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

Command-and-control policies are undesirable ways of reducing pollution because the means of abatement they mandate may not be efficient for all firms.

A public good is a good that

You have just graduated from college and are buying a brand new car. There are two on the lot: a green one and a blue one. Both have the same features for the same price. Is there a potential asymmetric information problem?

If you watch a pay-per-view movie on a cable TV, the movie is

An example of a good that is excludable is

Suppose an oil refinery and a paper mill both pollute a river. Under a system of marketable pollution permits, which of the following must be TRUE in order for both companies to benefit from trading the right to pollute?

Figure 9.5 -Figure 9.5 represents the market for used cars. Suppose buyers are willing to pay $5,000 for a plum (high-quality) used car and $3,000 for a lemon (low-quality) used car. If buyers believe that 80% of used cameras in the market are lemons (low quality), what is consumers' willingness to pay ($X)?

Suppose that your local government provides drinking water and charges a 10 cent per gallon fee. Explain whether or not the drinking water is a public good.

Who is more likely to offer a money-back guarantee: a seller of a lemon or a seller of a plum? Why?

As the volume of waste decreases (holding the amount of paper produced constant), the production cost per ton of paper increases at a decreasing rate because the firm must use increasingly sophisticated abatement equipment to decrease the volume of waste.

There are profit opportunities in a thin market because the gap between what a buyer is willing to pay for a true plum and the amount a plum owner is willing to accept is large.

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 Firm B would like to purchase one permit to be able to discharge nine tons of sulfur dioxide, what is Firm B's willingness to pay?

Figure 9.2 -Figure 9.2 represents the market for used cameras. Suppose buyers are willing to pay $125 for a plum (high-quality) used camera and $25 for a lemon (low-quality) used camera. If buyers believe that 50% of used cameras in the market are lemons (low quality), what fraction of used cameras sold will actually be lemons (low quality)?

The forces of supply and demand will provide a quantity that is

Table 9.6 -Consider the data in Table 9.6. Both firms can benefit if Firm A sells its pollution permit allowing it to generate 100 gallons of wastewater to Firm B for

Figure 9.3 -Figure 9.3 represents the market for used refrigerators. Suppose buyers are willing to pay $300 for a plum (high-quality) used refrigerator and $100 for a lemon (low-quality) used refrigerator. Compared to the situation when buyers have neutral expectations, if buyers believed that fewer than 50% of used refrigerators are lemons (low-quality)

Recall the Application about determining the optimal level of methane abatement to answer the following question(s). -Recall the Application. The EPA has estimated the cost of methane recovery at different recovery levels. Given those costs, the optimal level of methane recovery

If you can consume a good without having to pay for it, the good must be nonrival in consumption.

In a competitive market, a pollution tax increases the equilibrium price of the polluting good, decreases the equilibrium quantity, and decreases the volume of waste.

Table 9.8 -Table 9.8 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 Firm B wants to purchase a second permit to be able to discharge 10 tons of sulfur dioxide, what is Firm B's willingness to pay?