Chapter 10
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
when externalities are present in a market, the well being of market participants
is directly affected, and market bystanders are indirectly affected
a command and control policy is another term for a
government regulation
Two firms, A and B, each currently emit 100 tons of chemicals into the air. The government has decided to reduce the pollution and from now on will require a pollution permit for each ton of pollution emitted into the air. The government gives each firm 40 pollution permits, which it can either use or sell to the other firm. It costs Firm A $200 for each ton of pollution that it eliminates before it is emitted into the air, and it costs Firm B $100 for each ton of pollution that it eliminates before it is emitted into the air. It is likely that
Firm A and will buy all of Firm B's pollution permits. Each one will cost between $100 and $200.
Mary and Cathy are roommates. Mary assigns a $30 value to smoking cigarettes. Cathy values smoke-free air at $15. Which of the following scenarios is a successful example of the Coase theorem?
Mary pays Cathy $16 so that Mary can smoke
Regulations to reduce pollution
are typically a more costly solutions to society than a corrective tax
WHAT IS THE DIFFERENCE BETWEEN COMMAND AND CONTROL POLICIES AND MARKET BASED POLICIES TOWARD EXTERNALITIES
command and control policies regulate behavior directly, whereas market-based policies provide incentives for private decision makers to change behaviors
In some cases tradable permits may be better than corrective taxes because _____
the government can set a maximum level of pollution using permits
most economists prefer corrective taxes to regulation as a way to correct the problem of pollution because
the market base solution is less costly to society the market based solution an result in a greater reduction in pollution the market based solution raises revenue for the government
suppose that large-scale pork production has the potential to create ground water pollution. Why might this type of pollution be considered an externality?
the pollution has potential for creating a health risk for water users in the region surrounding the pork production facility
Education is heavily subsidized through public schools and government scholarships. This subsidization of education reflects the fact that
the social value of education exceeds the private value of education
in the absence of externalities, the "invisible hand" leads a market to maximize
total benefit to society from that market