Question 1

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

Accepted Answer

Public goods have nonrivalry and nonexcludability in consumption. Nonrivalry means that consumption by one individual does not reduce the amount available for others to consume. Nonexcludability means it is difficult or impossible to exclude anyone from consuming the good.

Question 2

A.C.Pigou argued that the government can deal with a positive externality in consumption by giving consumers a subsidy equal to the value of the externality.

Accepted Answer

A.C. Pigou proposed that the government can deal with positive externalities in consumption by providing a subsidy equal to the value of the externality. This would encourage people to consume more of the good, thereby increasing social welfare.

Question 3

One problem with using a command and control approach to pollution reduction is that the monitoring costs may be too high.

Accepted Answer

In a command and control approach, the government sets specific pollution reduction targets and regulations for industries to comply with. However, enforcing these regulations requires monitoring and enforcement, which can be costly. Therefore, the monitoring costs may be too high, making the approach less feasible.

Question 4

Figure 5-14  Figure 5-14 shows the market for aviation security. Aviation security generates a positive externality because people who are not airline passengers benefit from aviation security.
-Refer to Figure 5-14 to answer the following questions.
a. In the absence of any government intervention what is the equilibrium level of security that airlines will supply? Denote this level,Q*.Briefly explain why this quantity is not the economically efficient level of aviation security.
b.In the diagram,illustrate the presence of positive externalities in the aviation security market.Label any new curve that you draw.
c.On your diagram identify the economically efficient level of aviation security.Denote this level Qe.
d.Explain how a government subsidy for the airlines can bring about the economically efficient aviation security level.Be sure to identify the size of the subsidy.

Accepted Answer

The answer of Figure 5-14  Figure 5-14 shows the...

Question 5

When a tax on output is imposed to internalize the external costs of pollution,the supply curve shifts down by the amount of the tax.

Accepted Answer

The answer of When a tax on output is imposed...

Question 6

What is meant by the term "internalizing an externality"? How does a Pigovian tax or subsidy internalize an externality?

Accepted Answer

The answer of What is meant by the term "internalizing...

Question 7

What is a Pigovian tax? What happens to deadweight loss when a Pigovian tax is implemented?

Accepted Answer

The answer of What is a Pigovian tax? What happens...

Question 8

Figure 5-13  Figure 5-13 illustrates the market for gasoline before and after the government imposes a tax to bring about the efficient level of gasoline production.
-Refer to Figure 5-13.The actual price of gasoline paid by consumers after the tax is implemented is ________ per gallon.

Accepted Answer

The answer of Figure 5-13  Figure 5-13 illustrates the...

Question 9

Suppose the government mandates the installation of certain type of pollution abatement equipment for the leather tannery industry.For some firms in the industry,installing this equipment may not be the most cost effective method of reducing pollution.

Accepted Answer

It is possible that installing the mandated equipment may not be the most cost effective approach for some firms in the industry. Other approaches such as changing production processes or using alternative materials may be more effective for certain firms.

Question 10

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?

Accepted Answer

The answer of Economist A.C.Pigou argued that to deal with...

Question 11

Issuing marketable emission allowance permits to polluting firms will result in those firms polluting more than is socially desirable.

Accepted Answer

The answer of Issuing marketable emission allowance permits to polluting...

Question 12

Which of the following displays these two characteristics: rivalry and nonexcludability?

Accepted Answer

A common resource is rivalrous as its consumption by one individual reduces the amount available for others. Nonexcludability refers to the inability to prevent people from using the resource, and common resources often suffer from this characteristic as well.

Question 13

Figure 5-13  Figure 5-13 illustrates the market for gasoline before and after the government imposes a tax to bring about the efficient level of gasoline production.
-Refer to Figure 5-13.The gasoline tax raises the price paid by consumers by ________ per gallon.

Accepted Answer

In Figure 5-13, the efficient level of gasoline production is at 12 billion gallons where the marginal social cost (MSC) intersects with the demand curve. Before the tax, the equilibrium quantity produced and consumed is 14 billion gallons at a price of $1.75 per gallon. When the tax is imposed, the supply curve shifts upward by the amount of the tax, which is $0.50 per gallon. This causes a new equilibrium to be established where the quantity produced and consumed is reduced to 12 billion gallons and the price paid by consumers increases to $3.00 per gallon. Therefore, the tax raises the price paid by consumers by $1.25 per gallon ($3.00 - $1.75).

Question 14

Figure 5-13  Figure 5-13 illustrates the market for gasoline before and after the government imposes a tax to bring about the efficient level of gasoline production.
-Refer to Figure 5-13.The amount of the gasoline tax is ________ per gallon.

Accepted Answer

The answer of Figure 5-13  Figure 5-13 illustrates the...

Question 15

A product is considered to be nonexcludable if

Accepted Answer

Nonexcludable goods are goods that cannot be restricted to people who have paid for them. This means that people who have not paid for the good can still enjoy its benefits.

Question 16

A product is considered to be rivalrous if

Accepted Answer

If consumption of the product by one person reduces the quantity available for others to consume, then it is considered rivalrous. Therefore, option C is the correct answer. Option A pertains to excludability, while option B pertains to non-excludability. Option D pertains to common ownership, which is not necessarily the same as rivalrousness.

Question 17

Which of the following displays these two characteristics: nonrivalry and excludability?

Accepted Answer

Quasi-public goods have nonrivalry and excludability characteristics. Nonrivalry means that the consumption of the good by one individual does not reduce its availability to others, while excludability means that it is possible to prevent non-paying individuals from accessing the good. Examples of quasi-public goods include cable television, toll roads, and congestible public services like fire protection.

Question 18

Briefly explain the command-and-control approach in dealing with an externality such as pollution.Give an example of the U.S.government using the command-and-control approach to deal with the pollution problem.

Accepted Answer

The answer of Briefly explain the command-and-control approach in dealing...

Question 19

When the government imposes a tax equal to the external cost of producing a product that causes pollution,the government is said to externalize the externality.

Accepted Answer

The answer of When the government imposes a tax equal...

Question 20

Some environmentalists have criticized tradable emissions allowances on the grounds that they give permit holders a license to pollute.Furthermore,environmentalists argue that those who sell their permits receive a monetary benefit from their contribution to polluting the environment.Use economic reasoning to evaluate this criticism.

Accepted Answer

The answer of Some environmentalists have criticized tradable emissions allowances...

Quiz 5: Externalities, environmental Policy, and Public Goods