ECON:3100 Assignment 10

Assuming the production process creates​ pollution, a subsidy rather than an emissions tax may be necessary to induce a monopoly to produce the socially optimal amount of output because an unrestricted monopoly A. sets its price above marginal cost. B. earns an economic profit. C. wants to capitalize on the goodwill created by reducing pollution. D. internalizes the externality.

A

In the presence of a negative​ externality, a specific tax can achieve the social optimum because A. it internalizes the external cost. B. it directly charges the producer for polluting. C. the price of the good rises by the full amount of the tax. D. output is reduced to zero as a result.

A

In the presence of no​ externalities, A. social marginal cost equals private marginal cost. B. social marginal cost is less than private marginal cost. C. social marginal cost exceeds private marginal cost. D. social marginal cost and private marginal cost cannot be compared.

A

Negative externalities are created when A. a driver drives recklessly on a busy highway. B. a driver leaves his car in a parking space after the meter expires and receives a ticket. C. a driver pulls over to help a stranded motorist fix a flat tire. D. an increase in the price of butterfat drives up the price of ice cream.

A

The National Highway Traffic Safety Administration distributed a film Without Helmet​ Laws, We All Pay the Price. Two reasons for this title are that some injured motorcyclists are treated at public expense ​(e.g.​ Medicaid) and that the dependents of those killed in accidents receive public assistance. Does the purchase of a motorcyle by an individual who does not wear a helmet create a negative​ externality? Explain. An individual who purchases a motorcycle but does not wear a helmet A. creates a negative externality because motorcycles generate costs on others. B. does not create a negative externality because motorcycles are a private good. C. does not create a negative externality because there is no free riding. D. creates a negative externality because motorcycles have property rights. E. creates a negative externality because motorcycles generate private costs.

A

The profit maximizing owner of a liquor store should lobby A. for tighter restrictions on liquor licenses because such restrictions raise liquor prices B. against tighter restrictions on liquor licenses because such restrictions block the entry of new liquor stores C. against tighter restrictions on liquor licenses because such restrictions increase market power. D. for tighter restrictions on liquor licenses because such restrictions increase the cost of production. E. against tighter restrictions on liquor licenses because such restrictions increase competition.

A

According to the digital media company Captivate​ Network, employees viewing the 2012 Olympics instead of working caused a​ $1.38 billion loss in productivity for U.S. companies. Is this productivity loss an example of a negative​ externality? Employees viewing the 2012 Olympics instead of working A. is not a negative externality because the workers do not incur the costs of their actions in the form of lower wages. B. is a negative externality because the productivity losses are due to actions of other firms outside their markets. C. is not necessarily a negative externality because the workers benefit from viewing the Olympics. D. is a negative externality because the productivity losses are reflected in price changes. E. is not a negative externality because the productivity losses become part of the​ firms' cost of production.

B

If a production process creates​ pollution, a competitive market produces excessive pollution because A. private marginal cost of pollution exceeds its social marginal cost. B. social marginal cost of pollution exceeds its private marginal cost. C. zero pollution is optimal. D. the marginal benefit of pollution to the firm is zero.

B

Problems with​ open-access common property arise because A. firms maximize profits. B. social and private incentives are not aligned and property rights are missing. C. social marginal cost equals private marginal cost and property rights are missing.

B

​If, in a competitive​ market, the private cost of production is less than the social​ cost, then A. the market is​ inefficient; specifically, it produces less output than is socially optimal. B. the market is​ inefficient; specifically, it produces more output than is socially optimal. C. firms should produce the good rather than the government. D. it must be a market for a private good.

B

Are broadcast television and cable television public​ goods? A. Cable television is a public good and broadcast television is not a public good because consumers can be excluded. B. Cable television is not a club good because it is​ non-rival in consumption and broadcast television is a public good. C. Cable television is a club good and broadcast television is a public good. D. Cable television is a public good and broadcast television is a club good.

C

Consider a housing development built near an existing airport. After the houses are​ occupied, homeowners complain that the airport imposes a negative externality on them and it should be moved or otherwise limited. Is the airport a negative​ externality? A. ​No, the airport was there first. B. ​No, airports are government entities and therefore​ don't impose costs on individuals. C. ​No, if the original property values reflect the costs imposed by the airport. D. ​Yes, the​ airport's noise should be curtailed for the wellbeing of the homeowners.

C

If a production process creates​ pollution, a competitive market produces excessive pollution because A. people are not injured by the pollution. B. zero pollution is optimal. C. the firms do not include the social cost of the pollution in their profit−maximizing decisions. D. the firms place too high a price on​ society's cost of inflation.

C

If both a monopoly and a competitive market with the same marginal cost would produce a quantity that is greater than the social optimum in a market because of​ externalities, then A. welfare is greater under competition. B. the social optimum must be zero. C. welfare is greater under monopoly. D. welfare is the same for both market structures.

C

Positive externalities are created when A. other consumers reduce their demand for coffee and price thereby declines. B. farmers spray pesticide in their fields and it washes into the local river after the first rainstorm. C. your neighbor plants beautiful trees and flowers in her yard. D. you purchase the​ "Mona Lisa" and lock it in a vault.

C

Suppose the marginal benefit to a firm of polluting in the local lake while producing its output is MB​ = 1000−​e, and the marginal cost to the surrounding homeowners is MC​ = e, where e is units of pollution. The​ firm's marginal cost of production is zero. If the homeowners association owns the​ lake, how much pollution will be​ produced? A. 1000 units B. 0 units C. 500 units D. more than 1000 units

C

The price of pie increases. Some people who purchased pie before the price increase no longer purchase pie. This is A. a negative externality. B. a positive externality. C. not an externality. D. a positive externality for some consumers and a negative externality for others.

C

The total demand for a public good is found by A. dividing the marginal cost of the good by the number of voters. B. horizontally summing all individual demands. C. vertically summing all individual demands. D. finding the demand from the median voter.

C

Which of the following is an​ open-access common​ property? A. A private trout lake. B. A toll road. C. A city park. D. All of the above.

C

Why is zero pollution not the best solution for​ society? Completely eliminating pollution is not the best solution for society because A. it is not known how to eliminate pollution. B. the costs of eliminating pollution are unknown. C. the cost of eliminating all pollution is greater than the benefits. D. the benefits of eliminating pollution are negligible. E. it is not known whether pollution is harmful.

C

According to the Coase​ Theorem, many negative externalities can be eliminated through bargaining if A. the externality​ doesn't cause serious harm. B. there are many parties involved. C. the externality is caused by pollution. D. property rights are well defined.

D

Analyze the following extract. ​ "Since the turn of the twentieth​ century, hog farmers in New Jersey fed Philadelphia garbage to their pigs. Philadelphia saved​ $3 million a year and reduced its garbage mound by allowing New Jersey farmers to pick up leftover food scraps for their porcine recyclers. The city paid​ $1.9 million to the New Jersey pig farmers for picking up the waste each​ year, which was about​ $79 a ton.​ Otherwise, the city would have had to pay​ $125 a ton for curbside recycling of the same food​ waste." Is garbage a positive or negative​ externality? A. Feeding some garbage to pigs is better than feeding no garbage to pigs because pigs are negative externalities themselves. B. The garbage taken by the farmers represents a positive​ externality, as it helps others in the agriculture market. C. Philadelphia garbage is unambiguously a negative externality. D. Philadelphia garbage is both a positive and negative externality.

D

Can we have too little​ pollution? Why or why​ not? A. We have too little pollution when price is greater than the private marginal cost of production. B. We cannot have too little pollution because the social marginal cost of production is not zero. C. We cannot have too little pollution because the social marginal cost of production is not equal to the private marginal cost of production. D. We have too little pollution when price is greater than the social marginal cost of production. E. We have too little pollution when the private marginal cost of production is greater than the social marginal cost of production.

D

Commercial lobster fishing represents the possibility of overuse of common property. This can be controlled A. by raising the state income tax. B. by applying a tax to each lobster caught. C. if harbors can be effectively appropriated by groups of fishers for their sole use. D. Both B and C

D

Drunk driving accidents continue to occur in the U.S. because A. cars are so safe today that drunk drivers feel invincible. B. there is a positive externality which encourages drunk driving. C. the roads are not in good shape. D. drunk drivers do not bear the social cost of their actions.

D

If children go to school and become productive members of​ society, A. no externality is created by the schools. B. a negative externality is created by the schools. C. an externality is created that may be positive or negative. D. a positive externality is created by the schools.

D

If either is a public​ good, why is it privately​ provided? A. Broadcast television is privately provided​ (in the​ U.S.) to solve the free rider problem. B. Commercials allow for payment for services given that the services are provided without exclusion. C. Broadcast television receives public subsidies. D. Both A and B.

D

Market failures occur when A. capital markets charge high interest rates. B. demand for a commodity decreases. C. capital equipment used in the production of a good is destroyed. D. firms do not take into account the social cost of production.

D

Suppose two neighbors share a park. One​ neighbor, Al, leaves trash in the park. This bothers the other​ neighbor, Bert. According to​ Coase's Theorem, one necessary condition to alleviate the externality is that A. Al is fined by the government. B. Al has the right to leave trash and Bert cannot do anything about it. C. Bert has the right to a clean park and Al cannot leave trash. D. Either Al or Bert owns the park.

D

What can be done to mitigate congestion​ problems? Congestion on bridges could be reduced A. by the reduction of quotas. B. by the elimination of property rights. C. with government subsidies. D. with tolls for crossings. E. with free riding.

D

What label best describes heavily used​ bridges, such as the Brooklyn Bridge and the Golden Gate​ Bridge? Heavily used bridges are A. club goods. B. private goods. C. nonrival goods. D. common goods. E. public goods.

D

When majority rule voting is used to determine whether to purchase a public​ good, A. the efficient outcome is not assured. B. the median voter gets her way. C. the sum of the marginal benefits is ignored. D. All of the above.

D

Which is​ better: a​ $2 million fine or an emissions fee of​ $500 per ton of pollution on a steel mill that is causing​ pollution? A. The​ $2 million fine because it causes the greatest public humiliation. B. Neither would be effective. C. The​ $2 million​ fine, as this is a large amount and will deter the firm from polluting. D. The​ $500 emissions​ fee, as it would be taken into account in the cost of production.

D

Why is a market solution practical​ here? A. If there were no market for any of the​ city's garbage, it would all represent a negative externality at a cost of​ $125 per ton. B. The fact that hogs consume the garbage means that it is beneficial for hog farmers to purchase garbage at current prices. C. Because farmers are willing to take some of the garbage at a reduced​ rate, the cost of the externality is reduced. D. All of the above.

D

You pay​ $20 for a flu shot at your local Walgreens pharmacy. This is an example of A. a negative externality. B. bad social medicine policies. C. an unnecessarily expensive health care cost. D. a positive externality.

D

If​ so, how should the government set a​ no-helmet tax that would lead to a socially desirable level of motorcycle​ sales? The government can achieve the optimal outcome by setting a motorcycle tax that equals the A. private marginal cost of motorcycles. B. difference in the private marginal cost and the private marginal benefit of motorcycles. C. difference in the social marginal cost and the social marginal benefit of motorcycles. D. social marginal cost of motorcycles. E. difference in the social marginal cost and the private marginal cost of motorcycles.

E

In​ 2009, when the world was worried about the danger of the H1N1 influenza virus​ (swine flu), Representative Rose DeLauro and Senator Edward Kennedy proposed the Healthy Families Act in Congress to guarantee paid sick days to all workers​ (Ellen Wu and Rajiv​ Bhatia, "A Case for Paid Sick​ Days," San Francisco Chronicle​, May​ 15, 2009). Although the Centers for Disease Control and Prevention urges ill people to stay home from work or school to keep from infecting​ others, many workerslong dash—especially those who do not receive paid sick dayslong dash—ignore this advice. Evaluate the efficiency and welfare implications of the proposed law taking account of externalitiesLOADING.... The Healthy Families Act will A. decrease efficiency by increasing the marginal private cost of staying home if sick. B. decrease efficiency by decreasing the total private benefit of staying home if sick. C. increase efficiency by increasing the total social benefit of staying home if sick. D. increase efficiency by decreasing the marginal social cost of staying home if sick. E. increase efficiency by increasing the marginal private benefit of staying home if sick.

E

Markowitz​ (2012) found that limiting the number of liquor stores reduces crime. To maximize welfare taking into account the harms associated with alcohol​ sales, how should a regulatory agency set the number of liquor​ licenses? Should the profit maximizing owner of a liquor store lobby for or against tighter restrictions on​ licenses? The regulatory agency should provide a number of liquor licenses such that the quantity of liquor A. is where the social marginal cost of liquor equals zero. B. is where the social marginal benefit frombenefit from liquor equals the private marginal benefit frombenefit from liquor. C. is where the private marginal cost of liquor equals the private marginal benefit from liquor. D. equals zero. E. is where the social marginal cost of liquor equals the social marginal benefit from liquor.

E