Exam 11: Externalities, Property Rights, and the Environment

If either the production or consumption of a good generates an external cost, then the:

From society's standpoint, positional arms races lead to outcomes that are ________.

Two firms, Acme and FirmCo, 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.   Suppose the firms are both currently using process A. If the government requires each firm to reduce pollution by 20 percent, then the total cost to society of this policy will be ________ per day.

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. Assuming that the supply of diesel fuel has a positive slope and demand has a negative slope, one can infer that the EPA determined that:

In order to achieve the socially optimal level of output, goods that entail negative externalities should be:

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

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 government could increase total economic surplus by:

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. The cost (in thousands of dollars)of the filter to Erie Textiles is ________, and the net benefit (in thousands of dollars)of the filter to the fishermen and bird watchers is ________.

Kate and Ali can live together in a two-bedroom apartment for $600 per month, or they can each rent a one-bedroom apartment for $400 per month. Apart from the rent, they are indifferent between living together and living apart, except for one problem: Kate hates Ali's taste in music. Kate would be willing to pay up to $100 a month to avoid hearing Ali's music. Ali would give up listening to her music for no less than $300 per month. If Kate and Ali decide to live together, is it socially optimal for Ali to play her music in the apartment?

A benefit of an activity received by people not participating in the activity is called a(n):

Refer to the figure below. From this graph, you can infer that paper production:    

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.   Quick Burger Operates a Drive-Thrmugh Windav Quick Burger Daes Nat Operate Brive-Thraugh Window Quick Burper \ 24,000 \ 15,000 The Surshine Caf \ 11,000 \ 23,000 Suppose Quick Burger has the legal right to operate a drive-through window, and Quick Burger and the Sunshine Café can negotiate with each other at no cost. Which of the following arrangements would lead to the socially optimal outcome?

Given that most people like the smell of baking cinnamon rolls and dislike the smell of burning tires, baking cinnamon rolls generates ________ externality, and burning tires generates ________ externality.

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   If each villager is purely self-interested, how many goats will be sent onto the commons?

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. The socially optimal number of bags of litter removed from the roadside each day is:

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.  According to this graph, the marginal benefit of litter removal is highest when the ________ bag of litter is removed.

If the market equilibrium quantity is greater than the socially optimal quantity, one can infer that:

When the government imposes a tax on a good, total economic surplus will:

The essential reason some species of whales have nearly been driven to extinction is 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. Local fishermen and bird watchers would be willing to compensate Erie Textiles ________ for operating with a filter.