Exam 9: Imperfect Information, External Benefits, and External Costs

A good is nonrival in consumption if it is not practical to exclude people who don't pay for it from enjoying its benefits.

Externalities always consist of benefits that are not confined to the person or organization that decides how much of a good to produce or consume.

Table 9.7 -Table 9.7 shows the production cost for two utilities at different levels of sulfur dioxide emissions. Assume that the government issued 8 marketable pollution permits to each firm. If the two firms were to voluntarily trade pollution permits, how many permits would be swapped?

Recall the Application about reducing pollution generated from international shipping to answer the following question(s). -Recall the Application. Of the following CO2 reduction methods for international shipping, which has the highest marginal abatement cost (MAC)?

If the U.S. were to place a carbon tax on fossil fuels, we can expect

Figure 9.7 -A firm that generates pollution is illustrated in Figure 9.7. If the government imposes a pollution tax equal to P₂ and the firm chooses abatement level A₃

Figure 9.6 -Figure 9.6 represents the market for health insurance. Suppose there are two types of consumers, low-cost consumers with $2,000 average medical expenses per year, and high-cost customers with $4,000 average medical expenses per year. The insurance companies estimate that 40% of its customers are high-cost type. If the insurance companies set the price equal to their average cost per customer, what type of customers will dominate the market?

Recall the Application about how having car insurance affects driving behavior to answer the following question(s). -Recall the Application. The theory of moral hazard suggests that uninsured drivers drive less carefully than insured drivers.

A carbon tax will raise the price of an energy-intensive good such as steel.

Figure 9.1 -Figure 9.1 represents the market for used bikes. Suppose buyers are willing to pay $200 for a plum (high-quality) used bike and $50 for a lemon (low-quality) used bike. If buyers believe that 50% of used bikes in the market are lemons (low quality), what fraction of used bikes sold will actually be plums (high quality)?

Some states have laws that require that used car dealers give buyers a 30-day period during which they can return cars that are discovered to be lemons (low-quality). Who do laws like this help? Who do they hurt?

In a market for used cars, if the minimum supply price for plums is lower than consumers' willingness to pay for a lemon, only plums will be supplied at the consumers' willingness to pay for a lemon.

If workers have better information about their own ability to work than employers do, which of the following situations is present?

Market failure is a situation in which

Suppose that next year the government fixes the number of pollution permits at a quantity less than the number sold this year. If nothing else changes, next year the price of a pollution permit will be

In equilibrium in a mixed market

If John drives more recklessly because he has good automobile insurance it is an example of moral hazard.

The existence of the Federal Deposit Insurance Corporation (FDIC)

Figure 9.4 -Figure 9.4 represents the market for used 12 megapixel digital cameras. Suppose buyers are willing to pay $400 for a plum (high-quality) used digital camera and $200 for a lemon (low-quality) used digital camera. If buyers believe that 50% of used digital cameras in the market are lemons (low quality), what percent of used digital cameras sold will actually be lemons?

Table 9.5 -If each firm depicted in Table 9.5 is currently generating 1,000 gallons of wastewater per day, Firm B would be willing to pay up to ________ to Firm A to be able to generate 2,000 gallons of wastewater per day.