Exam 15: Externalities , Environmental Policy and Public Goods

-Refer to Figure 15-3. The size of marginal external benefits can be determined by

What is a Pigovian tax? What happens to deadweight loss when a Pigovian tax is implemented?

If there is pollution in producing a product, then the market equilibrium price is too high and equilibrium quantity is too low.

A positive externality causes

Which of the following is a source of market failure?

For the Coase theorem to work, there must be clear assignment of property rights.

Which of the following must be present to reach a private solution to an externality problem?

-Refer to Figure 15-4. What does S₂ represent?

Goods differ on the basis of whether their consumption is rival and excludable. Explain the terms 'rivalry' and 'excludability' as they are used to define goods. List the four categories of goods, and define these categories in terms of rivalry and excludability.

-Refer to Figure 15-3. The efficient output level is

The free rider problem refers to a situation in which

Because producers do not bear the external cost of pollution,

A product is considered to be rival if

Compare two situations. (A) A firm is not legally responsible for damages that result from air pollution caused by its production of steel. (B) A firm is legally responsible for damages that result from its production of steel. Ronald Coase argued that

A market failure arises when an entire sector of the economy (for example, the airline industry) collapses because of some unforeseen event.

In England during the Middle Ages each village had an area of pasture on which any family in the village was allowed to graze its cows and sheep without charge. Eventually, the grass in the pasture would be depleted and no family's cow or sheep would get enough to eat. The reason the grass was depleted was

For-profit producers will produce only private goods because

-Refer to Figure 15-8. What is the economically efficient level of pollution reduction?

Should the level of pollution be reduced to zero and if not, then to what level?

A.C. Pigou argued that the government can deal with a positive externality in consumption by giving consumers a subsidy equal to the value of the externality.