Exam 11: Externalities, Property Rights, and the Environment

The town of Pleasantville has two local TV stations. If one of them invests in the newest weather forecasting technology, one can predict that:

Suppose that a government agency is trying to decide between two pollution reduction policy options. Under the permit option, 100 pollution permits would be sold, each allowing emission of one unit of pollution. Firms would be forced to shut down if they produced any units of pollution for which they did not hold a permit. Under the pollution tax option, firms would be taxed $250 for each unit of pollution emitted. The regulated firms all currently pollute and face varying costs of pollution reduction, though all face increasing marginal costs of pollution reduction. Suppose the tax policy is adopted. A firm will be willing to pay the tax if $250 is less than or equal to:

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 external benefit of each dose 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. From the graph, one can infer that:

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

Suppose there are ten people playing cards in a room. One of them wants to smoke a cigar, nine of them dislike the smell of cigar smoke. The smoker values the privilege of smoking at $5, and each of the other nine people of the room would be willing to pay fifty cents for clean air in the room. The rules governing use of the room state that smoking is not allowed unless everyone agrees to allow smoking. If the rules governing the room instead stated that smoking is allowed unless everyone in the room agrees to prohibit it, then:

If the equilibrium quantity is equal to the socially optimal quantity, one can infer that:

When Brady is driving he throws his cigarette butts out the window, reasoning that other people will clean up the litter on the side of the road. By throwing his cigarette butts out the window, Brady is:

Refer to the figure below. Private incentives in this market generate deadweight loss equal to ________.

If the marginal cost of reducing pollution is positive, then:

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.   Suppose that Erie Textiles can only negotiate with one of the affected groups. Will Erie operate with a filter?

Compared to a fixed percentage reduction regulation, a tax on pollution encourages:

The optimal quantity of a negative externality is zero if:

Compared to taxing pollution, an advantage of auctioning pollution permits is that:

The Coase theorem states that if private parties can negotiate the purchase and sale of the right to perform activities that cause externalities, then they:

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.   If pollution is unregulated, then total daily smoke emission will be ________ tons.

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 all three parties can communicate and negotiate with each other at no cost, will Erie Textiles use a filter?

The use of pollution permits by the government to reduce pollution is:

Suppose that a government agency is trying to decide between two pollution reduction policy options. Under the permit option, 100 pollution permits would be sold, each allowing emission of one unit of pollution. Firms would be forced to shut down if they produced any units of pollution for which they did not hold a permit. Under the pollution tax option, firms would be taxed $250 for each unit of pollution emitted. The regulated firms all currently pollute and face varying costs of pollution reduction, though all face increasing marginal costs of pollution reduction. Suppose the permit policy is adopted. A firm will wish to purchase its first permit if the price of that permit is less than or equal to:

Suppose that in most car collisions between cars of unequal size, the smaller car sustains the most damage and its occupants suffer the most injury. In answering the following question, assume that, on average, smaller cars generate less air pollution than larger cars and that every person in the economy drives at least one car. Suppose the size of all cars increased by 25 percent. Collisions between two cars would cause ________ and air pollution would ________.