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