Exam 10: Externalities- When the Price Is Not Right

Suppose there will be global catastrophe unless we hold total carbon dioxide emissions at or below 35 million tons per year. As a result, each person on Earth is allocated 10 pounds of untradable emissions permits per year. Why would this be an inefficient solution?

Compared with the efficient outcome, the market price of a good that generates external benefits is:

If the social cost of an activity equals the private cost, what kind of externality exists?

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, the market equilibrium quantity is ______ units, and the efficient quantity is ______.

In a competitive market, a free market approach is always best when an external benefit is present.

In the case of an external cost, the social value curve lies ______ the demand curve.

The Centers for Disease Control and Prevention (CDC) wants at least 90% of the population vaccinated against preventable diseases, since the chance of a disease outbreak decreases as vaccine coverage increases. We can conclude that:

Many remedies to resolving externalities involve "internalizing the externality." Which BEST approximates that goal?

Markets with external costs are inefficient, whereas markets with external benefits are efficient.

Antibiotics may be ________ since people consider only the ________.

A(n) ______ is a tax on a good with external costs.

Everyone has the same cost of pollution abatement.

The paper industry and brewery industry each emit 60 tons of particulates into the air. It costs the paper industry $1,000 to remove 1 ton of particulates, and it costs the brewery industry $1,400 to remove 1 ton of particulates. In an effort to reduce particulate pollution, the government gives each industry tradable allowances worth 50 tons of particulates. We would expect that:

The efficient equilibrium is always equal to the market equilibrium.

When the number of tradable allowances is set equal to the efficient market quantity:

The command and control method to solving an external cost problem usually involves:

Use the following to answer questions: Figure: Palm Oil -(Figure: Palm Oil) Refer to the figure. Indonesian palm oil producers deforest tropical rainforests to grow the plants that excrete the oil. With this externality, what is the deadweight loss (if any) of producing palm oil?

If the government wanted to maximize the number of people receiving a flu vaccination, it should:

In a market, the presence of an external cost causes the market equilibrium output to exceed the efficient level of output.

The proposition that private parties with clearly defined property rights and low transaction costs can resolve externalities problems on their own is called the: