externalities

Positive Externalities and Production of Semiconductor Chips) If the socially optimal production of chips is 600, the government could achieve the socially optimal level of production by granting a Pigouvian subsidy of:

$20.

If this market produced ________ units, then ________.

40; MSB < MSC

The proposition that if bargaining costs are sufficiently low, then the market can achieve an efficient outcome, is referred to as the:

Coase theorem.

The proposition that if transaction costs are low enough, then the private market can achieve an efficient outcome regardless of which of the affected parties hold the property rights, is known as the:

Coase theorem.

If government does intervene and encourages the market to produce and price at the socially optimal level, what output and price will that be?

Q2; P1

Assume the price of a tradable emissions permit for a ton of sulfur dioxide is $150. Which of the following is incorrect?

The opportunity cost of emitting a ton of sulfur dioxide is $75 for all firms.

There are two plants (A and B) in an industry. To reduce pollution, the government has imposed environmental standards forcing each plant to cut emissions by 60%. At the emissions standard, the marginal social benefit of pollution for Plant A is $500 and the marginal social benefit of pollution for Plant B is $125. The same level of pollution can be achieved at a lower cost by:

allowing Plant A to pollute more and Plant B to pollute less.

The marginal external cost of a good or activity equals the amount:

by which the marginal social cost curve is higher than the supply curve.

Positive externalities are:

difficult to measure since marginal benefits are hard to observe.

If a coal-powered electrical generator discharges smoke into the air and causes uncompensated costs and discomfort to residents of a town, this situation is an example of a(n):

external cost

In the figure, without government intervention:

firms will continue to pollute until the marginal social benefit is zero.

The marginal cost of pollution emissions ________ as the quantity of pollution emissions ________.

increases; increases

When a vaccination program generates a positive externality, the:

market demand curve is below the marginal social benefit curve.

With tradable emissions permits, the main problem is determining the ________, while with emissions taxes the main problem is determining the ________.

optimal quantity of pollution; optimal tax rate

Betsy loves to garden and her rose garden is enjoyed by everyone in her neighborhood. Because her consumption of rosebushes provides a positive externality to the community, the government should:

provide Betsy a subsidy because the market quantity of rosebushes is lower than the socially optimal quantity.

If government achieves this socially optimal level, it does so by:

providing a per-unit subsidy of P0 - P2.

According to the Coase theorem, when negative externalities are present a market will:

reach an efficient solution if transaction costs are low.

If the marginal benefit received from pollution is greater than its marginal cost, then:

the market is producing too little pollution.

Flu vaccines often provide both private benefits to individuals and positive external benefits to other members of society. As a result, without government intervention one would find:

too few flu vaccines being produced since external benefits would not be considered.

If the government imposed an environmental standard that did not allow the quantity of pollution to exceed 20 tons, there would be:

too little pollution, because the marginal social benefit of pollution would exceed the marginal social cost of pollution.