Exam 10: Externalities- When the Price Is Not Right

In How Economics Saved Christmas, economist Art Carden retold the Dr. Seuss story of the Grinch who hated Christmas and stole the decorations, food, and presents from neighboring Whoville. Complete this passage from Carden's poem: He reached for his textbooks; he knew what to do He'd fight them with ideas from A.C. Pigou This idea has merit, he thought in the frost A ____ that was equal to _____ cost

Use the following to answer questions: Figure: Dishwashing Detergent -(Figure: Dishwashing Detergent) Refer to the figure. Dishwashing detergent contains phosphates that harm marine life. In this figure, SC represents the:

The conditions under which the Coase theorem applies are common in cases of externality.

The Clean Air Act of 1990:

The market price for Good X is $10.75, and every time Good X is consumed it creates an external benefit of $3.00. Therefore, which statement is correct?

Which equation correctly identifies social cost?

If a steel manufacturer does NOT bear the entire cost of the sulfur dioxide it emits, it will:

A tax on an externally costly activity is ______ command and control regulation that seeks to limit the activity.

Which statement about taxes is INCORRECT?

An external cost is:

External costs caused by the use of antibiotics are the costs to people who are:

If a market for tradable allowances exists, a company that has used up its own allowances can:

Which of the following statements are TRUE? I. Market prices do not correctly signal the true costs and benefits to society when external costs are present. II. Market prices do not correctly signal the true costs and benefits to society when external benefits are present. III. Taxes and subsidies can adjust prices so that they do send the correct signals.

The Coase theorem suggests that private bargains will ensure the efficiency of markets even when externalities exist:

When externalities are present in a market, social surplus is maximized.

In a market with external costs, the market price is:

Ideally, a market should maximize:

Which statement explains the difference between command and control policies and tradable allowances?

In the past few years many state governments have made it illegal to smoke inside public buildings (restaurants, subways stations, and so forth). Using the concept of externalities, explain why governments are taking these measures and explain whether the solution ensures an efficient outcome.

Think of a market example that generates external costs. Is the market efficient under the current conditions? How could the government help the market to reach economic efficiency?