Exam 18: Externalities, Open-Access, and Public Goods

Suppose three neighbors must vote on the installation of a traffic light that costs $210.The cost of the light will shared by all three.Voter A values the light at $50; voter B values the light at $50; and voter C (who drives the most)values the light at $200.If the voting rule is that the majority wins,does the light get purchased? Is it efficient to purchase the light?

The U.S.Federal government limits the ability for private firms to harvest timber on much government land.This,it is argued,increases the amount of fuel for wildfires which often burn out of control and cost money and manpower to control.

Which of the following is an example of internalizing an externality?

The existence of externalities is due mainly to the fact that

Suppose 10 citizens each derive marginal benefit from traffic lights according to the function MB = 10 - Q.If traffic lights cost $10 each to produce,what is the efficient quantity of traffic lights?

When majority rule voting is used to determine whether to purchase a public good,

Which of the following policies addresses the problem posed by positive externalities?

-The above figure shows the market for steel ingots.The optimal quantity of pollution

-The above figure shows the market for steel ingots.If the market is competitive,then the deadweight loss to society is

Suppose 100 citizens each derive marginal benefit from submarines according to the function MB = 10 - Q.If subs cost $100 each to produce,what is the efficient quantity of submarines?

To alleviate the commons problem,the government can

-The above figure shows the marginal benefit to a firm of polluting in the local river while producing its output,and the marginal cost to the surrounding neighbors.The marginal cost of production is zero for the firm.If the firm owns the river and there is just one neighbor affected by the pollution,how much pollution is likely to occur?

In the case of a good that has no exclusion and no rivalry,private markets fail because

-The above figure shows the payoff matrix for two firms.A chemical firm must choose between a low level of production which yields one ton of pollution into a nearby lake and a high level of production which yields two tons of pollution into the nearby lake.A private beach on the lake must decide whether to operate or not.Increased pollution reduces the number of people who wish to visit the beach.Determine the Nash equilibrium without property rights.

-The above figure shows the payoff matrix for two firms.A chemical firm must choose between a low level of production which yields one ton of pollution into a nearby lake and a high level of production which yields two tons of pollution into the nearby lake.A private beach on the lake must decide whether to operate or not.Increased pollution reduces the number of people who wish to visit the beach.As long as someone owns the lake and the two parties can negotiate,then

If a market is subject to a positive externality,

A student that asks interesting questions during the lecture generates

-The above figure shows the marginal benefit to a firm of polluting in the local river while producing its output,and the marginal cost to the firm's neighbor.The marginal cost of production is zero for the firm.If there is just one neighbor who owns the river,how much pollution is likely to occur?

Explain the externality generated when a shepherd grazes sheep in a field that is common property that several other shepherds use.

Markets tend to produce too little of an excludable public good because