Exam 15: Externalities, Environmental Policy and Public Goods

Figure 15-8 Consider a chemical plant that discharges toxic fumes over a nearby community.To reduce the emissions of toxic fumes,the firm can install pollution abatement devices.Figure 15-8 shows the marginal benefit and the marginal cost from reducing the toxic fumes emissions. -Refer to Figure 15-8.Suppose the emissions reduction target is currently established at 8 million tons.Should society undertake to reduce an additional 1 million tons so that the total reduction is 9 million tons?

Figure 15-14 Figure 15-14 shows the market for Atlantic salmon,a common resource.The current market equilibrium output of Q₁ is not the economically efficient output.The economically efficient output is Q₂. -Refer to Figure 15-14.Identify the area that shows the deadweight loss from overfishing.

Figure 15-7 -Refer to Figure 15-7.What is the incremental cost of increasing the quantity of pollution reduction from Q_B to Q_E units?

Figure 15-4 Suppose there are several paper mills producing paper for a market.These mills,located upstream from a fishing village,discharge a large amount of wastewater into the river.The waste material affects the number of fish in the river,and the use of the river for recreation and as a public water supply source.Figure 15-4 shows the paper market.Use this Figure to answer the following question(s). -Refer to Figure 15-4.What does S₁ represent?

Figure 15-13 Figure 15-13 shows the market for aviation security.Aviation security generates a positive externality because people who are not airline passengers benefit from aviation security. -Refer to Figure 15-13 to answer the following questions. a.In the absence of any government intervention,what is the equilibrium level of security that airlines will supply? Denote this level,Q*.Briefly explain why this quantity is not the economically efficient level of aviation security. b.In the diagram,illustrate the presence of positive externalities in the aviation security market.Label any new curve that you draw. c.On your diagram identify the economically efficient level of aviation security.Denote this level Q_e. d.Explain how a government subsidy for the airlines can bring about the economically efficient aviation security level.Be sure to identify the size of the subsidy.

Explain how mandatory seat belt laws may reduce the negative externalities of risky behaviour.

Figure 15-11 Coal burning utilities release sulphur dioxide and nitric acid which react with water to produce acid rain.Acid rain damages trees and crops and kills fish.Because the utilities do not bear the cost of the acid rain,they overproduce the quantity of electricity.This is illustrated in Figure 15-11. -Refer to Figure 15-11.S₁ represents the supply curve that reflects the private cost of production,and S₂ represents the supply curve that reflects the social cost of production.One way to internalise the external cost generated by utilities is to impose a Pigovian tax on the production of electricity.What is the size of the Pigovian tax that will internalise the cost of the externality?

Figure 15-1 Figure 15-1 shows a market with an externality.The current market equilibrium output of Q₁ is not the economically efficient output.The economically efficient output is Q₂. -Refer to Figure 15-1.If,because of an externality,the economically efficient output is Q₂ and not the current equilibrium output of Q₁,what does S₁ represent?

A positive externality causes

The Coase theorem states that

Figure 15-9 Companies producing toilet paper bleach the paper to make it white.The bleach is discharged into rivers and lakes and causes substantial environmental damage.Figure 15-9 illustrates the situation in the toilet paper market. -Refer to Figure 15-9.The private profit-maximising output level is

In economics,the term 'free rider' refers to

Common resources differ from public goods in that

A product is considered to be excludable if it is jointly owned by all members of a community.

Which of the following is a possible solution when a scarce resource is subject to the tragedy of the commons?

Which of the following conditions holds in an economically efficient competitive market equilibrium?

Which of the following is an example of a product that is non-excludable and rival?

Which of the following displays these two characteristics: non-rivalry and non-excludability in consumption?

If transactions costs are low,private bargaining will always result in an efficient solution to the problem of externalities.

Suppose a negative externality exists in a market.If transactions costs are low and parties are willing to bargain,then,according to the Coase theorem