Question 1

When the government can set emissions standards for polluting industries, the government should set the emissions standard to achieve the socially optimal level of production which, in general, is not equal to zero.

Accepted Answer

The socially optimal level of production is the level at which the marginal cost of reducing emissions equals the marginal benefit of those emissions reductions. This level is typically not zero as there may be social benefits to some level of emissions, such as the production of goods and services that improve quality of life. Therefore, the government should set emissions standards that achieve this socially optimal level rather than aiming for zero emissions. The socially optimal level of production takes into account both the costs and benefits of production. Setting emissions standards at zero would mean completely eliminating the industry, which may not always be socially optimal. Therefore, the government should set emissions standards at a level that achieves the optimal balance between the costs and benefits of production.

Question 2

In markets with externalities or public goods, the private costs and benefits that decision makers face diverge from the social costs and benefits.

Accepted Answer

In markets with externalities or public goods, the private costs and benefits do not account for the full social costs and benefits, leading to a divergence between private and social outcomes. This is because externalities and public goods have an impact on society as a whole, beyond just the individual decision maker. Therefore, the costs and benefits that decision makers consider do not fully capture the impact on society.

Question 3

When the government can set emissions standards for polluting industries, the government should set the emissions standard to zero because pollution is bad for people.

Accepted Answer

While setting emissions standards to zero may sound like the ideal solution, it is not necessarily feasible or practical for every industry. The government should instead set realistic and achievable emissions standards that balance environmental concerns with economic sustainability. It is not always feasible or practical for some industries to completely eliminate all emissions. Instead, the government should set realistic and achievable standards that still prioritize the reduction of harmful pollutants. These standards should be based on scientific evidence and consider the economic impact on the industry and the overall benefits to public health and the environment.

Question 4

When the government can set emissions standards for polluting industries, the government should not set emissions standards because the market equilibrium will coincide with the social optimum in the absence of intervention.

Accepted Answer

In the presence of externalities, such as pollution, the market equilibrium will not coincide with the social optimum, as the market only considers private costs and benefits, while the social cost also includes negative effects on third parties. Therefore, setting emissions standards is necessary to internalize the externality and achieve a socially desirable outcome. The statement is incorrect because in the absence of government intervention, polluting industries may not take into account the negative externalities their emissions impose on society. As a result, the market may not reach the socially optimal level of emissions, and government intervention may be necessary to correct this market failure.

Question 5

When the government can set emissions standards for polluting industries, the government should employ emissions taxes instead because emissions standards cannot generally achieve the social optimum.

Accepted Answer

The answer of When the government can set emissions standards...

Question 6

In markets with externalities or public goods, private benefits exceed social benefits.

Accepted Answer

In markets with externalities or public goods, social benefits exceed private benefits. This is because private individuals do not take into account the positive or negative impact their actions may have on others, resulting in a difference between private and social benefits. In markets with externalities or public goods, social benefits exceed private benefits because these goods have benefits that spill over to people other than the buyer or the seller. Therefore, private individuals may not take into account the full social benefits of such goods or services.

Question 7

In markets with externalities or public goods, private costs exceed social costs.

Accepted Answer

In markets with externalities or public goods, social costs exceed private costs because social costs include both the private costs and the external costs not accounted for by the private market.

Question 8

In markets with externalities or public goods, the private costs and benefits that decision makers face are the same as the social costs and benefits.

Accepted Answer

In markets with externalities or public goods, there are significant differences between private costs and benefits and social costs and benefits. Private decision makers do not take into account the full social costs or benefits of their actions, leading to inefficient outcomes. This is why government intervention is often necessary in such markets. In markets with externalities or public goods, there is a divergence between private costs and benefits and social costs and benefits. Private decision makers do not take into account the full costs or benefits of their actions on society as a whole, leading to market failures.

Quiz 17: Externalities and Public Goods