Quiz 18: Externalities and Public Goods

Externalities A)are not reflected in market prices,so they can be a source of economic inefficiency. B)do become reflected in market prices,so they can be a source of economic inefficiency. C)are not reflected in market prices,so they do not adversely affect economic efficiency. D)do become reflected in market prices,so they do not adversely affect economic efficiency. E)may or may not become reflected in market prices,but do not have an impact on economic efficiency in either event.

Constructing plastic containers produces air pollutants.Therefore,in the market for plastic containers, A)the marginal social cost curve is above and to the right of the demand curve. B)the marginal social cost curve is below and to the left of the demand curve. C)the marginal social cost curve is above and to the left of the supply curve. D)the marginal social cost curve is below and to the right of the supply curve. E)there is a gap between quantity supplied and quantity demanded in equilibrium.

Dry cleaning of clothing produces air pollutants.Therefore,in the market for dry cleaning services,the equilibrium price A)and output are too low to be optimal. B)and output are too high to be optimal. C)is too low to be optimal,and equilibrium quantity is too high. D)is too high to be optimal,and equilibrium quantity is too low. E)is optimal,but there is an excess supply.

The presence of pollution in the dry cleaning industry leads in the long run to dynamic inefficiencies because A)people will buy fewer clothes that need dry cleaning than they otherwise would have. B)people will develop substitutes for dry cleaning that are wasteful. C)firms will be induced to leave the industry because of artificially high costs. D)firms whose average private cost is less than price will stay in (or enter)the dry cleaning industry even though their average social cost exceeds price. E)firms whose average private cost exceeds the price will exit (or fail to enter)the dry cleaning industry even though their average social cost is less than price.

Because trucking as an industry involves the generation of pollutants in engine exhaust, A)the supply curve of trucking services overstates the true cost of providing those services. B)the supply curve of trucking services understates the true cost of providing those services. C)the demand curve for trucking services overstates the true benefit of providing those services. D)the demand curve for trucking services understates the true benefit of providing those services. E)the market for trucking services will always be away from equilibrium by an amount equal to the value of the externality.

Because air cargo as an industry involves the generation of pollutants in engine exhaust,the equilibrium price of air cargo services A)is above the optimal level,and quantity is below the optimal level. B)is below the optimal level,and quantity is above the optimal level. C)and quantity of trucking services are both above the optimal level. D)and quantity of trucking services are both below the optimal level. E)must fall in order for the market to reach equilibrium.

The presence of pollution in the trucking industry leads in the long run to dynamic inefficiencies because A)marginal external cost rises over time. B)marginal external cost is constant over time. C)average private cost in trucking is lower than average social cost,so that some trucking firms remain in the industry (or are induced to enter)when efficiency calls for them to leave (or stay out). D)average private cost in trucking is higher than average social cost,so that some firms trucking firms exit the industry when efficiency calls for them to stay (or for more firms to enter). E)fewer resources are devoted to transportation than the economy really needs.

Which of the following is a negative externality connected to automobile transportation? A)Driving faster than the 65 mph speed limit is not allowed,even though individuals are able to do it,and many want to. B)In an accident,a person who chooses not to wear a seat belt becomes an object moving around the inside of the car,possibly hitting other,belted-in,passengers with lethal force. C)Gasoline is taxed on a per-gallon basis. D)Gasoline is imported,and thus increases the trade deficit. E)While stuck in traffic,you have a chance to listen to your favorite CD,which you haven't had the time to do in other places.

The marginal benefit and marginal private cost curves for aphrodisiacs are given as follows: MB = 200 - Q MPC = Q In addition to private costs,there is a marginal external cost of $10 per unit of output.What is the efficient level of output? A)0 B)55 C)95 D)100 E)none of the above

Figure 18.1 All producers in the corbomite industry dump wastes in the river in the production of their output. -Given the information in Figure 18.1,the competitive output in the corbomite industry is: A)Q0. B)Q1. C)Q2. D)any level as long as price is P0.

Figure 18.1 All producers in the corbomite industry dump wastes in the river in the production of their output. -Given the information in Figure 18.1,the efficient output in the corbomite industry is: A)0) B)Q0. C)Q1. D)Q2.

Which of the following is a negative externality connected to attending college? A)The fact that completion of a college degree acts as a signaling mechanism to employers. B)The fact that other costs,such as books and materials,are incurred in addition to tuition and fees. C)The fact that your college has required that all individuals living in student housing either get or show they have already obtained vaccinations against all communicable diseases. D)The fact that the people in the next room play loud music at hours you want to sleep. E)The fact that you will get benefits from college that you don't currently anticipate.

Because of the kind of externalities that tend to be generated from general R&D resources bought by firms,the equilibrium price of R&D A)is above the optimal level,and quantity is below the optimal level. B)is below the optimal level,and quantity is above the optimal level. C)and quantity of R&D are both above the optimal level. D)and quantity of R&D are both below the optimal level. E)must fall in order for the market to reach equilibrium.

Due to externalities generated by home landscaping,its price A)is above the optimal level,and quantity that is below the optimal level. B)is below the optimal level,and quantity that is above the optimal level. C)and quantity traded are both above the optimal level. D)and quantity traded are both below the optimal level. E)must fall in order for the market to reach equilibrium.

A positive externality is shown by a marginal social benefit (MSB)curve that is A)above and to the right of the demand curve for the good that generates it. B)below and to the left of the demand curve for the good that generates it. C)above and to the left of the supply curve for the good that generates it. D)below and to the right of the supply curve for the good that generates it. E)positively related to both the supply curve and the demand curve for the good that generates it.

Loud music from a neighbor's party is A)a negative externality whether or not you like it. B)a positive externality whether or not you like it. C)a positive externality if you like the music,and a negative externality if you don't. D)a negative externality if you like the music,and a positive externality if you don't. E)not an externality.

Use the following statements to answer this question: I.The efficient amount of recycling of scrap materials is the amount that equates the marginal social cost of scrap disposal to the marginal cost of recycling. II)The efficient amount of recycling of scrap materials occurs when society recycles all recyclable wastes. A)Both I and II are true. B)I is true,and II is false. C)I is false,and II is true. D)Both I and II are false.

Use the following statements to answer this question. I.The bubble concept allows an emitter to sum emission limits for all sources of pollutants within a particular firm,and to set emissions reductions from each source as it pleases as long as the total pollutant limit at the plant is not exceeded. II)Under an emissions offsets program,a new source of emissions can locate in a region only if their new emissions are accompanied by reduced emissions from existing sources by at least as much. A)Both I and II are true. B)I is true,and II is false. C)I is false,and II is true. D)Both I and II are false.

If a firm had a fixed proportions technology,then the pollution produced by this firm A)cannot be reduced. B)can be reduced only by lowering the level of output (holding technology constant). C)can be reduced by changing how the output is produced within the bounds of the existing technology. D)can be reduced only by increasing the number of firms in the industry. E)can be reduced only by changing the technology.

The optimum level of pollution emissions A)is zero. B)occurs where the marginal external benefit is zero. C)occurs where no damage to the environment is being done. D)occurs where the marginal external benefit equals the marginal external cost. E)occurs where the marginal external cost equals the marginal cost of abatement.

Given that MEC(q)= 2q²,what can be inferred about the total cost of pollution as output increases? A)The total cost of pollution is increasing. B)The total cost of pollution is positive. C)The total cost of pollution is growing at a positive rate. D)The total cost of pollution is growing at an increasing rate. E)The total cost of pollution is changing.

When emissions are measured on the horizontal axis,the marginal cost of abating emissions is A)downward-sloping because emissions become more and more easy to eliminate once the firm makes the initial commitment to do so. B)downward-sloping because a high level of emissions is cheap to attain,and a low level of emissions is expensive to attain. C)upward-sloping because emissions become more and more easy to eliminate once the firm makes the initial commitment to do so. D)upward-sloping because a high level of emissions is cheap to attain,and a low level of emissions is expensive to attain. E)horizontal because the technology to remove emissions is assumed constant.

As you move rightward on a marginal cost of abatement curve,emissions are A)falling,and the cost of eliminating the marginal unit falls. B)rising,and the cost of eliminating the marginal unit falls. C)falling,and the cost of eliminating the marginal unit rises. D)rising,and the cost of eliminating the marginal unit rises. E)rising,and the cost of eliminating the marginal unit is constant.

Left alone,with no government interference,a profit-maximizing firm will produce emissions A)where the MSB curve crosses the MCA curve. B)at the vertical intercept of the MSB curve. C)at the horizontal intercept of the MSB curve. D)at the vertical intercept of the MCA curve. E)at the horizontal intercept of the MCA curve.

To enforce the optimum level of emissions a government could set an emissions standard at the quantity A)where the MSB curve crosses the MCA curve. B)located at the vertical intercept of the MSB curve. C)located at the horizontal intercept of the MSB curve. D)located at the vertical intercept of the MCA curve. E)located at the horizontal intercept of the MCA curve.

To enforce the optimum level of emissions,a government could set an emissions fee,which would be A)the dollar value indicated by the intersection of the MSB and MCA curves,and would apply to every unit of pollutants the firm emitted. B)the dollar value indicated by the intersection of the MSB and MCA curves,and would apply to every unit of pollutants the firm emitted above the standard. C)the vertical intercept of the MSB curve. D)the vertical intercept of the MCA curve. E)the vertical distance between the intercepts of the MSB curve and the MCA curve.

If the MSB/MCA graph indicates that an emissions fee of $10 per unit would lead to the optimum level of emissions,but the government set a fee of $5 per unit,emissions would A)not be reduced at all. B)not occur at all. C)be above the optimum level,but curtailed somewhat from what they would have been with no fee at all. D)be above the optimum level by 50%. E)be below the optimum level by 50%.

A firm will avoid producing additional emissions whenever the fee is A)less than the MSB. B)greater than the MSB. C)less than the MCA. D)greater than the MCA. E)equal to the distance between MSB and MCA.

Which is NOT an advantage of emissions fees over standards? A)Fees can give a firm the incentive to reduce emissions below the standard when new technology allows. B)Fees can reduce the cost of attaining some goal level of emissions when firms all have the same abatement costs. C)Fees can reduce the cost of attaining some goal level of emissions when firms have different abatement costs and different standards can be assigned to different firms. D)Fees can reduce the cost of attaining some goal level of emissions when firms have different abatement costs and different standards cannot be assigned to different firms. E)Fees may provide an incentive for a firm to investigate emissions-reduction technology that will reduce emissions below existing standards.

If error in setting the policy is possible, A)a standard generates smaller welfare losses than a fee when the MSC and MCA are both relatively flat. B)a standard generates smaller welfare losses than a fee when the MSC and MCA are both relatively steep. C)a standard generates smaller welfare losses than a fee when the MSC is relatively steep and the MCA is relatively flat. D)a standard generates smaller welfare losses than a fee when the MSC is relatively flat and the MCA is relatively steep. E)errors in standards and fees have equal welfare losses,so long as the errors are the same in percentage terms.

In equilibrium,the price of a transferable emissions permit A)is constrained to the amount the government first charged for it. B)equals the marginal cost of abatement for all firms. C)equals the marginal cost of abatement for the firm with the highest cost,and exceeds the marginal cost of abatement of other firms. D)equals the marginal cost of abatement for the firm with the lowest cost,and is less than the marginal cost of abatement of other firms. E)equals the marginal social cost of emissions.

Under a transferable emissions permit system, A)the firms with the lowest marginal abatement cost curves will reduce emissions most. B)the firms with the highest marginal abatement cost curves will reduce emissions most. C)the firms with the lowest marginal social cost curves will reduce emissions most. D)the firms with the highest marginal social cost curves will reduce emissions most. E)all firms will reduce emissions equally.

Under a transferable emissions permit system with n possible polluters,the government enforces the total amount of emissions allowable at X by A)setting a different fee for each firm so that each firm chooses to emit X/n units. B)setting the same fee for each firm so that each is forced to emit X/n units. C)setting a different standard for each firm,with X/n being the average. D)setting the same standard for each firm at X/n. E)issuing X permits.

If X transferable emissions permits are issued and there are n potential polluters, A)the government must initially assign each of the potential polluters X/n permits. B)the government must assign X/n permits to each potential polluter and check periodically that those permits have not moved. C)emissions will be the same whether or not the permits are split equally,so long as none of the permits are issued outside the group. D)emissions will be the same no matter who receives them first,so long as the recipient is willing and able to participate in the permit market. E)emissions will be less if the permits are given initially to firms with lower abatement costs.

Transferable permits allow emission reduction to be achieved A)without any impact on the industrial sector,just as a standard would. B)without any impact on the industrial sector,just as fees would. C)at the lowest possible cost. D)with firms monitoring each other,rather than having the government do the monitoring. E)Both C and D are true.

When new technologies make cleaner production possible, A)emissions would fall under a system of fees,but would not fall under a system of transferable emissions permits unless the government bought back some of the permits. B)emissions would fall under a system of permits,but would not fall under a system of fees unless the government raised them. C)the price of transferable permits would rise. D)the quantity of transferable permits would rise. E)the quantity of transferable permits would fall.

When new technologies make cleaner production possible, A)emissions fees rise. B)emissions fees fall. C)the price of transferable permits rises. D)the price of transferable permits falls. E)the quantity of transferable permits falls.

If households pay a fixed annual fee for trash disposal, A)households will all tend to produce the same amount of garbage. B)households have no incentive to cut back on the amount of garbage they generate. C)that fee will provide households with an incentive to cut back on the amount of garbage they generate. D)that fee will discourage households from throwing out reusable materials. E)that fee will discourage households from throwing out toxic or otherwise harmful materials.

If households could be charged differently for different types of garbage, A)the total amount of garbage would be reduced. B)recycling would be more difficult. C)costs of collecting garbage could be kept much lower. D)billing for garbage collection would be much easier. E)there would be a change in the types of items that are disposed of as garbage.

The efficient level of recycling equates the A)marginal cost of scrap disposal to the marginal benefit from not using virgin materials. B)marginal cost of recycling to the marginal benefit from not using virgin materials. C)marginal cost of scrap disposal to the marginal cost of recycling. D)marginal private cost of disposal to the marginal cost of recycling. E)per-unit refund from recycled materials to the marginal benefit from not using virgin materials.

Having a refundable deposit for recyclable material A)raises the marginal private cost of disposal. B)raises the marginal social cost of disposal. C)lowers the marginal private cost of disposal. D)lowers the marginal social cost of disposal. E)does not affect disposal costs.

Menell's study showed that in terms of effectiveness, A)mandatory separation of recyclables was best,followed by curbside charges and finally refundable deposits. B)mandatory separation of recyclables was best,followed by refundable deposits and finally curbside charges. C)curbside charges were best,followed by refundable deposits and finally mandatory separation of recyclables. D)curbside charges were best,followed by mandatory separation of recyclables and finally refundable deposits. E)refundable deposits were best,followed by curbside charges and finally mandatory separation of recyclables.

Which is NOT a weakness of the policy of mandatory separation of recyclables? A)It actually pays people to use more recyclable material,and thus more material in total. B)It is costly for households in terms of time spent. C)It is costly for the government to monitor. D)Individuals may shift away from recyclable to non-recyclable materials just so they don't have to bother to separate them. E)Implementation is difficult and consumes household space.

In general,the current stock of pollutants (S_t)may be modeled as S_t = E_t + (1 - d)S_t-1 where d is the __________ and E_t is the __________. A)social discount rate,previous stock level B)social discount rate,current emissions C)stock dissipation rate,previous stock level D)stock dissipation rate,current emissions

Use the following statements to answer this question: I.Stock externalities depend on the accumulated results of actions by producers or consumers,not on the incremental results that may occur in a given period of time. II)Stock externalities are always negative externalities. A)I and II are true. B)I is true and II is false. C)II is true and I is false. D)I and II is false.

Even if we were able to completely eliminate greenhouse gas (GHG)emissions today,the problems associated with the accumlated stock of GHGs in the atmosphere will persist for a long time because: A)their dissipation rate is very low. B)their dissipation rate is very high. C)the social discount rate is very low. D)the social discount rate is very high.

Suppose the current stock of greenhouse gases in the atmosphere is 100 million tons,the stock dissipation rate is 0.02,and we will emit 4 million tons into the atmosphere this year.What is the stock level of greenhouse gases expected to be for next year? A)98 million tons B)100 million tons C)102 million tons D)104 million tons

The social discount rate is an important component in net present value (NPV)calculations for public policies related to stock externalities,but economists do not agree on which value to use for this rate.Suppose a recent study reports that the NPV of a proposed carbon tax intended to reduce carbon dioxide emissions is positive,but the annual net benefits do not become positive until 2060.The authors of the study used a social discount rate of 2%.What can we say about the findings of the study if the research were repeated with a higher social discount rate? A)NPV would increase,and the annual net benefits would become positive after 2060. B)NPV would decline,and the annual net benefits would become positive before 2060. C)NPV would decline,and the annual net benefits would not change. D)The findings of the study would not change.

Plants,trees,and soils naturally emit carbon dioxide (CO2)that enters the atmosphere.To form a benchmark level for this greenhouse gas,we can determine the amount of CO2 that would end up in the atmosphere if there were no human activity on the planet.Suppose naturally occurring CO2 emissions are 5 million tons per year,the social discount rate is 5%,and the stock dissipation rate is 2%.What is the eventual level of CO2 in the atmosphere if these natural emissions continue at this rate forever? A)100 million tons B)250 million tons C)25 million tons D)We do not have enough information to answer this question.

Which of the following examples is NOT a negative stock externality? A)Goodwill generated by a company B)Noise pollution from an airport C)Odors emitted from a paper mill D)None of these cases are examples of negative stock externalities

Which of the following factors influence the appropriate value for the social rate of discount used in NPV analysis of stock externalities? A)Expected rate of economic growth B)Extent of social risk aversion C)The society's rate of time preference D)all of the above

When there are externalities,economic efficiency can be achieved without government intervention A)at no time. B)when the externality affects many people and property rights are not well defined. C)when the externality affects many people and property rights are well defined. D)when the externality affects only a few parties and property rights are not well defined. E)when the externality affects only a few parties and property rights are well defined.

In which of these situations would the Coase theorem be MOST likely to work? A)A thousand firms use a lake,there are no other users,all their costs could be reduced somewhat by polluting,but all would have lower water intake costs if the lake were clean. B)A group of nine firms use a lake,there are no other users,all their costs could be reduced somewhat by polluting,but all would have lower water intake costs if the lake were clean. C)Worldwide deep sea fishing rights need to be negotiated among thousands of fishermen from different countries. D)One hundred and fifty nations need to come to an accord about CFC generation to combat ozone depletion. E)A group of chemical firms high upstream on the Mississippi River have emissions that affect not only communities downstream along the river,but around the Gulf of Mexico as well.

Under Scenario 18.1,suppose the body of water lies on an international boundary,and the fishermen speak a different language than the factory managers.The efficient outcome cannot be achieved if the cost of hiring translators for both parties: A)is less than $4,000. B)equals $5,000. C)is greater than $6,000. D)none of the above

Refer to Scenario 18.1.If the fishermen are given the right to clean water, A)the outcome will be more efficient than if the factory is given the right to use the water as it sees fit. B)the outcome will be less efficient than if the factory is given the right to use the water as it sees fit. C)the efficient outcome will occur no matter who is given which property right,and the individual gains will be the same in each case. D)the factory will be forced to shut down. E)the efficient outcome will occur no matter who is given which property right,but how that maximum gain is split will be determined during bargaining.

In the case in Scenario 18.1,the Coase theorem specifies that A)the result will be different if the fishermen are given the right to clean water than it will be if the factory is given the right to use the water as it sees fit,but the result will be inefficient in either case. B)the efficient result will occur whether the fishermen are given the right to clean water or the factory is given the right to use the water as it sees fit. C)economic efficiency requires that the fishermen be given the right to clean water. D)economic efficiency requires that no one may contaminate the water. E)economic efficiency requires that the fishermen be given the right to clean water and that the factory be given the right to use the water as it sees fit.

A lawsuit seeking compensation for damage from pollution A)will ruin any chances the Coase theorem has of working to avoid the situation in the first place. B)is a substitute for bargaining,but an inefficient one. C)is a substitute for bargaining,and it can lead to the efficient solution. D)is preferable to switching the property rights between the parties. E)is how the Coase theorem was meant to work in the first place.

Suppose your neighbor likes to repair motorcycles in his front yard during evenings and on weekends,and he earns $400 per week from this work.However,the sight of piles of greasy motorcycle parts and the additional noise and traffic caused by his customers reduces your value of living in this neighborhood by $300 per week.If your neighbor has a right to operate this business,what is the efficient outcome? A)He continues to operate the business. B)You can pay him to move the business to another location. C)He pays you to let him continue working on motorcycles at his home. D)There is no efficient outcome from this situation.

Suppose your neighbor likes to repair motorcycles in his front yard during evenings and on weekends,and he earns $400 per week from this work.However,the sight of piles of greasy motorcycle parts and the additional noise and traffic caused by his customers reduces your value of living in this neighborhood by $500 per week.If your neighbor has a right to operate this business,how can you achieve the efficient outcome? A)You cannot afford to pay him enough money to stop working on motorcycles,and he continues to operate the business. B)You pay him some value between $0 and $100 to close his home business. C)You pay him some value between $400 and $500 to close his home business. D)You pay him at least $500 to close his home business.

Suppose your neighbor likes to repair motorcycles in his front yard during evenings and on weekends,and he earns $400 per week from this work.However,the sight of piles of greasy motorcycle parts and the additional noise and traffic caused by his customers reduces your value of living in this neighborhood by $300 per week.If you have a right to live in peace and quiet,how can you achieve the efficient outcome? A)He cannot afford to pay you enough money to allow him to work on motorcycles. B)He pays you some value between $0 and $100 to allow his home business. C)He pays you some value between $300 and $400 to allow his home business. D)He pays you at least $400 to allow his home business.

Suppose your neighbor likes to repair motorcycles in his front yard during evenings and on weekends,and he earns $400 per week from this work.However,the sight of piles of greasy motorcycle parts and the additional noise and traffic caused by his customers reduces your value of living in this neighborhood by $300 per week.If you have a right to live in peace and quiet,the efficient outcome can be achieved as long as the bargaining costs: A)are less than $100. B)are greater than $100. C)only include opportunity costs. D)The Coase Theorem assumes zero transaction costs,so the bargaining costs must be zero in order to achieve the efficient outcome.

Common property rights A)increase efficiency over individual property rights. B)enable the Coase theorem to work. C)are responsible for the increasing success of preservation of African elephants. D)are responsible for the increasing success of preservation of worldwide fishing resources. E)result in faster depletion of resources than do individual property rights.

Which of the following move the handling of a common property resource closest to efficiency? A)ensuring that the sellers of the resource are perfectly competitive B)ensuring that the seller of the resource is a monopolist C)banning the sale of the resource D)banning the use of the resource E)assigning a usage fee for access to the resource

Common property resources tend to be A)overused. B)underused. C)not used at all. D)efficiently used. E)used by the government only.

One difficulty in managing common property resources is that A)the monopoly firm that owns such a resource typically has great economic power,so that breaking it up into smaller firms is not practical. B)the monopoly firm that owns such a resource typically is a natural monopoly,so that it is undesirable to break it up into smaller firms. C)many common property resources are so small that management would have to be done on a micro level,greatly increasing government activity in the economy. D)many common property resources are so vast that single ownership or management of them is not practical,especially if they cross international borders. E)more and more of them come into being as pollution increases.

Common property resources like fish stocks in open waters tend to be over-utilized because: A)the marginal social cost is less than the private marginal cost. B)the marginal social cost is always equal to the private marginal cost. C)the marginal social cost is greater than the private marginal cost. D)none of the above

The difference between the marginal social cost and the private cost of a common property resource represents: A)the social discount rate. B)a deadweight loss. C)is generally negative because the people who use the resources assign higher value to them than other members of society. D)the opportunity cost of reducing the resource by one unit for other members of society.

Which of the following is NOT an example of a common property resource? A)Water in underground aquifers B)Public highways in large cities C)Fish stocks in open waters D)Outdoor concerts

For some fisheries in the U.S.,the state or federal government imposes "gear restrictions" that limit the size of boats,nets,or other equipment that may be used to harvest the fish in a given body of water.The purpose of the gear restrictions is to: A)prevent everyone from using the common property resource (fish). B)make it harder for other members of society to harvest the resource.This reduces the opportunity cost of the resource for other members of society,and the marginal social cost is closer to the private cost. C)increase the private cost of using the resource so that the private cost is closer to the marginal social cost. D)maintain traditional ways of harvesting fish,which is valuable for promoting tourism.

Suppose the private marginal cost of pumping water from an aquifer remains constant as the quantity of water pumped increases,and the marginal social cost is upward sloping.If the demand for water shifts to the right as population increases,then the amount of water pumped based only on private costs __________ and the social cost of the common property resource __________. A)decreases,decreases. B)decreases,increases C)increases,decreases D)increases,increases

Which of the following is a public good? A)Telephone service B)Broadcast TV C)A daily newspaper D)The Red Cross E)all of the above

Corn flakes are A)a rival good because many firms produce them. B)a rival good because if another person wants some corn flakes society has to use additional resources to produce corn flakes for that person. C)a non-rival good because there are only a few firms in the industry. D)a non-rival good because even if another person wants some corn flakes so many corn flakes are produced that no additional resources are used to satisfy this new customer's needs. E)a public good.

Access to the movie "Casablanca," showing in a half-empty theater,is A)a public good because individuals watch movies together. B)a public good only if the theater is run by the government. C)not a public good because it is a rival good. D)not a public good because it is an exclusive good. E)not a public good because it is both a rival good and an exclusive good.

Access to the movie "Casablanca," showing in a half-empty theater,is A)a rival good because other movies are available in other theaters. B)a rival good because it is used up as it is seen.It is not enjoyed as a whole all at once. C)a rival good because individuals were willing and able to pay a positive amount to get in to the theater. D)a non-rival good because no other movie is available in that theater. E)a non-rival good because when a new viewer enters the theater,there is not less of the movie for everybody else.

A lighthouse is a public good A)because it doesn't cost any more to light the way for 105 ships than it does to light the way for 104 ships,but for no other reason. B)because there is no way to prevent those who haven't contributed to the lighthouse from seeing better because of it,but for no other reason. C)because the government produces it,and for no other reason. D)for the reasons in A and B together. E)for the reasons in A,B,and C together.

The provision of an education in public school is A)exclusive and rival. B)exclusive and non-rival. C)nonexclusive and non-rival. D)nonexclusive and rival. E)a public good,regardless of exclusivity and rivalness.

The government provides public education because A)public education is a public good. B)public education is non-rival and nonexclusive. C)private education is rival and exclusive. D)public education combats the negative externalities of private education. E)public education provides positive externalities.

To find the social marginal benefit of public goods,one needs to A)sum the consumers' demand curves vertically. B)sum the consumers' demand curves horizontally. C)sum the marginal private benefit and the marginal external benefit for each unit. D)sum the marginal private cost and the marginal external cost for each unit. E)subtract the individual portion of the tax burden necessary for the government to provide the good from the demand curve of each consumer who desires the good.

A consumer or producer who does not pay for use of a nonexclusive good but expects others to pay is known as a: A)free rider. B)price setter. C)fringe element. D)none of the above

Majority-rule voting A)is economically efficient. B)is never economically efficient. C)may or may not be efficient,depending upon the preferences of the voters. D)is economically efficient only in a democracy. E)is economically efficient only if there is a median voter.

Majority-rule voting A)usually emphasizes the preferences of extremist voters on one side or the other. B)usually allows extremist voters to band together and swamp the preferences of the median voter. C)never reflects the preferences of the median voter. D)reflects the preferences of the median voter. E)generates economically efficient outcomes in most cases.

Efficient voting outcomes would assign weights to each vote that are: A)equal. B)egalitarian. C)higher for the median voter and lower for other voters. D)proportional to the voter's strength of preference.

The market for paper in a particular region has the supply and demand curves: Q_D = 160,000 - 2,000P Q_S = 40,000 + 2,000P, where Q is measured in hundred-pound lots,and P is price per hundred-pound lot.There is currently no attempt to regulate the dumping of effluent into streams and rivers by the paper mills.As a result,dumping is widespread.The marginal external cost associated with the paper production is given by the expression: MEC = 0.0002Q. a.Calculate the competitive price and output,assuming that no attempt is made to monitor or regulate the dumping of effluent. b.Determine the socially optimal levels for price and output.If your answers in (a)and (b)are different,explain the source of the difference. c.Sketch a diagram showing the costs or benefits to society of allowing the market to operate in an unregulated fashion.

When peach canners process fresh peaches,they produce three products.The first,canned peaches,is sold in the marketplace.The others,liquid and solid wastes,are by-products that must be removed.The liquid is sometimes temporarily kept in holding ponds and later released into a nearby stream or sewer.Liquid dumped in the stream represents a negative externality to downstream users.In the peach growing region,the marginal external costs of the canning process have been estimated as: MEC = 0.000043Q, where Q represents output of canned peaches in cases per week.The marginal cost of canning peaches (ignoring MEC)is: MC = 2.00 + 0.000157Q, and the demand for canned peaches is: P = 9.00 - 0.000243Q. a.How many cases of peaches will be produced per week during the growing season,and what will the selling price per case be if producers ignore the costs imposed on others? b.If producers are forced to incorporate the marginal external costs into their production decisions,what will the new production rate and selling price be? c.In taking account of the external costs imposed on others (part b),what was the impact on the selling price and production rate of canned peaches? Explain the impact on market efficiency.

When a man invests in controlling weeds and trash that tend to accumulate in his yard,both he and his neighbors benefit from his action.Is an externality associated with his private decision? If so,explain its effect,and determine whether the efficient level of weed control occurs when the individual invests in weed control.

The demand for injections to immunize against a disease is given as: P = 13 0.0005Q, where P = price in dollars,and Q = quanitity measured as number of shots per month.The marginal social benefit function has the same vertical intercept as the demand curve and one half the slope (one half in absolute value).The marginal cost of injections is a constant $8. a.With a competitive market,what price and quantity will prevail,assuming that there is no government intervention? b.Explain why the demand curve and marginal social benefit functions are different in this case.What is the socially optimal quantity in the market? c.What government policies could be used to bring about the optimal outcome?

The food processing industry involves the canning of fruit products,among other things,and the canning process produces canned goods and waste products.The manufacturer of one kind of fruit product produces an external cost for third parties.This external cost is expressed as: MEC = 0.00005Q, where MEC represents marginal external cost (dollars/unit),and Q represents cases produced per week.The marginal cost of production (supply),ignoring MEC,at the industry level is: MC = 2 + 0.000175Q. The industry demand for the product is: P = 10 - 0.00025Q, where price P is in dollars per unit. a.Determine the output rate and price that would be established by profit maximizing firms. b.Determine the efficient output rate and price. c.Determine the cost to society of firms producing at the profit maximizing rate rather than at the efficient output rate.

Consider a situation in which the government has limited information about costs and benefits of pollution abatement associated with a given industry.However,it is known that the marginal social cost curve for emissions is much steeper than the marginal cost of abatement curve (in absolute terms).In this situation,which method of emissions control is preferable when the greatest concern is with accuracy of control rather than the cost of control? That is,should a fee be used or should a standard be used? Explain.

The marginal social costs and abatement costs of a certain type of air pollution for a factory are given as: MSC = -1121 + 22.5Q MCA = 879 - 17.5Q, where Q = units of pollution per day,and MSC and MCA are measured in dollars.The factory is located in a small town that is currently setting community standards.You have been hired to perform the analysis requested below. a.If the community wishes to set a pollution standard for the factory,what daily level of pollution should be allowed? b.As an alternative,some members of the town council favor an emissions tax for the factory.If a tax is implemented,at what level should the tax be set?

The most popular state park in the Craggy Mountains recently reached the point where a common property resources problem arose  too many people hunted for wild boar each season.The boar population became over hunted and was in peril of extinction.An economist at the local university studied the problem for the park management and estimated the following cost and revenue relationships: Demand: P = 10 - 0.008Q Marginal social cost: MSC = 1.00 + 0.0067Q Marginal private cost: MPC = 1.00 + 0.0010Q. The variable Q represents the number of boars killed each season and price P is in hundreds ($). a.Determine the equilibrium number of boars killed per season,when there is unlimited access to the park. b.Determine the per boar fee that must be charged to reduce the harvest to the efficient level. c.Determine the social cost of unlimited hunting of the boar.

Three individuals consume a public good,and their demands are expressed as: P₁ = 1.5 - 0.005Q (for Q < 300); P₂ = 4.5 - 0.007Q (for Q < 643); P₃ = 3.0 - 0.002Q (for Q < 1500), where P represents price in dollars per unit and Q represents output in units per day.The marginal cost of providing the service is given as a constant $5.00 per unit.Determine the efficient level of output of this public good.

The European demand for access to satellite transmissions can be divided into three groups: A,B,and C.The demand curves for the three groups are: P_A = 500 - 2Q_A (for Q < 250) P_B = 300 - Q_B (for Q < 300) P_C = 400 - 2Q_C (for Q < 200), where Q = number of hours access per month,and P = price per hour.Satellite transmission is a pure public good with zero marginal cost. a.Explain the difference between horizontal and vertical summation of demand curves.Derive the horizontally and vertically summed demand curves.Explain the circumstances under which vertical summation is appropriate.When is horizontal summation appropriate? b.Determine the efficient quantity of satellite service.Explain the process of finding the efficient quantity including a justification for the demand curve.What price is optimal?

The city of Econoville has 100 residents who each have the identical demand function for park area: P = 10-Q.The marginal cost of providing parks is MC(Q)= 10 + 10Q.Park area is a public good.That is,if the city of Econoville provides park area,all of the residents can enjoy the area.If the city of Econoville does not offer public park area,how much area of parks will each individual resident maintain on their own? What is the optimal level of public parks in Econoville?

The city of Econoville has 100 residents who each have the identical demand function for lake area: P = 1,000 - 9.95Q.The marginal cost of maintaining lake area is MC(Q)= 1,500 + 5Q.Lake area is a public good.That is,if the city of Econoville provides public access lake area,all of the residents can enjoy the area.If the city of Econoville does not offer public lake area,how much area of lakes will each individual resident maintain on their own? What is the optimal area of public lakes in Econoville? What flat lake tax should Econoville implement on residents for units of lake area the city provides? With this flat tax,what is the total contribution of each resident for the lake?

The city of Econoville has 100 residents who each have the identical demand function for roads: P = 100 - 1.99Q.The marginal cost of providing road area is: MC(Q)= 2,500 + Q.Road area is a public good.That is,if the city of Econoville provides public access to roads,all of the residents can enjoy the roads.If the city of Econoville does not offer public roads,how much area of roads will each individual resident maintain on their own? What is the optimal area of public roads in Econoville? What flat road tax should Econoville implement on residents for units of roads the city provides? With this flat tax,what is the total contribution of each resident for the roads?

The operation of large trucks in Econoville causes damages to public roads.The marginal external cost function of operating large trucks in Econoville is: MEC(m)= 0.05m,where m is the number of miles large trucks are driven in Econoville in thousands.The marginal benefit of large truck operation in Econoville is: MB(m)= 1,000 - 2m.How many miles do large trucks drive in Econoville if they are not forced to pay for damage to roads? If Econoville charges a fee for every thousand miles a large truck drives in Econoville,what is the optimal fee? If Econoville sets a standard for the quantity of miles large trucks drive in Econoville,what is the optimal standard? If the profitability of large truck operation in Econoville increases the marginal benefit function to: MB(m)= 1,500 - 2m and Econoville is using a standard,is it optimal for Econoville to increase the standard?

Visitors to National Parks cause damage and increased maintenance costs on the parks.The marginal external cost of visitors is: MEC(q)= 1.5q,where q is the number of visitors to National Parks in thousands.The marginal benefit to visitors of attending National Parks is: MB(q)= 75 - 0.5q.If the Parks do not charge a fee,how many visitors will attend the National Parks.What is the optimal level of park visitation? If the National Parks were to establish a park visitation fee,what is the optimal level of the fee?

Mr.Barnes operates a power plant in the local market.Mr.Barnes' marginal cost function is: MC(q)= 2 + 0.1q.Mr.Barnes can sell all the output he produces for $9 per unit.In generating power,Mr.Barnes also emits pollution that causes damage to the local community.The marginal external cost of his production is: MEC(q)= 0.05q.What level of output will Mr.Barnes choose to maximize profits? Is this level of production efficient? If not,what could the local community do to ensure efficiency?

Mr.Barnes has a monopoly in the production of power in the local market.The demand for Mr.Barnes power is: P = 100 - 0.25q  MR(q)= 100 - 0.5q. Mr.Barnes marginal costs are constant at 5.In the generation of power,Mr.Barnes plant emits pollution that causes marginal external damages according to: MEC(q)= 0.05q.If the local government does nothing,how much will Mr.Barnes produce to maximize profits? What is the marginal social cost of his level of output? What price do consumers pay for each unit of Mr.Barnes' output? Is this level of production optimal? Should the local government institute a pollution fee? If so,what is the optimal fee?

Ms.Moneynickel has a monopoly in oil refinement in the local market.The demand for Ms.Moneynickel's oil is: P = 65 - q.The relevant marginal revenue function is: MR(q)= 65 - 2q.Ms.Moneynickel's marginal cost function is: MC(q)= 8.In the refinement of oil,Ms.Moneynickel emits pollution that has the marginal external cost function: MEC(q)= 2.What level of output will Ms.Moneynickel select to maximize profits? What is the marginal social cost of Ms.Moneynickel's profit maximizing output? What do consumers pay for Ms.Moneynickels refined oil? Is this level of output efficient? Should more or less oil be refined to reach the optimum output level? Should the local government charge Ms.Moneynickel a pollution fee for each unit of oil she refines?

Ms.Moneynickel has a monopoly in oil refinement in the local market.The demand for Ms.Moneynickel's oil is: P = 75 - q.The relevant marginal revenue function is: MR(q)= 75 - 2q.Ms.Moneynickel's marginal cost function is: MC(q)= 0.5q.In the refinement of oil,Ms.Moneynickel emits pollution that has the marginal external cost function: MEC(q)= 31.What level of output will Ms.Moneynickel select to maximize profits? What is the marginal social cost of Ms.Moneynickel's profit maximizing output? What do consumers pay for Ms.Moneynickels refined oil? Is this level of output efficient? Should more or less oil be refined to reach the optimum output level? Should the local government charge Ms.Moneynickel a pollution fee for each unit of oil she refines?

The city of Econoville currently does not charge a fee to residents to use the city garbage services.The marginal social cost of garbage is: MSC_d(g_d)= 23g_d,where g_d is tons of garbage disposed per year.The marginal benefit function of garbage removed from residences is: MB(g)= 1,000 - 2g.Given the lack of a payment plan for garbage disposal,what level of garbage are the city residents disposing each year? Is this level of disposal efficient? Why or why not? Suppose the marginal cost of recycling is: MSC_r(g_r)= 46g_r. The marginal benefit of garbage removed from residences is: MB(g_d,g_r)= 1,000 - 2(g_d + g_r). What is the optimal level of garbage disposed and garbage recycled in Econoville?

The city of Econoville currently charges a fee of $0.50 to residents for each 50 gallon can of trash the city garbage service collects from their residence.The marginal social cost of garbage disposed is: MSC_d(g_d)= 15.50,where g_d is a 50 gallon drum of garbage disposed.The marginal benefit function of garbage removed from residences is: MB(g)= 800 - 2g.Given the payment plan for garbage disposal,what level of garbage are the city residents disposing each year? Is this level of disposal efficient? Why or why not? Suppose the marginal cost of recycling is: MSC_r(g_r)= 2.50g_r.The marginal benefit of garbage removed from residences is: MB(g_d,g_r)= 800 - 2(g_d + g_r).What is the optimal level of garbage disposed and garbage recycled in Econoville?

The city of Econoville currently charges a fee of $0.50 to residents for each 50 gallon can of trash the city garbage service collects from their residence.A 50 gallon can of recyclable trash costs a resident $3.50 to be collected.The marginal social cost of garbage disposed is: MSC_d(g_d)= 12.50,where g_d is a 50 gallon drum of garbage disposed.The marginal social cost of garbage recycled is: MSC_r(g_r)= 2.50g_r.The marginal benefit function of garbage removed from residences is: MB(g_d,g_r)= 800 - 2(g_d + g_r).Given the payment plan for garbage disposal,what level of garbage are the city residents disposing each year? How much will each resident recycle with this payment plan? Is this level of disposal and recycling efficient? Why or why not? What is the optimal level of garbage disposed and garbage recycled in Econoville? How can Econoville encourage residents to dispose and recycle the optimal amounts of garbage?

Smog Corporation and Grimy Corporation emit pollution in their production processes.The local government has established a standard for the pollution levels of Smog Corporation and Grimy Corporation of 25,000 units of pollution.To ensure this level of pollution is achieved efficiently,the government sells permits to the corporations that entitle them to emit a unit of pollution.Smog Corporation has the following demand function for pollution emission permits: ε_M = 15,000 - .Grimy Corporation's demand function for pollution emission permits is: ε_G = 13,000 - .What is the equilibrium price of pollution permits? If the government makes the standard more stringent and allows only 15,000 units of pollution,what happens to the equilibrium price of pollution permits?

Smog Corporation and Grimy Corporation emit pollution in their production processes.The local government has established a standard for the pollution levels of Smog Corporation and Grimy Corporation of 25,000 units of pollution.To ensure this level of pollution,the government has allocated 15,000 pollution permits to Smog Corporation and 10,000 pollution permits to Grimy Corporation.Smog Corporation has the following demand function for pollution emission permits: ε_M = 15,000 - .Grimy Corporation's demand function for pollution emission permits is: ε_G = 13,000 - .Is the government's allocation of pollution permits efficient? If the government allowed the corporations to trade permits,would the firms be motivated to trade? If so,what would be the efficient level of trading?