Question 1

Governments can increase the consumption of a product that creates positive externalities by

Accepted Answer

Subsidizing the production of the product will incentivize producers to increase their output, leading to a greater supply of the product at a lower market price. This will increase consumption as the product becomes more affordable to consumers. Additionally, the subsidy reduces the cost of production for the producers, allowing them to sell the product at a lower price while still making a profit. This will result in a positive externality as more people consume the product and benefit from its positive effects.

Question 2

Figure 5-10  Chicken pox vaccinations for toddlers benefit society by protecting young children and by preventing an epidemic of the disease. Thus, the marginal social benefits of chicken pox vaccinations exceed the marginal private benefit for any quantity of vaccinations as illustrated in Figure 5-10.
-Refer to Figure 5-10. What is the value of the net gain to society as a result of subsidizing chicken pox vaccinations?

Accepted Answer

The net gain to society is the difference between the total benefits and the total costs. The total benefits are represented by the area of the triangle Q_FFGQ_E, and the total costs are represented by the area of the triangle EFH. Therefore, the net gain to society is equal to the area of EFH.

Question 3

Figure 5-9  Companies producing toilet paper bleach the paper to make it white. The bleach is discharged into rivers and lakes and causes substantial environmental damage. Figure 5-9 illustrates the situation in the toilet paper market.
-Refer to Figure 5-9. Let's suppose the government imposes a tax of $50 per unit of toilet paper to bring about the efficient level of production. What happens to the market price of toilet paper?

Accepted Answer

The tax of $50 per unit increases the cost of production for the toilet paper producers. As a result, the supply curve shifts to the left, causing a decrease in the quantity supplied at every price level. This increase in production cost and reduction in quantity supplied lead to an increase in the market price of toilet paper, but not by the full amount of the tax. The price of toilet paper rises by less than $50 per unit because some of the tax burden is passed on to the consumers through a higher price.

Question 4

Some policymakers have argued that products like cigarettes, alcohol, and sweetened soda generate negative externalities in consumption. All else equal, if the government decided to impose a tax on soda, the equilibrium quantity of soda would ________ and the equilibrium price of soda would ________.

Accepted Answer

The answer of Some policymakers have argued that products like...

Question 5

What is the rationale behind a tradable emission allowance scheme?

Accepted Answer

The answer of What is the rationale behind a tradable...

Question 6

Figure 5-9  Companies producing toilet paper bleach the paper to make it white. The bleach is discharged into rivers and lakes and causes substantial environmental damage. Figure 5-9 illustrates the situation in the toilet paper market.
-Refer to Figure 5-9. An efficient way to get the firm to produce the socially optimal output level is

Accepted Answer

The most efficient way to get the firm to produce the socially optimal output level is by imposing a tax to make the industry bear the external costs it creates. This will create a negative externality tax that will shift the supply curve leftward until it intersects with the demand curve at the socially optimal output level. This will lead to a reduction in the quantity of toilet paper produced, which will reduce the environmental damage caused by bleach discharge in rivers and lakes while also ensuring that the market is efficient.

Question 7

Anyone can purchase sulfur dioxide emission allowances on the Chicago Mercantile Exchange. Several environmental groups have raised money to buy allowances (which they subsequently destroy). As part of their fund-raising, these groups have urged contributors to buy the allowances as gifts. As one newspaper story put it, "For the environmentalist in your life, here's a gift that is sold by the ton, fits in an envelope and will last forever." Source for quote: Randall Edwards, "Dear Santa: Please Bring Me Sulfur Dioxide for Christmas," Columbus Dispatch, December 19, 1999.
What would be the impact on the price of the emission allowances in the market if more people buy sulfur emission allowances and destroy them?

Accepted Answer

The answer of Anyone can purchase sulfur dioxide emission allowances...

Question 8

Figure 5-9  Companies producing toilet paper bleach the paper to make it white. The bleach is discharged into rivers and lakes and causes substantial environmental damage. Figure 5-9 illustrates the situation in the toilet paper market.
-Refer to Figure 5-9. The efficient output is

Accepted Answer

The answer of Figure 5-9  Companies producing toilet paper...

Question 9

Figure 5-10  Chicken pox vaccinations for toddlers benefit society by protecting young children and by preventing an epidemic of the disease. Thus, the marginal social benefits of chicken pox vaccinations exceed the marginal 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?

Accepted Answer

The answer of Figure 5-10  Chicken pox vaccinations for...

Question 10

In 2017, economists working at the U.S. Department of Treasury's Office of Tax Analysis have estimated that the marginal social cost of carbon dioxide emissions was about

Accepted Answer

According to the U.S. Department of Treasury's Office of Tax Analysis, in 2017, economists estimated that the marginal social cost of carbon dioxide emissions was around $49 per metric ton. This takes into account the costs associated with climate change, such as damage to crops, property, and infrastructure, as well as negative health impacts. This estimate is widely accepted among economists as a reasonable estimate of the social cost of carbon.

Question 11

Worldwide annual carbon dioxide emissions increased from about 198 million metric tons in 1850 to ________ million metric tons in 2015.

Accepted Answer

The answer of Worldwide annual carbon dioxide emissions increased from...

Question 12

Some policymakers have argued that products like cigarettes, alcohol, and sweetened soda generate negative externalities in consumption. If the government decided to impose a tax on soda, the government will cause

Accepted Answer

Imposing a tax on sweetened soda will increase the price of soda, making it more expensive to consumers. As a result, consumers will reduce their consumption of soda or switch to healthier alternatives, ultimately internalizing the negative externality caused by drinking soda. This will lead to a reduction in the overall negative impact of soda consumption on society.

Question 13

Figure 5-9  Companies producing toilet paper bleach the paper to make it white. The bleach is discharged into rivers and lakes and causes substantial environmental damage. Figure 5-9 illustrates the situation in the toilet paper market.
-Refer to Figure 5-9. Suppose the government wants to use a Pigovian tax to bring about the efficient level of production. What should the value of the tax be?

Accepted Answer

The Pigovian tax should be equal to the difference between the marginal external cost and the marginal private cost, which is (P2-P0) per unit of output.

Question 14

The first economist to systematically analyze market failure was

Accepted Answer

A.C. Pigou was the first economist to systematically analyze market failure and proposed the concept of externalities in his influential book "The Economics of Welfare" in 1920. Adam Smith and Ronald Coase made important contributions to economics, but they did not focus specifically on market failure. J.E. Meade also made significant contributions to the field but was not the first to analyze market failure.

Question 15

A major problem with using a tradable emission allowances system to control pollution is

Accepted Answer

The answer of A major problem with using a tradable...

Question 16

Government-imposed quantitative limits on the amount of pollution firms are allowed to produce is an example of

Accepted Answer

Government-imposed quantitative limits on pollution production are a command-and-control approach in which the government sets specific limits and regulations for firms to follow. This is in contrast to the Pigovian method, which uses taxes or subsidies to incentivize firms to reduce pollution, Coasian solutions, which encourage negotiation and bargaining between affected parties, and tradable emission allowances, which involve firms buying and selling permits to pollute.

Question 17

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?

Accepted Answer

Command-and-control approaches involve direct regulation, such as setting maximum emission targets (a) and mandating specific equipment (b).

Question 18

Assume that production from an electric utility caused acid rain. If the government imposed a tax on the utility equal to the marginal external cost of the acid rain, the government's action would

Accepted Answer

By imposing a tax equal to the marginal external cost of the acid rain, the government would internalize the externality by making the utility pay for the negative effects it is causing. This would incentivize the utility to reduce its emissions and lead to a more socially efficient outcome. A is incorrect because internalizing the externality means that it is no longer an external cost on society. B is incorrect because the marginal social benefit would remain the same, only the cost to the utility would increase. C is also incorrect because it is not related to the government's action of internalizing the externality.

Question 19

Suppose a tax equal to the value of the marginal external cost at the optimal output is imposed on a pollution generating good. All of the following will result from the tax except

Accepted Answer

The tax will increase the cost of production for the firms, leading to a decrease in the equilibrium quantity produced and consumed, and also a decrease in the market supply of the good. This will result in an increase in the equilibrium market price as demand remains the same. However, the tax will not increase demand for the good, as it makes it more expensive for consumers to purchase, which would likely lead to a decrease in demand.

Question 20

Figure 5-9  Companies producing toilet paper bleach the paper to make it white. The bleach is discharged into rivers and lakes and causes substantial environmental damage. Figure 5-9 illustrates the situation in the toilet paper market.
-Refer to Figure 5-9. The market equilibrium output level is

Accepted Answer