16b

The Coase theorem states that in the presence of externalities, a market economy will:

reach an efficient solution if transaction costs are sufficiently low.

A familiar example of a negative externality is traffic congestion. In principle, it should be possible to internalize this externality by permitting drivers to negotiate about rights to drive during particular time periods. The most likely reason that this does not happen is that:

the transaction costs associated with identifying and establishing communication among the interested parties would be prohibitive.

Suppose at the current amount of pollution, the marginal social benefit of pollution is greater than the marginal social cost of pollution, then:

there is too little pollution.

Pollution has ________ and ________.

Benefits;Costs

The marginal social benefit of pollution:

can be measured as the additional gain to society from one additional unit of pollution.

Damage to the environment occurs because:

in the process of providing goods and services we enjoy, pollution occurs.

Tradable pollution permits are a(n):

organized exchange of licenses that enable the holder to pollute up to a specified amount during a given time period.

The organized exchange of licenses that enable the holder to pollute up to a specified amount during a given time period is called:

tradable emissions permits.

Suppose that the federal government determines the total level of municipal sewage that can be discharged by cities located along a river. If the cities are able to exchange rights to this total discharge level among themselves, this would be an environmental policy of:

tradable pollution permits.

An externality is said to be internalized:

when individuals take external costs and benefits into account in their decision making.