = 0.2e_s and MAC_Y = 0.25e_Y, where e_s and e_Y represent the amount of emissions cut by each company. The lowest cost approach to reducing 90 units of emission is for Stark to reduce its emissions by _____ units and York to reduce its emissions by _____ units.

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 generates a negative externality, where the external marginal cost is constant at $2. To achieve the socially optimal output level, the government wants to implement a quota. What size should the quota be?

Competitive markets _____ goods with negative externalities and _____ provide goods with positive externalities.

Which of the following statements is (are) TRUE? I. Public goods tend to be underprovided. II. One person's consumption of a public good diminishes its use to another person. III. The marginal cost of providing a public good to another consumer is infinite.

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 generates a negative externality, where the external marginal cost is constant at $2. To achieve the socially optimal output level, the government wants to implement a quota. The size of the quota should be ____ units of the good.

Minnesota has two oil refineries that emit methane gas. The Bend refinery emits 300 units of methane, and the Park refinery emits 900 units. Government regulators would like to reduce total methane emissions from 1,200 to 900 units. Bend's total abatement and marginal abatement costs are TC_B = 400Q_B + 4Q_B² and MAC_B = 400 + 8Q_B, where Q is units of methane. Park's total abatement cost and marginal abatement costs are TC_P = 40Q_P + 2Q_P² and MAC_P = 40 + 4Q_P. a. Suppose that government regulators require each refinery to remove 150 units of methane. What is the total cost of removing these 300 units (TC_B + TC_P)? b. Now suppose that the government regulators evenly split 900 methane pollution permits between the two refineries. What is the total cost of removing 300 units of methane, using a tradable permit system?

(Table: Marginal Benefit) In an unregulated market, the quantity produced is _____, and a subsidy of _____ per unit will achieve the socially optimal quantity of _____.

In the age before free agency, the labor of Major League Baseball (MLB) players was the property of their team owners. The owners had complete control of whether to trade their players away or keep them on the roster. In the period of free agency, players had the right to sell their services to the highest-bidding team. The Coase theorem predicted that:

(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. The pollution permits will sell at a price of $____.

(Figure: External Marginal Cost III) Which of the following statements is (are) TRUE? I. The socially optimal quantity is 3. II) The deadweight loss associated with the perfectly competitive output level is $4.50. III) The external marginal cost is $6.