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Exam 16: Externalities

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Question 91

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If government officials set an emissions tax too high:

A) there will be too little pollution.
B) there will be too much pollution.
C) the marginal social cost of pollution will exceed the marginal social benefit of pollution.
D) pollution will be unabated.

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Question 92

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Use the following to answer questions : Figure: Efficiency and Pollution -(Figure: Efficiency and Pollution) Use Figure: Efficiency and Pollution.Assume that firms are the only beneficiaries of pollution and that costs are borne solely by others in the society.If the government imposed an environmental standard that did NOT allow the quantity of pollution to exceed 30 tonnes,there would be:

A) a socially optimal quantity of pollution.
B) too little pollution because its marginal social benefit would exceed its marginal social cost.
C) too much pollution because its marginal social cost would exceed its marginal social benefit.
D) too much pollution because any pollution is too much from an economist's perspective.

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Question 93

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Use the following to answer questions : Figure: City with Two Polluters -Which statement describes a positive externality?

Suppose that government officials have set an emissions tax to reduce pollution.Assume that the optimal tax would be $1 500,but government officials have set the tax at $500.At the equilibrium with the $500 tax:

Emissions taxes and tradable emissions permits both ensure that any given reduction in total pollution is achieved at the lowest possible cost.This is not the case for environmental standards since they fail to ensure that those who can reduce pollution most cheaply are in fact the ones to do so.

Activities that generate external costs will likely be carried out at levels that _____ those that would be efficient.

Externalities exist when individuals impose costs or confer benefits on others but don't have an incentive to take those costs or benefits into account.

Use the following to answer questions : $\begin{array}{l}\text { Table: Externalities from Parks }\\\begin{array} { c c c } \hline \begin{array} { l } \text { Quantity of } \\\text { Land (acres) }\end{array} & \begin{array} { c } \text { Marginal } \\\text { Social } \\\text { Benefit }\end{array} & \begin{array} { c } \text { Marginal } \\\text { Social } \\\text { Cost }\end{array} \\\hline 0 & \$ 225 & \$ 0 \\1 & 200 & 50 \\3 & 150 & 150 \\4 & 125 & 200 \\5 & 100 & 250 \\9 & 0 & 450 \\\hline\end{array}\end{array}$ -(Table: Externalities from Parks) Use: Table: Externalities from Parks.The table shows the marginal social benefit and the marginal social cost of preserving various amounts of land in a city for a public park.Suppose that parks result in positive benefits to the community as a whole but that the marginal private benefit that any one individual in the community gets from parks is close to 0.Without government intervention,at the amount of land dedicated to the public park,the marginal social cost will be:

Use the following to answer questions : Figure: City with Two Polluters -Which example is a good or market activity that is associated with a positive externality?

Use the following to answer questions : $\begin{array}{l}\text { Table: Externalities from Parks }\\\begin{array} { c c c } \hline \begin{array} { l } \text { Quantity of } \\\text { Land (acres) }\end{array} & \begin{array} { c } \text { Marginal } \\\text { Social } \\\text { Benefit }\end{array} & \begin{array} { c } \text { Marginal } \\\text { Social } \\\text { Cost }\end{array} \\\hline 0 & \$ 225 & \$ 0 \\1 & 200 & 50 \\3 & 150 & 150 \\4 & 125 & 200 \\5 & 100 & 250 \\9 & 0 & 450 \\\hline\end{array}\end{array}$ -(Table: Externalities from Parks) Use: Table: Externalities from Parks.The table shows the marginal social benefit and the marginal social cost of preserving various amounts of land in a city for a public park.Suppose that parks result in positive benefits to the community as a whole but that the marginal private benefit that any one individual in the community gets from parks is close to 0.At the socially optimum amount of land dedicated to the public park,the marginal social benefit will be:

If the marginal social benefit received from pollution is equal to its marginal social cost:

According to the Coase theorem,only when transaction costs are extremely high can two parties internalize a negative externality.

Use the following to answer questions : Figure: MSB and MSC of Pollution -(Figure: MSB and MSC of Pollution) Use Figure: MSB and MSC of Pollution.Assume that firms are the only beneficiaries of pollution and that costs are borne solely by others in the society.Suppose that pollution is unregulated.What level of emissions tax would move the level of pollution to the socially optimal level?

Suppose that government officials have set an emissions tax to reduce pollution.Assume that the optimal tax would be $500,but government officials have set the tax at $900.At the equilibrium with the $900 tax:

Which factor is an environmental standard?

Use the following to answer questions : Figure: Model of a Competitive Market -(Figure: Model of a Competitive Market) Use Figure: Model of a Competitive Market.Given the figure,if there are external costs:

When the government attempts to reduce the noise from airplanes by restricting the noise level from a jet engine to less than 50 decibels,it is using a(n) :

If a good that involves external costs is priced to take these costs into account,then its price will likely:

Use the following to answer questions : Figure: Pollution and Efficiency -(Figure: Pollution and Efficiency) Use Figure: Pollution and Efficiency.Point _____ in the figure represents an efficient solution in this market,where sulphur emissions are a result of production.

The optimal Pigouvian tax is equal to the marginal social cost of pollution at the socially optimal quantity of pollution (assuming that there are no private costs from pollution to the polluter).