Exam 11: Externalities, Property Rights, and the Environment

Consider two restaurants located next door to each other: Quick Burger and The Sunshine Café. If Quick Burger opens a drive-through window, the increased traffic and noise will bother customers seated outside at The Sunshine Café. The table below shows the monthly payoffs to Quick Burger and The Sunshine Café when Quick Burger does and does not operate a drive-through window. Is it socially optimal for Quick Burger to operate a drive-through window?

Two firms, Industrio and Capitalista, have access to five production processes, each of which has a different cost and gives off a different amount of pollution. The daily costs of the processes and the corresponding number of tons of smoke emitted are shown in the table below. Both firms currently use process A, and each emits 4 tons of smoke per day. The government is considering two plans to reduce pollution: requiring both firms to reduce pollution by 25 percent or auctioning pollution permits. Each permit would entitle the owner to emit one ton of smoke per day. Without a permit, no smoke can be emitted.   Suppose the government decides to sell 6 permits allowing a total of 6 tons of pollution. The government starts the bidding with an opening price of $30. What happens next?

Suppose that the EPA has proposed strict controls on the amount of sulfur that diesel fuel contains. These controls were designed to fully offset the cost of pollution generated by diesel fuel vehicles. The effect of the regulation is estimated to increase the equilibrium price of a gallon of diesel fuel by 10 cents. Suppose that demand for diesel fuel is perfectly inelastic and supply has a positive slope. The effect of the regulation will ________ than if demand were not perfectly inelastic.

An external benefit implies that private markets will provide ________ than the socially optimal quantity, and an external cost implies that private markets will provide ________ than the socially optimal quantity.

The major difficulty with using a tax on pollution instead of a fixed percentage reduction regulation is:

Your economics professor has announced that he or she will assign final grades as follows: the top 20 percent of students will get an A, the bottom 20 percent of students will get an F, and everyone else will get a C. You would expect that, as the semester progresses, students who really care about getting an A will:

Early settlers in the town of Dry Gulch drilled wells to pump as much water as they wanted from the single aquifer beneath the town. (An aquifer is an underground body of water.)As more people settled in Dry Gulch, the aquifer level fell and new wells had to be drilled deeper at higher cost. The town council has proposed putting a meter on each household's pump, and charging residents for each gallon of water used. This would:

Suppose there are three power-generating plants, each of which has access to 5 different production processes. The table below summarizes the cost of each production process and the corresponding number of tons of smoke emitted each.   Suppose the government imposes a tax of $21 on each ton of smoke emitted. To minimize costs, Firm X will emit ________ tons; Firm Y will emit ________ tons, and Firm Z will emit ________ tons.

Two firms, Industrio and Capitalista, have access to five production processes, each of which has a different cost and gives off a different amount of pollution. The daily costs of the processes and the corresponding number of tons of smoke emitted are shown in the table below. Both firms currently use process A, and each emits 4 tons of smoke per day. The government is considering two plans to reduce pollution: requiring both firms to reduce pollution by 25 percent or auctioning pollution permits. Each permit would entitle the owner to emit one ton of smoke per day. Without a permit, no smoke can be emitted.     Given that both firms are currently using process A, the cost of requiring the firms to reduce pollution by 25 percent is ________ per day.

Refer to the figure below. This graph describes a good that:  

Refer to the figure below. This graph suggests that the private market provides incentives to:

Refer to the figure below. The socially optimal quantity in this market is ________ units per day.

The following data show the relationship between the number of drivers who leave for work at 8 a.m., their average commute time, and their marginal benefit of commuting.   Number of Drivers Who Leave at 8 a.m. Average Camunute Time Murginal Bemefit 100 30 minutes \ 10 200 65 mirutes \ 8 300 110 minutes \ 4 400 170 mirutes \ 3 500 260 rinutes \ 1 If commuters view highway use as having a price of zero, then one can predict that ________ drivers will leave for downtown at 8:00 a.m.

Suppose Frank likes to snack on sugary candy. Frank knows that it's bad for his teeth to eat sugary candy, but he doesn't care. Frank's snacking habits have no impact on anyone other than Frank. In this case, Frank's consumption of sugary candy generates:

Two firms, Kegareta Inc. and Sucio Enterprises, have access to five production processes, each one of which has a different cost and gives off a different amount of pollution. The daily costs of the processes and the corresponding number of tons of smoke emitted are shown in the accompanying table. If the government requires each firm to cut its emissions by 50 percent, what would be the total cost to society of this policy?

The following payoff matrix shows the outcomes for the United States and Russia from relying on conventional weapons versus atomic weapons in a military conflict. The percentages refer to the fraction of the population that would die. The Nash equilibrium outcome of this game is for:

Which of the following investments is part of a positional arms race?

Pollution permit policies achieve an ________ outcome because ________.

Early settlers in the town of Dry Gulch drilled wells to pump as much water as they wanted from the single aquifer beneath the town. (An aquifer is an underground body of water.)As more people settled in Dry Gulch, the aquifer level fell and new wells had to be drilled deeper at higher cost. In Dry Gulch, the supply of water is:

Refer to the figure below. At the private market equilibrium quantity, the marginal cost of the last unit produced is ________ the social marginal benefit of the last unit produced.