Question 1

Use the following diagram to answer the following questions.
 
-Refer to Diagram 6-1. The efficient output occurs at:

Accepted Answer

The efficient output occurs at Q2, where the marginal cost curve intersects the marginal revenue curve. At any point to the right of Q2, the marginal cost of producing an additional unit of output exceeds its marginal revenue, leading to a decrease in profit.

Question 2

Suppose that at current consumption levels, the marginal social cost of using the Los Angeles freeway system is $25 while the marginal social benefit is $15. In this instance, government officials should:

Accepted Answer

In this instance, the marginal social cost of using the freeway system exceeds the marginal social benefit. This means that the negative externalities (such as congestion, pollution, and accidents) generated by the use of the freeway system outweigh the positive benefits. To achieve an efficient outcome, government officials should reduce the use of the freeway system by implementing measures such as congestion pricing, tolls, or incentives for carpooling, public transit, or telecommuting. Building more freeways would exacerbate the problem by inducing more demand and increasing the externalities.

Question 3

Evaluate the following statement. "Instead of controlling pollutants through regulation, the government should simply assign property rights."

Accepted Answer

The answer of Evaluate the following statement. "Instead of controlling...

Question 4

Use the following diagram to answer the following questions.
 
-Refer to Gallons. Suppose that the production level was at 2,000 gallons where MC=MB. What would be the maximum amount that consumers would pay producers to reduce production (and pollution)?

Accepted Answer

The answer of Use the following diagram to answer the...

Question 5

Use the following diagram to answer the following questions.
 
-Refer to Gallons. The external cost associated with the production of each gallon of output is:

Accepted Answer

The external cost is the difference between the social cost and the private cost. If the social cost per gallon is $20 and the private cost is $15, the external cost is $20 - $15 = $5.

Question 6

Suppose two firms have different marginal costs of emission control. Would a governmental policy that allotted marketable pollution permits be more cost effective than a governmental policy that required all firms to reduce emissions by the same amount?

Accepted Answer

The answer of Suppose two firms have different marginal costs...

Question 7

Which of the following statements is true about the marketable pollution permits?

Accepted Answer

The Coase theorem states that if property rights are well-defined and transaction costs are low, then the efficient outcome will be achieved regardless of the initial allocation of property rights. In the case of marketable pollution permits, the efficient outcome is the one that minimizes the total cost of pollution abatement. This outcome can be achieved through trading of permits, where firms that can abate pollution at a lower cost will sell permits to firms that can abate pollution at a higher cost. All parties engaged in trading will become as well off or better off from trade, except the government, which will not receive any revenue from the sale of permits.

Question 8

The I Don't Care Corporation dumps pollution into the river that Mike uses for his fishing operation. The efficient level of pollution could prevail if government:

Accepted Answer

Assigning property rights to either the polluter (I Don't Care Corporation) or the affected party (Mike) could lead to an efficient level of pollution through negotiation or compensation, as per the Coase Theorem. This theorem suggests that if property rights are clearly defined and transaction costs are low, parties can negotiate to correct externalities like pollution, regardless of who holds the rights.

Question 9

Recent reports of the adverse effects of second-hand smoke have led some cities to place a ban on smoking in public facilities. Discuss the efficiency of such a policy.

Accepted Answer

The answer of Recent reports of the adverse effects of...

Question 10

"Because of market failure, it is necessary to have government regulations in order to deal with the problem of pollution."

Accepted Answer

The answer of "Because of market failure, it is necessary...

Question 11

Use the following diagram to answer the following questions.
 
-An emissions tax can bring about an efficient solution to the pollution problem because it:

Accepted Answer

An emissions tax operates as a form of government intervention by adding a cost to the production of pollution, resulting in a higher price for consumers. This incentivizes producers to reduce the quantity of pollution they create, by making it more expensive to emit pollutants. This leads to a shift of the supply curve to the left, reducing the quantity of pollution produced and leading to a more efficient outcome. Thus, choice A is the correct answer.

Question 12

Use the following diagram to answer the following questions.
 
-Refer to Gallons. In the absence of governmental policies the level of output will be:

Accepted Answer

In the absence of governmental policies, the market will produce at the equilibrium level where supply equals demand, which is typically the level of output that maximizes profit for producers. In this context, it is given as 2,000 gallons.

Question 13

Use the following diagram to answer the following questions.
 
-Refer to Diagram 6-1. In the absence of governmental policies the level of output will be:

Accepted Answer

Without access to Diagram 6-1, it's impossible to provide a specific explanation. However, the correct answer to a question about the level of output in the absence of governmental policies typically depends on the equilibrium point in the market, which is determined by the intersection of supply and demand curves.

Question 14

At Big Dog Inc., the marginal cost of production is $32, the marginal external cost of production is $5, and the marginal benefit of production is $35. The marginal social cost of production is:

Accepted Answer

The marginal social cost of production is the sum of the marginal cost of production and the marginal external cost, which is $32 + $5 = $37.

Question 15

Use the following diagram to answer the following questions.
 
-Refer to Gallons. The quantity produced if oil refiners (producers) were given property rights to the environment that would be:

Accepted Answer

If oil refiners (producers) were given property rights to the environment, they would have the incentive to reduce pollution because they would be liable for any damages caused by their pollution. This would lead to a decrease in pollution and an increase in the quantity of oil produced.

Question 16

Use the following table. Suppose Plant A and Plant B are currently emitting 4 tons of pollution each. Government requires each plant to reduce emissions by two tons and issues two one-ton marketable pollution permits to each plant. Will any permits be traded?

Accepted Answer

The answer of Use the following table. Suppose Plant A...

Question 17

Use the following diagram to answer the following questions.
 
-Refer to Gallons. The efficient output occurs at:

Accepted Answer

The efficient output occurs at the point where the total cost is lowest, which is the bottom of the U-shaped curve. This occurs at 1,750 gallons.

Question 18

Suppose that at current production levels, Bad Boy & Sons finds its marginal cost to be $12, its marginal external cost to be $2, and its marginal social benefit to be $15. In this case the company:

Accepted Answer

The marginal social cost (MSC) is the sum of the marginal cost (MC) and the marginal external cost, which in this case is $12 + $2 = $14. Since the marginal social benefit (MSB) of $15 is greater than the MSC of $14, expanding production would align the social benefit with the social cost, indicating that production should be encouraged to expand.

Question 19

Suppose that at current consumption levels, the marginal social cost of using the Kansas City freeway system is $15 while the marginal social benefit is $18. In this instance, government officials should:

Accepted Answer

When the marginal social benefit ($18) exceeds the marginal social cost ($15), it indicates that increasing the use of the freeway system would lead to a net social gain. Therefore, actions to increase use would be beneficial.

Question 20

Evaluate the following statement. "The market will tend to overproduce when external costs are associated with production."

Accepted Answer

The answer of Evaluate the following statement. "The market will...

Quiz 6: Air Pollution: Balancing Benefits and Costs

Use the following diagram to answer the following questions. -Refer to Diagram 6-1. The efficient output occurs at:

Suppose that at current consumption levels, the marginal social cost of using the Los Angeles freeway system is $25 while the marginal social benefit is $15. In this instance, government officials should:

Evaluate the following statement. "Instead of controlling pollutants through regulation, the government should simply assign property rights."

Use the following diagram to answer the following questions. -Refer to Gallons. Suppose that the production level was at 2,000 gallons where MC=MB. What would be the maximum amount that consumers would pay producers to reduce production (and pollution) ?

Use the following diagram to answer the following questions. -Refer to Gallons. The external cost associated with the production of each gallon of output is:

Suppose two firms have different marginal costs of emission control. Would a governmental policy that allotted marketable pollution permits be more cost effective than a governmental policy that required all firms to reduce emissions by the same amount?

Which of the following statements is true about the marketable pollution permits?

The I Don't Care Corporation dumps pollution into the river that Mike uses for his fishing operation. The efficient level of pollution could prevail if government:

Recent reports of the adverse effects of second-hand smoke have led some cities to place a ban on smoking in public facilities. Discuss the efficiency of such a policy.

"Because of market failure, it is necessary to have government regulations in order to deal with the problem of pollution."

Use the following diagram to answer the following questions. -An emissions tax can bring about an efficient solution to the pollution problem because it:

Use the following diagram to answer the following questions. -Refer to Gallons. In the absence of governmental policies the level of output will be:

Use the following diagram to answer the following questions. -Refer to Diagram 6-1. In the absence of governmental policies the level of output will be:

At Big Dog Inc., the marginal cost of production is $32, the marginal external cost of production is $5, and the marginal benefit of production is $35. The marginal social cost of production is:

Use the following diagram to answer the following questions. -Refer to Gallons. The quantity produced if oil refiners (producers) were given property rights to the environment that would be:

Use the following table. Suppose Plant A and Plant B are currently emitting 4 tons of pollution each. Government requires each plant to reduce emissions by two tons and issues two one-ton marketable pollution permits to each plant. Will any permits be traded?

Use the following diagram to answer the following questions. -Refer to Gallons. The efficient output occurs at:

Suppose that at current production levels, Bad Boy & Sons finds its marginal cost to be $12, its marginal external cost to be $2, and its marginal social benefit to be $15. In this case the company:

Suppose that at current consumption levels, the marginal social cost of using the Kansas City freeway system is $15 while the marginal social benefit is $18. In this instance, government officials should:

Evaluate the following statement. "The market will tend to overproduce when external costs are associated with production."