3. (Negative Externalities) Suppose you wish to reduce a negative externality by imposing a tax on the activity that creates that externality. On a supply-demand diagram, please show the tax needed to correct the externality if the amount of externality produced rises as output rises. Assume that the marginal private cost curve slopes upward. Negative Externalities: The Market for Electricity in the Midwest Marginal social cost $0.14 Marginal private cost 0.10 D 35 50 Millions of kilowatt- hours of electricity per month Dollars per kilowatt-hour

3. (Negative Externalities) Suppose you wish to reduce a negative externality by imposing a tax on the activity that creates that externality. On a supply-demand diagram, please show the tax needed to correct the externality if the amount of externality produced rises as output rises. Assume that the marginal private cost curve slopes upward. Negative Externalities: The Market for Electricity in the Midwest Marginal social cost $0.14 Marginal private cost 0.10 D 35 50 Millions of kilowatt- hours of electricity per month Dollars per kilowatt-hour

ECON MICRO

5th Edition

ISBN:9781337000536

Author:William A. McEachern

Publisher:William A. McEachern

Chapter17: Externalities And The Environment

Section: Chapter Questions

Problem 2.3P: (Negative Externalities) Suppose you wish to reduce a negative externality by imposing a tax on the...

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7. Demand and supply curves for products when there are negative or positive externalities. Quantity (A) Quantity (B) Quantity (C) On this graph above which one indicates the effect after the government subsidizes the producer because there are positive externalities from this product? (A. B. C ). On this graph above which one indicates the effect after the government subsidizes consumers for this product which has a positive externality? CA. B, C ). On this graph above which one indicates the effect after the producer was prevented from causing a negative externality or was forced to pay a tax to cover these costs? (A. B, C).
9. Private solutions to correct for externalities Consider the following scenario: Suppose that a flower nursery benefits from having a butterfly farm located only a few miles away, because the presence of the insects greatly improves flower pollination. Lawyers for the two companies meet to draft a legal document specifying the number of butterflies the farm promises to maintain in exchange for payments to be made by the nursery. Which of the following types of private solutions to the externality of pollination has occurred in this case? Moral codes and social sanctions Charities Contracts Integration of different types of businesses through merger or acquisition It's important to note that sometimes private solutions to externalities do not work. For example, this occurs when communications barriers or social customs are important enough relative to the potential gains involved that
6. Climate change and externalities. How is the issue of climate change related to the concept of externalities? What is the externality? What are the relevant markets? b. Provide an example of a market that features this externality. Assuming there is no intervention to correct for the externality, compare the market allocation to the efficient allocation. Does the market produce too much? Too little? Is the market outcome efficient? а. c. What is the relationship between the marginal private cost of production in this market and the marginal social cost? Explain. d. Suppose you wanted to come up with an estimate of the magnitude of the marginal external cost (in dollars). What would this number represent? What sort of information would you need to determine this number?
4. Understanding different policy options to correct for negativeexternalities Carbon dioxide emissions have been linked to melting of sea ice. The following table lists some potential regulations targeting the amount of airborne carbon dioxide. For each policy listed, identify whether it is a command-and-control policy (regulation), tradable permit system, corrective subsidy, or corrective tax. Tradable Permit System Public Policy The government limits total carbon-dioxide emissions by all factories to 260,000 tons per five years. Each individual factory is given the right to emit 230 tons of carbon dioxide, and factories may buy and sell these rights in a marketplace. Trees take carbon dioxide out of the air and convert it to oxygen, so the government funds a tree-planting initiative by offering $440 to any citizen who plants a tree. The government orders every factory to adopt a new technology, which reduces carbon-dioxide emissions into the atmosphere. The government charges…
(Figure: The Socially Optimal Quantity of Emissions from Coal Production) Use Figure The Socialy Optimal Quarety of Emissions from Coal Production in the figure, firms are the only beneficiaries of polution, and costs are borne solely by others in the society. Without government intervention Marginal social cost, marginal social benefit MSC of pollution MSB of pollution Quantity of pollution emissions (tons) O The outcome cannot be determined without more information Orms will continue to polute until the marginal benefit to them is $200 O firms will continue to pollute until the marginal benate to them is zero. O the quantity of pollution will be optimal.
4. Externalities - Definition and examples An externality arises when a firm or person engages in an activity that affects the well-being of a third party, yet neither pays nor receives any compensation for that effect. If the impact on the third party is beneficial, it is called a externality. The following graph shows the demand and supply curves for a good with this type of externality. The dashed drop lines on the graph reflect the market equilibrium price and quantity for this good. Shift one of the curves to reflect the presence of the externality. If there are external costs of production, then you should shift the supply curve to reflect the social costs of producing the good; similarly, if there are external benefits from production, then you should shift the demand curve to reflect the social benefits from consuming the good. PRICE (Dollars per unit) QUANTITY (Units) Supply Demand O Demand -- Supply ? With this type of externality, in the absence of government intervention,…
3. Achieving lower pollution Suppose the government decides to raise the gasoline tax as a way to reduce air pollution and traffic congestion to their optimal levels. Which of the following describes why corrective taxes, such as the gasoline tax, are unlike most other taxes? Other taxes are typically used to cover general spending, but funds from corrective taxes can be used only to alleviate pollution. Other taxes get passed on from businesses to consumers, whereas corrective taxes do not. Corrective taxes alter incentives, whereas other taxes typically do not. Corrective taxes bring the allocation of resources closer to the social optimum and, thus, improve economic efficiency.
4. Externalities - Definition and examples An externality arises when a firm or person engages in an activity that affects the well-being of a third party, yet neither pays nor receives any compensation for that effect. If the impact on the third party is detrimental, it is called a externality. The following graph shows the demand and supply curves for a good with this type of externality. The dashed drop lines on the graph reflect the market equilibrium price and quantity for this good. Shift one of the curves to reflect the presence of the externality. If there are external costs of production, then you should shift the supply curve to reflect the social costs of producing the good; similarly, if there are external benefits from production, then you should shift the demand curve to reflect the social benefits from consuming the good. PRICE (Dollars per unit) QUANTITY (Units) Supply Demand Demand Supply With this type of externality, in the absence of government intervention, the…
9. Private solutions to correct for externalities Consider the following scenario: Suppose that a chicken farm uses a nearby stream to dispose of the wastes released by its chickens. These wastes flow downstream into a lake that has become thick with algae and polluted by the minerals in the waste matter. The local office of a nonprofit environmental organization collects enough donations to fund a campaign to stop the farm's pollution. Which of the following types of private solutions to the externality of pollution has occurred in this case? O Contracts O Moral codes and social sanctions O Charities O Integration of different types of businesses through merger or acquisition It's important to note that sometimes private solutions to externalities do not work. For example, this occurs when one party repeatedly holds out for a better deal. This describes the problem of
9. Private solutions to correct for externalities Consider the following scenario: Suppose that a chicken farm uses a nearby stream to dispose of the wastes released by its chickens. These wastes flow downstream into a lake that has become thick with algae and polluted by the minerals in the waste matter. The local office of a nonprofit environmental organization collects enough donations to fund a campaign to stop the farm's pollution. Which of the following types of private solutions to the externality of pollution has occurred in this case? O Contracts O Charities O Integration of different types of businesses through merger or ac the market system has a crisis O Moral codes and social sanctions the government should never step in a private solution is not feasible It's important to note that sometimes private solutions to externalities do r communications barriers or social customs are important enough relative to the potential gains involved that