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Exam 10: Externalities

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Question 251

Multiple Choice

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When negative externalities are present in a market,

A) producers will be affected but consumers will not.
B) producers will supply too much of the product.
C) demand will be too high.
D) the market will still maximize total benefits.

E) None of the above
F) All of the above

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Question 252

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Which of the following is NOT a way of internalizing technology spillovers?

A) subsidies
B) patent protection
C) industrial policy
D) taxes

E) None of the above
F) A) and C)

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Question 253

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To produce honey, beekeepers place hives of bees in the fields of farmers. As bees gather nectar, they pollinate the crops in the fields, which increases the yields of these fields at no additional cost to the farmer. What might be a reasonable private solution to this externality, and how might the solution be reached?

Since externalities tend to keep markets from reaching a socially optimal equilibrium, government action

Suppose the government issues a limited number of pollution permits in order to limit the quantity of pollution. Under this policy, does the demand curve for pollution rights determine the quantity of pollution, or does it determine the price of pollution?

Figure 10-18. The graph represents a corrective tax to reduce pollution. On the axes, Q denotes the quantity of pollution and P represents the price of pollution. -Refer to Figure 10-18. The line labeled "Corrective tax" could accurately be re­labeled as

Suppose a subsidy is offered to consumers of education as a means of internalizing the externalities associated with education. If the subsidy accurately reflects the external benefits of education, then the new demand curve for education coincides with which other curve?

Scenario 10-3 Suppose the equation for the demand curve in a market is where is the quantity demanded and is the price. Also, suppose the equation for the supply curve in the same market is , where is the quantity supplied. -Refer to Scenario 10-3. Suppose there is an external cost of $12 associated with the production of each unit of the good. What are the socially optimal quantity and price?

Does research into new technologies create a positive externality or does it create a negative externality?

Figure 10-14 -Refer to Figure 10-14. Which of the following statements is correct?

In a market characterized by externalities, the market equilibrium fails to maximize the total benefit to society as a whole.

Table 10-5 The following table shows the marginal costs for each of four firms A, B, C, and D) to eliminate units of pollution from their production processes. For example, for Firm A to eliminate one unit of pollution, it would cost $54, and for Firm A to eliminate a second unit of pollution it would cost an additional $67. -Refer to Table 10-5. If the government wanted to eliminate exactly 11 units of pollution, which of the following fees per unit of pollution would achieve that goal?

Figure 10-3 -Refer to Figure 10-3. What price and quantity combination best represents the optimum price and number of concerts that should be organized?

Suppose that beef producers create a negative externality. What is the relationship between the equilibrium quantity of beef and the socially optimal quantity of beef?

All externalities

Figure 10-9 -Refer to Figure 10-9, Panel b) and Panel c) . The installation of a scrubber in a smokestack reduces the emission of harmful chemicals from the smokestack. Therefore, the socially optimal quantity of smokestack scrubbers is represented by point

Transaction costs

Technology spillover is one type of

Table 10-4 -Refer to Table 10-4. The last unit of output for which private value exceeds social cost is the

Scenario 10-1 The demand curve for gasoline slopes downward and the supply curve for gasoline slopes upward. The production of the 1,000th gallon of gasoline entails the following: • a private cost of $3.10; • a social cost of $3.55; • a value to consumers of $3.70. -Refer to Scenario 10-1. The production of the 1,000th gallon of gasoline entails an