MicroEcon Chapter 13: Externalities and Public Goods
b
(Figure: Determining Consumer and Producer Surplus) Based on the graph, point or shape _____ represents producer surplus.
p2
(Figure: Nail Polish Externalities) Based on the figure, Sp (MPC) represents the private supply curve of a particular type of nail polish, the manufacture of which is associated with the release of toxic chemicals into the atmosphere. SS (MSC) includes the cost of that toxicity borne by others. What area represents the total externality cost of this nail polish?
2,500
(Table) Based on the table, if the marginal benefit increased by $300,000 at each level, the new optimal quantity would be:
lie below and to the left of the demand curve that incorporates both the private and social benefits
A demand curve that incorporates only the private benefits of consumption when positive externalities exist would
he socially optimal level of production
According to the Coase theorem, what will result if a bargain is struck between beneficiaries and victims of an externality if transaction costs are minimal?
overstock of a flu vaccine
All of these are considered negative externalities, EXCEPT:
excludability; rival
Amtrak exhibits _____, and a can of Budweiser is a _____ product.
common property resource.
An oil field lies beneath the border of Oklahoma and Texas. Both states drill wells every 100 yards, and in two weeks, the field loses all its pressure and ability to produce, leaving 80% of the oil in the ground. This consequence is an example of market failure due to
a methodology for decision making that looks at the discounted value of the costs and benefits of a given project.
Cost-benefit analysis
decrease.
Factories belonging to the General Electric company dumped PCBs into New York's Hudson River for almost 40 years before the government ordered them to clean up the toxic sediment. By 2010 the first phase of clean-up was completed. As the next phase begins, you would expect the marginal benefit of the abatement to:
transaction costs are high.
If air pollution comes from multiple sources and it causes many people to suffer, then an efficient agreement among the parties is difficult to achieve because
society would be better off if emissions were increased
If the marginal damage caused by a certain type of pollution is $100 billion and the marginal cost of abatement is $180 billion, then:
Yes, if transaction costs are minimal. The Coase theorem states that if transaction costs are minimal, a bargain struck between the beneficiaries and victims of externalities will be efficient from a resource allocation perspective
In 2007, the Wall Street Journal reported on a dispute in Bend, Oregon. Susan Taylor decided to hang her laundry out to dry on a clothesline. Neighbors said it was unsightly. Susan said she was saving energy. Could the Coase theorem work in this case?
a market-based environmental policy. A market-based environmental policy uses charges, taxes, subsidies, deposit-refund systems, or tradable emission permits to achieve environmental ends, which in this case is fewer plastic bags in the riv
In January of 2010, the city of Washington, D.C., imposed a 5-cent tax on plastic bags for groceries and other purchases. This is an example of
measuring nonmarket or intangible aspects of public projects
In a 2008 case before the Supreme Court regarding older power plants and how best to protect fish and aquatic organisms, Justice David Souter remarked, "The difficulty that I have is if you are going to apply . . . a cost-benefit analysis, I'm not sure how it would work. Are a thousand plankton worth a million dollars?" Justice Souter's question points out the difficulty of:
demand; right Consumers taking external benefits into account will push the demand curve to the right.
Installing solar panels on your home reduces your use of electricity from pollution-producing coal power plants. If the effects of installing solar panels were taken into account by consumers, this would cause the _____ curve for solar panels to shift to the _____.
The externality originates from a consumer and the impact is on a consumer.
Joe and Susan's kids like to play outside. But they don't always put their toys away and tend to leave basketballs, Frisbees, and other items in Pat's yard. Pat finds this highly annoying. What is the origin and who is affected by this externality?
private good because Mike can exclude people from enjoying the landscape
Mike constructed a beautiful backyard landscape. He also built a tall wooden fence around his yard. With the fence in place, the good that the landscape brings to the neighborhood becomes a
a market-based environmental policy.
Recycling of auto parts in Canada is encouraged through "core charges." Some parts (like alternators) have a "core" or recyclable component that can be used in "re-manufacture." When you purchase a new part you pay a core charge, which is then refunded when you return the old part. This is an example of: In January of 2010, the city of Washington, D.C., imposed a 5-cent tax on plastic bags for groceries and other purchases. This is an example of
nonrival and exhibits nonexcludability
Spraying for mosquito control in a local community is an example of a public good because it is
it does not matter who is given the property rights to the air, as long as the parties involved are allowed to bargain
The Coase theorem claims that, in the case of tobacco
marginal cost equals the vertical summation of individual demands.
The market equilibrium price for a public good is where
rival and nonexcludable.
The tragedy of the commons applies to goods that are
in the area below the market equilibrium price for permits where quantity demanded is greater than quantity supplied
Where is a shortage of pollution permits represented on the supply and demand graph?
1%
Which discount rate would result in society devoting the most resources to long-run environmental management?
nonrival and exclusive
Which of the following best describes a news website that has a pay wall, where users pay a subscription fee to access articles? Information goods such as software can be copied an infinite number of times at nearly no cost. To prevent the free use of software that some companies spend vast sums to produce, copyright protection is used so that people must pay for the right to use the product. Which of the following best describes copyrighted software?
nonrival and nonexclusive
Which of the following best describes national defense?
pure public good
Which of the following best describes public radio?
rival and exclusive
Which of the following best describes salmon fillets at the grocery store?
public good with exclusion
Which of the following best describes satellite television?
Both are nonrival but public television is nonexclusive.
Which of the following best describes the difference between public television and on-demand cable television?
They lead each firm to have the same abatement costs.
Which of the following is NOT a reason why standards for reducing pollution are popular?
increasing vehicle use
Which of the following is NOT a technique that already exists that if used will keep carbon emissions constant over the next 50 years?
a city park open to the public - A park is a common property resource. A common property resource is a resource that is owned by the community and therefore tends to be over exploited because individuals have little incentive to use them in a sustainable fashion.
Which of the following is an example of a common property resource?
Greenhouse gas emissions are a global negative externality.
Which of the following statements illustrates why climate change is more difficult to mitigate than some other environmental problems?
The higher the discount rate placed on a decision, the lower the future value for coming generations.
Which of the following statements is true of environmental policy?
Litter is found in an area around a fast-food restaurant
Which of these is an example of consumers creating a negative externality?
Helium, gold, and copper are all finite and nonrenewabl
Which of these is both finite and nonrenewable?