ECON CHAPTER 10

In Singapore, littering fines are strictly enforced. This is an example of a policy that

relies on incentives to reduce the pollution externality

if the government imposed a corrective tax that successfully moved the market from the market equilibrium to the social optimum, then tax revenue for the government would amount to

2000 (highest y value minus lowest Y value multiplied by the x value that corresponds with where the social cost and demand lines cross) (20-12)(250)=2000

Which quantity represents the social optimum for this market?

Q3 (where the supply(private cost) and social value curves intersect)

Which of the following is an example of a positive externality?

The mayor of a small town plants flowers in the city park.

the tax on gasoline is an example of

a corrective tax

Emission controls on automobiles are an example of a

command-and-control policy to increase social efficiency.

Each unit of plastics that is produced results in an external

cost of 8$ (highest y value -lowest Y value with corresponding dotted line)

Dick owns a dog whose barking annoys Dick's neighbor Jane. Dick receives personal benefit from owning the dog, and Jane bears a cost of Dick's ownership of the dog. Assuming Jane has the legal right to peace and quiet, which of the following statements is correct?

dick will pay to keep his dog if his benefit exceeds janes cost.

Which of the following require firms to pay to pollute? (i) corrective taxes (ii) tradable pollution permits (iii) pollution regulations

i and iii only

Externalities tend to cause markets to be

inefficient

a positive externality

is a benefit to someone other than the producer and consumer of the good

According to the Case theorem, in the presence of externalities

private parties can bargain to reach an efficient outcome

To internalize the externality in this market, the government should

provide a subsidy for this product (positive externality= subsidy per unit where as negative externality=tax per unit)

the term market failure

refers to the failure of a market to produce an efficient allocation of resources

Internalizing a positive externality will cause the demand curve to

shift to the right

in the case of a technology spillover, the government can encourage firms to internalize a positive externality by

subsidizing production, which would increase supply

dick owns a dog whose barking annoys dicks neighbor Jane. suppose that the benefit of owning the dog is worth 700$ to Dick and that Jane bears a cost of 500$ from the barking. Assuming Dick has the legal right to keep the dog, a possible private solution to this problem is that

the current situation is efficient

An externality is

the uncompensated impact of one person's actions on the well-being of a bystander

Suppose that cookie producers create a positive externality equal to $2 per dozen. Further suppose that the government offers a $2 per-dozen subsidy to the producers. What is the relationship between the equilibrium quantity and the socially optimal quantity of cookies to be produced?

they are equal (prices are the same)

the Coase theorem states that

under certain circumstances government intervention is not needed to reach efficient outcomes when an externality is present.

in a market economy, government intervention

will always improve market outcomes

Tradable pollution permits

will be more valuable to firms that can reduce pollution only at high costs