Exam 17: Externalities and Public Goods

The marginal cost of pollution is MC = 2Q, while the marginal abatement cost is MAC = 12 - Q. Government regulators incorrectly estimate the marginal abatement cost at MAC_E = 9 - Q. The level of pollution, measured in tons of glop, is Q. The socially optimal level of pollution using the actual MAC 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. Assuming the government implements the appropriate per-unit tax to achieve the socially optimal outcome, sellers receive a price of $_____ net of the tax.

There are three consumers of a public good; their marginal benefits are given by: Consumer 1: MB = 400 - Q Consumer 2: MB = 200 - 2Q Consumer 3: MB = 600 - Q Where Q is the quantity of the public good. The marginal cost of the public good is MC = 600 + 296Q. What is the socially optimal quantity?

(Figure: Marginal Benefit I) Which of the following statements is (are) TRUE? I. The external marginal benefit is $7. II) The socially optimal price is $5. III) At an output level of 5 units, the deadweight loss is $6. IV) At 8 units of output, there is no private marginal benefit and social marginal benefit is $4.

Mr. Leghorn lives next door to Mr. Fudd. During hunting season, Mr. Fudd likes to shoot rabbits in his backyard, an activity which he values at $900. The noise from the shooting disturbs Mr. Leghorn and prevents him from taking afternoon naps, which he values at $500. If Mr. Leghorn has the legal right to stop Mr. Fudd from hunting, the socially optimal outcome is for:

Which of the following statements is (are) TRUE? I. A club good, such as golf, is nonexcludable and rival. II. A private good is excludable and rival. III. School is a public good. IV. Common resources are excludable and nonrival.

Which of the following statements is (are) TRUE? I. A quota can be used to address negative externalities only, not positive externalities. II. Implementing pollution quotas is difficult because quotas must be implemented on a firm-by-firm basis. III. The government could produce the good itself as a method of increasing the quantity of a good with a positive externality.

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. The external marginal benefits are EMB = 1 + 0.06Q. The social demand curve for recreation centers can be expressed as ____.

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 Smog Brothers, Inc., after the exchange of permits, is $____.

Many livestock farmers give antibiotics to their herds. The antibiotics help breed drug-resistant bacteria, making them less effective. This harms future users of antibiotics, who will be using less-effective drugs. a. What is the nature of the market failure? b. Explain whether livestock farmers are more likely to overuse or underuse antibiotics. c. Using supply and demand curves, illustrate the equilibrium outcome and socially optimal equilibrium in the antibiotic market.

Suppose that Billy McGee owns the Internet domain www.ironmaiden.com. Iron Maiden, the legendary British heavy metal band, was given the rights to the name by the World Intellectual Property Organization. Iron Maiden values the domain name at $250,000 and Billy McGee values the domain name at $330,000. The Coase theorem suggests that:

The marginal cost of pollution is MC = 2Q, while the marginal abatement cost is MAC = 12 - Q. Government regulators incorrectly estimate the marginal abatement cost at MAC_E = 9 - Q. The level of pollution, measured in tons of glop, is Q. If the government uses a quota to intervene in the market based on the incorrect estimate of marginal abatement cost, ____ units of pollution will be omitted.

The island nation of Maldives has 70,000 households. Each household receives a marginal benefit from Coast Guard security of MB = 60 - 0.30Q, where Q measures the number of patrolling Coast Guard ships. What is the total marginal benefit of the tenth patrolling ship?

The market for wheat is characterized by the following inverse demand and supply equations: P = 540 - 1.5Q P = MC = 3Q Where P is the price per metric ton of wheat and Q measures the daily quantity of wheat in metric tons. Because of fertilizer runoff, the external marginal cost is constant at $90 per metric ton of wheat. What is the socially optimal quantity of wheat?

A good is rival if:

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. Suppose that government regulators require each refinery to remove 150 units of methane. The total cost of removing these 150 units for the Bend refinery is $____.

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. The external marginal benefits are EMB = 1 + 0.06Q. Without government intervention, ____ people will use the recreation centers.

(Figure: External Marginal Cost II) Suppose the external marginal cost is constant at $5 per unit. Price (demand) equals social marginal cost at _____ units of output.

(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. a. How many units of pollution will each firm emit under the tradable permit system? b. Which firm will sell unused pollution permits to the other firm? c. How much will the pollution permits sell for?

There are no externalities in the market for brim hats; therefore, the: