Exam 5: Externalities, Environmental Policy, and Public Goods

Figure 5-7 -Refer to Figure 5-7. Which of the following statements is true?

Figure 5-16 Amit and Bree are the only two homeowners on an isolated private road. Both agree that installing street lights along the road would be beneficial and want to do so. Figure 5-16 shows their willingness to pay for different quantities of street lights, the market demand for street lights and the marginal cost of installing the street lights. -Refer to Figure 5-16. What is the optimal quantity of street lights to install?

If there is pollution in producing a product, then the market equilibrium price

Assume that emissions from electric utilities contribute to pollution in the form of acid rain. Which of the following describes how this affects the market for electricity?

In the city of Alvarez, with the exception of guide dogs for blind people, all dogs are banned from its three public parks, regardless of whether the animals are leashed. Many residents are pushing for a change in policy. Canine lover Sara Northridge observed, "There are 800 or more homes here. There are three parks within 10 minutes, and almost everyone has a dog, but we can't take our dogs there." Others fear that allowing dogs would detract from their enjoyment of the parks. Tim Cortis retorted, "We're not preventing dog lovers from enjoying the park, just come without your dog." Which of the following is a way of dealing with the problem by assigning property rights to a particular group?

The Coase theorem states that

Article Summary According to a study by the Center for Neighborhood Technology, homes located within one-half mile of frequently-used public transportation held their value much better during the recent housing market downturn than did those without easy access to public transportation, and the greater home values reflect greater demand for neighborhoods in close proximity to public transportation. In addition to higher home values, the study found that close proximity to public transportation offers lower transportation costs, a wider variety of travel options, and access to more employment opportunities. Source: Meg Handley, "Study: Proximity to Public Transit Boosts Home Values," U.S. News & World Report, March 22, 2013. -A market failure arises when an entire sector of the economy (for example, the airline industry) collapses because of some unforeseen event.

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

Which of the following describes how a positive externality affects a competitive market?

The U.S. government has frequently used a "command-and-control" approach in dealing with pollution. Which of the following describes this approach?

Figure 5-13 Figure 5-13 illustrates the market for gasoline before and after the government imposes a tax to bring about the efficient level of gasoline production. -Refer to Figure 5-13. The market equilibrium price of gasoline is ________ per gallon.

Economist A.C. Pigou argued that to deal with a negative externality in production, the government should impose a tax equal to the cost of the externality. What did Pigou believe should be done in the case of a positive externality in consumption? How would his recommendation impact the demand and market equilibrium for the product which is generating the positive externality?

For certain public projects such as building a dam on a river or a bridge to an island, what procedure is a government likely to use to determine what quantity of a public good should be supplied?

What is a private cost of production? What is a social cost of production? When is the private cost of production equal to the social cost of production?

Mandatory motorcycle helmet laws are designed to reduce the severity of injuries resulting from motorcycle involvement in traffic accidents. In this sense, these mandatory helmet laws are reducing ________ of risky behavior.

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,

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,

Suppose the government mandates the installation of certain type of pollution abatement equipment for the leather tannery industry. For some firms in the industry, installing this equipment may not be the most cost effective method of reducing pollution.

A private good is

Figure 5-5 Figure 5-5 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 5-5. If, because of an externality, the economically efficient output is Q2 and not the current equilibrium output of Q1, what does D2 represent?