chapter 17
Chapter 17
1. (Externalities) Complete each of the following sentences:
a. Resources for which periodic use can be continued indefinitely are known as renewable resources.
b. Resources that are available only in fixed amount are exhaustible resources.
c. The possibility that an open-access resource is used until the net marginal value of additional use equals zero is known as the common pool problem.
2. (Resolving the Common-Pool Problem) Why have authorities found it so difficult to regulate the fishing catch in the open ocean to allow for a sustainable yield?
3. (Negative Externalities) Suppose you wish to reduce a negative externality by imposing a tax on the activity that creates that externality. When the amount of externally produced per unit of output increases as output increases, the correct tax can be determined by using a demand-supply diagram; show this. Assume that the marginal private cost curve slopes upward.
4. (Negative Externalities) Review the situation illustrated in the graph above. If the government sets the price of electricity at he socially optimal level, why is the net gain equal to triangle abc, even though consumers now pay a higher price for electricity? What would the net gain be if the government set the price above the optimal level?
5. (External cost) Use the data in the table below to answer the following questions.
a. What is the marginal external cost of production?
b. What levels is produced if there is no regulation of the externality?
c. What level should be produced to achieve economic efficiency?
d. Calculate the dollar value of the net gain to society from correcting the externality.
|
Quantity |
Marginal Private benefit (demand) |
Marginal Private Cost (supply) |
Marginal Social Cost |
Net gain to society |
|
0 |
|
0 |
0 |
|
|
1 |
10 |
2 |
4 |
|
|
2 |
9 |
3 |
5 |
|
|
3 |
8 |
4 |
6 |
|
|
4 |
7 |
5 |
7 |
|
|
5 |
6 |
6 |
8 |
|
|
6 |
5 |
7 |
9 |
|
|
7 |
4 |
8 |
10 |
|
|
8 |
3 |
9 |
11 |
|
|
9 |
2 |
10 |
12 |
|
|
10 |
1 |
11 |
13 |
|
6. (External costs with variable technology) Think of an industry that pollutes the water and has access to variable technology for reducing that pollution. Graphically illustrate and explain the impact of each of the following, other things constant, on the optimal level of water quality:
a. New evidence is discovered about a greater risk of cancer from water pollution.
b. The cost of pollution-control equipment increases.
c. A technological improvement reduces the cost of pollution control.
7. (Market for pollution rights) The following graph shows the market for pollution rights.
a. If there are no restrictions on pollution, what amount is charged?
b. What is the quantity supplied and the quantity demanded if the government restricts the amount of discharge to Q but gives the permits away?
c. Where is market equilibrium if the government sells the permits? Illustrate this on the graph.
d. What happens to market equilibrium if the government reduces the amount of discharged permitted to Q? Illustrate this on the graph.
9. (Positive Externalities) The value of a home depends in part on how attractive other homes and yards in the neighborhood are. How do local zoning ordinances try to promote land uses that generate external benefits for neighbors?