# Microeconomics Study Set 46

## Quiz 17 :Externalities and Public Goods

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(Table: Marginal Cost) According to the table, what is the socially optimal output level?
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B

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Recreation centers offer a place for young people to play sports and engage in other activities at a marginal cost of MC = 0.25Q. The inverse demand curve for recreation centers is given by P = 10 - 0.25Q, where P is the price of entry and Q measures hundreds of entrants. Recreation centers generate positive externalities because they help get young people off the street and engaged in productive activities. In this case, an action that the government could take to move toward the socially optimal outcome is to implement ____.
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D

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Mr. Leghorn lives next door to Mr. Fudd. During hunting season, Mr. Fudd likes to shoot rabbits in his backyard, an activity which he values at $900. The noise from the shooting disturbs Mr. Leghorn and prevents him from taking afternoon naps, which he values at$500. If Mr. Leghorn has the legal right to stop Mr. Fudd from hunting, the socially optimal outcome is for:
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B

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Assume the social marginal benefit of remote-control drone flights is given by SMB = 200 - 2Q and the marginal cost is given by MC = 3Q + 50. Assuming there are no external benefits and in a perfectly competitive environment, the equilibrium price per flight would be $_____ and the equilibrium number of flights would be _____. Multiple Choice Answer: Tags Choose question tag The market for toilet paper is characterized by the following inverse demand and supply equations: P = 100 - Q P = MC = 2Q - 197.3 Where P is the price per roll of toilet paper and Q measures millions of rolls of toilet paper. The external marginal cost is 30 cents for each roll of toilet paper produced. The socially optimal price of toilet paper is _____ cents higher than the price under perfect competition. Multiple Choice Answer: Tags Choose question tag The marginal cost of pollution is MC = 2Q, while the marginal abatement cost is MAC = 12 - Q. Government regulators incorrectly estimate the marginal abatement cost at MACE = 9 - Q. The level of pollution, measured in tons of glop, is Q. Based on the government's incorrect estimate of marginal abatement costs, the government thinks the socially optimal level of pollution is ____. Multiple Choice Answer: Tags Choose question tag The following companies all manufacture widgets and dump tons of glop into the air. The government wants to halve total pollution but does not know how much it will cost each company. If the government employs a tradable permit scheme in which it gives the same number of permits to each manufacturer at no cost, the number of permits traded would be ____. Multiple Choice Answer: Tags Choose question tag (Table: Marginal Benefit) In an unregulated market, the quantity produced is _____, and a subsidy of _____ per unit will achieve the socially optimal quantity of _____. Multiple Choice Answer: Tags Choose question tag (Table: Benefits and Costs of Lawn Mowing) Answer the following question. According to the figure above, a self-interested person will mow her lawn ____ times during the month and that ____ the socially optimal outcome. Multiple Choice Answer: Tags Choose question tag Recreation centers offer a place for young people to play sports and engage in other activities at a marginal cost of MC = 0.25Q. The inverse demand curve for recreation centers is given by P = 10 - 0.25Q, where P is the price of entry and Q measures hundreds of entrants. Recreation centers generate positive externalities because they help get young people off the street and engaged in productive activities. The external marginal benefits are EMB = 1 + 0.06Q. The social demand curve for recreation centers can be expressed as ____. Multiple Choice Answer: Tags Choose question tag The production of toilet paper in a perfectly competitive market is characterized by the inverse supply curve (marginal cost curve) P = 4Q, where Q is measured in millions of 4-roll packs per month. The inverse demand for toilet paper is P = 10 - 6Q. The market equilibrium price of toilet paper is ____ and the market equilibrium quantity is ____ million packs. Multiple Choice Answer: Tags Choose question tag A small neighborhood is considering hiring a security firm to patrol the neighborhood. Ten families in the neighborhood would each get a marginal benefit of MB = 10 - h, where h is daily hours of patrol. The marginal cost of patrol is constant at$20 per hour. What is the socially optimal number of patrol hours?
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Which of the following factors could mitigate the tragedy of the commons? I. Pigouvian taxes II. government quotas III. the elimination of private property rights in a common resource
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(Figure: Output Levels I) The output level under perfect competition is _____, while the socially optimal output level is _____.
Multiple Choice
The following companies all manufacture widgets and dump tons of glop into the air. The government wants to halve total pollution but does not know how much it will cost each company. If the government employs a tradable permit scheme in which it gives the same number of permits to each manufacturer at no cost, the total cost of cleanup, after the exchange of permits, is $____. Multiple Choice Answer: Tags Choose question tag A good is rival if: Multiple Choice Answer: Tags Choose question tag The tragedy of the commons stems from a common resource that people can _____ acquire, the value of which _____ as more people use it. Multiple Choice Answer: Tags Choose question tag Sweet Steel and Molten Metal produce sulfur dioxide emissions during production. The total abatement cost (TAC) and marginal abatement cost (MAC) for each company: Sweet Steel: TACS = 100,000 + 1eS2; MACS = 2eS Molten Metal: TACM = 100,000 + 1.5eM2; MACM = 3eM Where eS and eM represent tons of sulfur dioxide emissions eliminated by each company. Suppose the government wants to eliminate 1,000 tons of sulfur dioxide emissions, so it mandates that each firm cut its emissions by 500 tons. What is the total cost (TACS + TACM) of reducing emissions by 1,000 tons? Multiple Choice Answer: Tags Choose question tag Suppose that, at the current level of pollution, the marginal abatement cost is$30,000 and the marginal cost of pollution is \$80,000. This economy is producing: