Exam 11: Externalities, Property Rights, and the Environment

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 requires each firm to reduce pollution to 2 tons of smoke per day, so that total daily smoke emission is 6 tons. The total cost to society of this policy will be ________ per day.

When one's performance is judged relative to others' performance and not by an absolute standard:

If the government wants to increase economic efficiency, it should:

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 will be the total village income if each villager decides how to invest based on his or her individual self-interest?

Refer to the figure below. The socially optimal quantity in this market could be achieved by imposing a ________ equal to the vertical distance ________.

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.   If pollution is unregulated, the two firms will produce using process ________, and a total of ________ tons of smoke will be emitted each day.

A positional externality:

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 decides to impose a tax on each ton of smoke emitted. What would be the lowest tax, in whole dollars, that would reduce emissions to 6 tons per 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. At the private market equilibrium, the price of each dose is:

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 without a filter, the total gain (in thousands of dollars)to all three parties is ________.

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 If Quick Burger has the legal right to operate a drive-through window, then the Sunshine Café would be willing to pay Quick Burger as much as ________ per month to NOT operate a drive-through window.

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. Is it socially optimal for the cigar smoker to smoke?

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, the quantity of diesel fuel sold after imposition of the regulation will:

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. Picking up the 20th bag of litter would:

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. Compared to a town in which all residents collectively decide on how much water to use, water use will likely be ________ in Dry Gulch.

From the perspective of an externality, most communities have zoning laws to:

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. If the cafeteria changed its policy so that students had to pay for each item chosen, students would:

The primary advantage to selling pollution permits rather than using a fixed percent reduction for all firms is that:

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 the villagers purchase the socially optimal number of goats and bonds, then total village income will be ________.

Total economic surplus will be ________ in nations with well-defined property rights than in nations with poorly-defined property rights.