Exam 11: Externalities, Property Rights, and the Environment

Lunch in Jamie's dorm is an all-you-can-eat buffet, served from 11 a.m. until 1 p.m. By noon, the buffet is picked over, and by 12:30, there are very few popular items left. The garbage bins, though, are full of food. The buffet in Jamie's dorm is an example of:

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.   For all three firms, the marginal cost of pollution abatement is:

For a fixed percent reduction in pollution emissions to be economically efficient, it would have to be the case that

Suppose Erie Textiles can dispose of its waste "for free" by dumping it into a nearby river. While the firm benefits from dumping waste into the river, the waste reduces fish and bird reproduction. This causes damage to local fishermen and bird watchers. At a cost, Erie Textiles can filter out the toxins, in which case local fishermen and bird watchers will not suffer any damage. The relevant gains and losses (in thousands of dollars)for the three parties are listed below.   If Erie Textiles does not install the filter, there will be a net social ________ of ________ (in thousands of dollars).

A village has five residents, each of whom has an accumulated savings of $50. Each villager can use the money to buy a government bond that pays 10 percent interest per year or to buy a year-old goat, send it onto the commons to graze, and sell it after one year. The price of the goat that the villager will get at the end of the year depends on the amount of weight it gains while grazing on the commons, which in turn depends on the number of goats sent onto the commons, as shown in the table below. Assume that if a villager is indifferent between buying a bond and buying a goat, the villager will buy a goat. Number af gants an the carmuns Price per 2-year ald poat (5) Incame per gant ( \/ year) 1 80 30 2 75 25 3 70 20 4 65 15 5 55 5   When the each villager decides how to invest based on his or her narrow self-interest, total village income will be ________ when the village collectively decides how to invest.

A village has five residents, each of whom has an accumulated savings of $50. Each villager can use the money to buy a government bond that pays 10 percent interest per year or to buy a year-old goat, send it onto the commons to graze, and sell it after one year. The price of the goat that the villager will get at the end of the year depends on the amount of weight it gains while grazing on the commons, which in turn depends on the number of goats sent onto the commons, as shown in the table below. Assume that if a villager is indifferent between buying a bond and buying a goat, the villager will buy a goat. Number af gants an the carmuns Price per 2-year ald poat (5) Incame per gant ( \/ year) 1 80 30 2 75 25 3 70 20 4 65 15 5 55 5   What is the socially optimal number of goats to be sent out onto the commons?

Refer to the figure below. The socially optimal quantity of paper is ________ tons per year.

Suppose Erie Textiles can dispose of its waste "for free" by dumping it into a nearby river. While the firm benefits from dumping waste into the river, the waste reduces fish and bird reproduction. This causes damage to local fishermen and bird watchers. At a cost, Erie Textiles can filter out the toxins, in which case local fishermen and bird watchers will not suffer any damage. The relevant gains and losses (in thousands of dollars)for the three parties are listed below. When Erie Textiles operates with a filter, the total gain (in thousands of dollars)by all three parties is ________.

Two companies, Dirty Inc. and Filthy Inc., each of which has access to 5 different production processes, each of which has a different cost and produces a different amount of pollution. The daily costs of the processes and the number of tons of smoke emitted are shown in the table below.   If pollution is unregulated, then a total of ________ tons of smoke will be emitted each day.

Suppose that a vaccine is developed for a highly contagious strain of flu. The likelihood that anyone will get this flu decreases as more people receive the vaccine. One of the demand curves below represents the private demand for the vaccine and the other represents the social demand for the vaccine. The private demand for the vaccine is given by ________, and social demand for the vaccine is given by ________.

If the production of a good generates a negative externality, then at the market equilibrium quantity, the marginal cost to society of another unit of the good will be:

Refer to the figure below. The socially optimal level of output could be achieved by imposing a tax on each unit equal to the distance ________.    

According to the textbook, if students are graded on a curve so that each student's grade depends upon their performance relative to other students, the resulting positional arms race are partially offset by social norms that:

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   One way for the government to increase economic efficiency would be for it to:

Suppose that your neighbor smokes in his yard. You can smell his cigarette smoke from inside your house, and you dislike the smell. Which of the following statements is correct?

This graph shows the marginal cost and marginal benefit associated with roadside litter clean up. Assume that the marginal benefit curve and marginal cost curve each have their usual slope. Suppose the state highway department has picked up 15 bags of litter. Protesters have staged a demonstration demanding that the highway department return to pick up the remaining litter. From an economic efficiency perspective, the protesters have a ________ claim because ________.

Refer to the figure below. In this case, the private market ________ resources efficiently because ________.  

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 auction 6 permits. The government conducts the auction by starting at a price of $1 and asking how many permits each firm wants to buy at that price. If the total is more than 6, it raises the price by $1 and asks again until the total quantity demanded falls to 6. Under this system, each permit will sell for ________ with Industrio buying ________ and Capitalista buying ________.

Which of the following is NOT an example of an activity with external benefits?

In the case of either a positive or negative externality, a good's market price will: