Econ Homework 7

Refer to Scenario 10-1. From the given information, it is apparent that

the production of gasoline involves a negative externality, so the market will produce a larger quantity of gasoline than is socially desirable.

Refer to Figure 10-4, Graph (b) and Graph (c). The installation of a scrubber in a smokestack reduces the emission of harmful chemicals from the smokestack. Therefore, the external benefit of smokestack scrubber installation is represented by

P 4a − P 4b

Refer to Figure 10-2. If all external costs were internalized, then the market's output would be

Q2

Zaria and Hannah are roommates. Zaria assigns a $30 value to smoking cigarettes. Hannah values smoke-free air at $15. Which of the following scenarios is a successful example of the Coase theorem?

Zaria pays Hannah $16 so that Zaria can smoke

Employing a lawyer to draft and enforce a private contract between parties wishing to solve an externality problem is an example of

a transaction cost

Two types of private solutions to the problem of externalities are

charities and the Golden Rule

Josiah installed a metal sculpture in his front yard. A positive externality arises if the sculpture

increases the value of other properties in the neighborhood.

According to the Coase theorem, private parties can solve the problem of externalities if

the cost of bargaining is small

If a sawmill creates too much noise for local residents,

the government can raise economic well-being through noise-control regulations.

Refer to Table 10-3. Taking into account private and external benefits, the total surplus to society at the socially efficient quantity is

$50

Refer to Table 10-5. If the government wanted to reduce pollution from 16 units to 6 units, which of the following fees per unit of pollution would achieve that goal?

$83

Refer to Figure 10-3. What is the socially optimal quantity of output in this market?

10 units

Refer to Table 10-3. The market equilibrium quantity of output is

3 units

Refer to Table 10-2. What is the equilibrium quantity of output in this market?

4 units

Refer to Figure 10-5. A benevolent social planner would prefer

420 units to any other quantity of output

Refer to Figure 10-5. The socially optimal quantity of output is

420 units, since the value to society of the 420th unit is equal to the cost incurred by the seller of the 420th unit.

Refer to Table 10-4. The market equilibrium quantity of output is

6 units

Which of the following statements about a well-maintained yard best conveys the general nature of the externality?

A well-maintained yard conveys a positive externality because it increases the value of adjacent properties in the neighborhood.

Flu shots provide a positive externality. Suppose that the market for vaccinations is perfectly competitive. Without government intervention in the vaccination market, which of the following statements is correct?

At the current output level, the marginal social benefit exceeds the marginal private benefit.

Which of the following statements is not correct?

Corrective taxes require the government to set a target level of pollution.

In which of the following cases is the Coase theorem most likely to solve the externality?

Ed is allergic to his roommate's cat

Refer to Figure 10-4. The installation of a scrubber in a smokestack reduces the emission of harmful chemicals from the smokestack. Therefore, the market for smokestack scrubbers is shown in

Graph (c) only

Refer to Figure 10-4, Graph (b) and Graph (c). The installation of a scrubber in a smokestack reduces the emission of harmful chemicals from the smokestack. Therefore, a government policy that internalized the externality would move the quantity of smokestack scrubbers installed from point

Q4 to point Q5

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

Taxes

Suppose that candy producers create a positive externality equal to $1 per pound of candy. Further suppose that the government offers a $1-per-pound subsidy to the producers. What is the relationship between the equilibrium quantity and the socially optimal quantity of candy?

They are equal

Refer to Figure 10-2. This market is characterized by

a negative externality

Most economists prefer corrective taxes to regulation as a way to correct the problem of pollution because the market-based solution

is less costly to society

An externality is the uncompensated impact of

one person's actions on the well-being of a bystander

Refer to Table 10-4. The table represents a market in which

there is a negative externality

Refer to Table 10-3. The table represents a market in which

there is a positive externality