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Exam 5: Externalities, environmental Policy, and Public Goods

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Question 71

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Figure 5-15 Figure 5-15 shows the market for Atlantic salmon, a common resource. The current market equilibrium output of Q₁ is not the economically efficient output. The economically efficient output is Q₂. -Refer to Figure 5-15.The current market equilibrium output is partly the result of overfishing.In that case,what does S₂ represent?

A) the private marginal benefit of harvesting salmon
B) the social marginal benefit of harvesting salmon
C) the private marginal cost of harvesting salmon
D) the social marginal cost of harvesting salmon

E) All of the above
F) A) and D)

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Question 72

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If the marginal benefit of reducing emissions of some air pollutant is greater than the marginal cost

A) further reductions will make society better off.
B) the marginal benefit will rise and the marginal cost will fall as further reductions are made.
C) economic efficiency will be achieved when emissions are reduced to zero.
D) private businesses, rather the consumers, should be made to pay for the cost of further reductions.

E) All of the above
F) B) and C)

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Question 73

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Economists working at federal government agencies have estimated that the marginal social cost of carbon is about

An advantage of imposing a tax on the producer that generates pollution is that

A product is considered to be excludable if it is jointly owned by all members of a community.

Figure 5-1 Figure 5-1 shows a market with an externality. The current market equilibrium output of Q₁ is not the economically efficient output. The economically efficient output is Q₂. -Refer to Figure 5-1.If,because of an externality,the economically efficient output is Q₂ and not the current equilibrium output of Q₁,what does S₁ represent?

The private cost of a good or service is the cost borne by the producer.

Determine if each of the products below displays any of the following characteristics: (i) rivalry (ii)nonrivalry (iii)excludability (iv)nonexcludability. a. a freeway during peak commute hours b. an online college course c. infectious disease prevention d. open source software such as Linux e. a movie showing at Century Theatres

Which of the following describes how a positive externality affects a competitive market?

Assume that emissions from electric utilities contribute to pollution in the form of acid rain.Which of the following describes how this affects the market for electricity?

Goods differ on the basis of whether their consumption is rival and excludable.Explain the terms "rivalry" and "excludability" as they are used to define goods.List the four categories of goods,and define these categories in terms of rivalry and excludability.

Figure 5-10 Chicken pox vaccinations for toddlers benefit society by protecting young children and by preventing an epidemic of the disease. Thus, the social benefits of chicken pox vaccinations exceed the private benefit for any quantity of vaccinations as illustrated in Figure 5-10. -Refer to Figure 5-10.One way to obtain the economically efficient amount of chicken pox vaccinations is for governments to subsidize these vaccinations.What is the size of the per-vaccination Pigovian subsidy that the government must provide to internalize the external benefits?

Which of the following displays these two characteristics: nonrivalry and nonexcludability in consumption?

Congress passed the Clean Air Act in 1970.Since this act was passed,emissions of the six main air pollutants

Figure 5-11 Coal burning utilities release sulfur dioxide and nitric acid which react with water to produce acid rain. Acid rain damages trees and crops and kills fish. Because the utilities do not bear the cost of the acid rain they overproduce the quantity of electricity. This is illustrated in Figure 5-11. -Refer to Figure 5-11.S₁ represents the supply curve that reflects the private cost of production and S₂ represents the supply curve that reflects the social cost of production.One way to internalize the external cost generated by utilities is to impose a Pigovian tax on the production of electricity.What is the size of the Pigovian tax that will internalize the cost of the externality?

Assume that production from an electric utility caused acid rain and that the government imposed a tax on the utility equal to the cost of the acid rain.This is an example of

Figure 5-8 Consider a chemical plant that discharges toxic fumes over a nearby community. To reduce the emissions of toxic fumes the firm can install pollution abatement devices. Figure 5-8 shows the marginal benefit and the marginal cost from reducing the toxic fumes emissions. -Refer to Figure 5-8.What is the economically efficient level of pollution reduction?

Economist A.C.Pigou argued that to deal with a negative externality in production,the government should impose a tax equal to the cost of the externality.What did Pigou believe should be done in the case of a positive externality in consumption? How would his recommendation impact the demand and market equilibrium for the product which is generating the positive externality?

Consider the following methods of pollution reduction: a.the government sets a target for maximum emissions b.the government mandates the installation of specific pollution abatement equipment c.the government imposes a per unit tax on the good that creates pollution d.the government gives firms a tax rebate for every unit of pollution abated Which of the above is an example of a command and control approach to reducing pollution?

State and local governments subsidize college students with grants and low-interest loans.The loans and subsidies are examples of