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1、Microeconomics, 9e (Pindyck/Rubinfeld)Chapter 18 Externalities and Public Goods18.1 ExternalitiesExternalities:A) are not reflected in market prices, so they can be a source of economic inefficiency.B) do become reflected in market prices, so they can be a source of economic inefficiency.C) are not
2、reflected in market prices, so they do not adversely affect economic efficiency.D) do become reflected in market prices, so they do not adversely affect economic efficiency.E) may or may not become reflected in market prices, but do not have an impact on economic efficiency in either event.Answer: A
3、Diff: 1Section: 18.1Constructing plastic containers produces air pollutants. Therefore, in the market for plastic containers, A) the marginal social cost curve is above and to the right of the demand curve.B) the marginal social cost curve is below and to the left of the demand curve.C) the marginal
4、 social cost curve is above and to the left of the supply curve.D) the marginal social cost curve is below and to the right of the supply curve.E) there is a gap between quantity supplied and quantity demanded in equilibrium.Answer: CDiff： 1Section: 18.1Dry cleaning of clothing produces air pollutan
5、ts. Therefore, in the market for dry cleaning services, the equilibrium price:A) and output are too low to be optimal.B) and output are too high to be optimal.C) is too low to be optimal, and equilibrium quantity is too high.D) is too high to be optimal, and equilibrium quantity is too low.E) is opt
6、imal, but there is an excess supply.Answer: CDiff： 1Section: 18.123) When peach canners process fresh peaches, they produce three products. The first, canned peaches, is sold in the marketplace. The others, liquid and solid wastes, are by-products that must be removed. The liquid is sometimes tempor
7、arily kept in holding ponds and later released into a nearby stream or sewer. Liquid dumped in the stream represents a negative externality to downstream users. In the peach growing region, the marginal external costs of the canning process have been estimated as: MEC = 0.000043Q,where Q represents
8、output of canned peaches in cases per week. The marginal cost of canning peaches (ignoring MEC) is:MC = 2.00 + 0.000157Q,and the demand for canned peaches is: P = 9.00 - 0.000243Q.a. How many cases of peaches will be produced per week during the growing season, and what will the selling price per ca
9、se be if producers ignore the costs imposed on others?b. If producers are forced to incorporate the marginal external costs into their production decisions, what will the new production rate and selling price be?c. In taking account of the external costs imposed on others (part b), what was the impa
10、ct on the selling price and production rate of canned peaches? Explain the impact on market efficiency.Answer:a.The output rate is determined where the marginal costs of production (supply) equal demand. Equilibrium output rate is:MC = demand2.00 + 0.000157Q = 9.00 - 0.000243QQ = (9 - 2)/0.00040 = 1
11、7,500 case/weekThe selling price is determined by demand.P = 9- 0.000243(17,500) = 4.7475 = $4.75/caseb.The MFC and MEC must be added (vertically) to determine the marginal social cost of production (MSC). This expression is equated to demand to determine the production rate.MSC = MC + MEC=2 + 0.000
12、157Q + 0.000043Q=2 + 0.0002QMSC = 2 + 0.0002Q = 9 - 0.000243Q = demandQ = (9- 2)/0.000443 = 15,801 case/weekThe new selling price is:P = 9- 0.000243(15,801) = $5.16/casec.As a result of internalizing the MEC, the canning industry produced fewer cases per week (17,500 一 15,801 = 1,699). Also, the sel
13、ling price increased from $4.75/case to $5.16/case. Market efficiency was increased when the price increased by increasing price and reducing output. The market is efficient because MSC equals selling price.Diff: 2Section: 18.1When a man invests in controlling weeds and trash that tend to accumulate
14、 in his yard, both he and his neighbors benefit from his action. Is an externality associated with his private decision? If so, explain its effect, and determine whether the efficient level of weed control occurs when the individual invests in weed control.Answer: When a man invests in weed and tras
15、h control and his neighbors benefit, but do not contribute to the effort, then too little investment will be made. The level of investment (weed and trash control) will be determined where his demand (marginal private benefit curve) intersects his marginal cost of control curve. Call this level of c
16、ontrol ql. Since others benefit, there is a positive externality which means that the efficient level of weed and trash control q2 is above the actual level.Diff: 1Section: 18.124) The demand for injections to immunize against a disease is given as:P = 13 0.0005Q,where P = price in dollars, and Q =
17、quantity measured as number of shots per month. The marginal social benefit function has the same vertical intercept as the demand curve and one half the slope (one half in absolute value). The marginal cost of injections is a constant $8.a. With a competitive market, what price and quantity will pr
18、evail, assuming that there is no government intervention?b. Explain why the demand curve and marginal social benefit functions are different in this case. What is the socially optimal quantity in the market?c. What government policies could be used to bring about the optimal outcome? Answer:a.Under
19、competition P = MC13 - 0.0005Q = 8-0.0005Q = -5Q = 10,000P = $8b.MSB differs from demand because there are benefits accruing to individuals other than the person immunized. MSB has the same intercept and one half the slope.MSB = 13 - 0.00025QOptimality requires that MSB equal MC.13-0.00025Q = 8-0.00
20、025Q = -5Q = 20,000c.In the case of external benefits, the appropriate government strategy is a subsidy. Diff: 2Section: 18.125) The food processing industry involves the canning of fruit products, among other things, and the canning process produces canned goods and waste products. The manufacturer
21、 of one kind of fruit product produces an external cost for third parties. This external cost is expressed as:MEC = 0.00005Q,where MEC represents marginal external cost (dollars/unit), and Q represents cases produced per week.The marginal cost of production (supply), ignoring MEC, at the industry le
22、vel is:MC = 2 + 0.000175Q.The industry demand for the product is:P = 10- 0.00025Q,where price P is in dollars per unit.a. Determine the output rate and price that would be established by profit maximizing firms.b. Determine the efficient output rate and price.c. Determine the cost to society of firm
23、s producing at the profit maximizing rate rather than at the efficient output rate.Answer:The profit maximizing production rate is based on demand and the industrys marginal cost of production, ignoring MEC. Thus we equate MC with demand to get Q:MC = demand2 + 0.000175Q = 10 - 0.00025QQ = (10 - 2)/
24、0.000425 = 18,824 cases per weekThe selling price is:P = 10- 0.00025(18,824) = $5.294 per case.b.The efficient output rate is based on the social costs and demand. MSC = MC + MEC=2 + 0.000175Q + 0.00005Q=2 + 0.000225QMSC = demand2 + 0.000225Q = 10 - 0.00025QQ = (10 - 2)/0.000475 = 16,842 cases per w
25、eekThe selling price is:P = 10 - 0.00025(16,842) = $5.79 per case.c.The social cost of not producing at the efficient market rate is the area between MSC and demand between Q of 16,842 and 18,824. The average height, Havg, is:Height atQ = 18,824 = Hi = -8 + 0.000475(18,824)=0.9414Height atQ = 16,842
26、 = H2 = -8 + 0.000475(16,842)=0.0000Havg = (Hi + H2)/2 = (0.9414 + 0)/2 = 933.52Thus, the social loss is $933.52 per week.Diff： 2Section: 18.118.2 Ways of Correcting Market Failure(Xillars per unit of ciniZcnsLacI of missions1) Refer to Figure 18.2.1 above. In which of the following instances does t
27、he reduction in the level of emissions outweigh the harm done from emissions?A) When the level of emissions is 6 unitsWhen the level of emissions is 12 unitsB) When the level of emissions is 18 unitsIn all of the cases aboveAnswer: ADiff: 3Section: 18.2Refer to Figure 18.2.1 above. In which of the f
28、ollowing instances is the cost of reducing emissions less the harm done from emissions?A) When the level of emissions is 6 unitsWhen the level of emissions is 12 unitsB) When the level of emissions is 18 unitsIn all of the cases aboveAnswer: CDiff: 3Section: 18.2Use the following statements to answe
29、r this question:I) The efficient amount of recycling of scrap materials is the amount that equates the marginal social cost of scrap disposal to the marginal cost of recycling.J) . The efficient amount of recycling of scrap materials occurs when society recycles all recyclable wastes.K) Both I and I
30、I are true.L) I is true, and II is false.M) I is false, and II is true.N) Both I and II are false.Answer: BDiff: 1Section: 18.2Use the following statements to answer this question:1. The bubble concept allows an emitter to sum emission limits for all sources of pollutants within a particular firm, a
31、nd to set emissions reductions from each source as it pleases as long as the total pollutant limit at the plant is not exceeded.IL Under an emissions offsets program, a new source of emissions can locate in a region only if their new emissions are accompanied by reduced emissions from existing sourc
32、es by at least as much.A) Both I and II are true.B) I is true, and II is false.C) I is false, and II is true.D) Both I and II are false.Answer: ADiff： 1Section: 18.2If a firm had a fixed proportions technology, then the pollution produced by this firm:A) cannot be reduced.B) can be reduced only by l
33、owering the level of output (holding technology constant).C) can be reduced by changing how the output is produced within the bounds of the existing technology.D) can be reduced only by increasing the number of firms in the industry.E) can be reduced only by changing the technology.Answer: BDiff： 3S
34、ection: 18.2The optimum level of pollution emissions:A) is zero.B) occurs where the marginal external benefit is zero.C) occurs where no damage to the environment is being done.D) occurs where the marginal external benefit equals the marginal external cost.E) occurs where the marginal external cost
35、equals the marginal cost of abatement.Answer: EDiff: 1Section: 18.2Given that MEC(q) = 2於，what can be inferred about the total cost of pollution as output increases?A) The total cost of pollution is increasing.B) The total cost of pollution is positive.C) The total cost of pollution is growing at a
36、positive rate.D) The total cost of pollution is growing at an increasing rate.E) The total cost of pollution is changing.Answer: DDiff: 2Section: 18.25) When emissions are measured on the horizontal axis, the marginal cost of abating emissions is:A) downward-sloping because emissions become more and
37、 more easy to eliminate once the firm makes the initial commitment to do so.B) downward-sloping because a high level of emissions is cheap to attain, and a low level of emissions is expensive to attain.C) upward-sloping because emissions become more and more easy to eliminate once the firm makes the
38、 initial commitment to do so.D) upward-sloping because a high level of emissions is cheap to attain, and a low level of emissions is expensive to attain.E) horizontal because the technology to remove emissions is assumed constant.Answer: BDiff: 2Section: 18.2As you move rightward on a marginal cost
39、of abatement curve, emissions are:A) falling, and the cost of eliminating the marginal unit falls.B) rising, and the cost of eliminating the marginal unit falls.C) falling, and the cost of eliminating the marginal unit rises.D) rising, and the cost of eliminating the marginal unit rises.E) rising, a
40、nd the cost of eliminating the marginal unit is constant.Answer: BDiff： 1Section: 18.2Left alone, with no government interference, a profit-maximizing firm will produce emissions:A) where the MSB curve crosses the MCA curve.B) at the vertical intercept of the MSB curve.C) at the horizontal intercept
41、 of the MSB curve.D) at the vertical intercept of the MCA curve.E) at the horizontal intercept of the MCA curve.Answer: EDiff: 1Section: 18.2To enforce the optimum level of emissions a government could set an emissions standard at the quantity:A) where the MSB curve crosses the MCA curve.B) located
42、at the vertical intercept of the MSB curve.C) located at the horizontal intercept of the MSB curve.D) located at the vertical intercept of the MCA curve.E) located at the horizontal intercept of the MCA curve.Answer: ADiff: 1Section: 18.26) To enforce the optimum level of emissions, a government cou
43、ld set an emissions fee, which would be: A) the dollar value indicated by the intersection of the MSB and MCA curves, and would apply to every unit of pollutants the firm emitted.B) the dollar value indicated by the intersection of the MSB and MCA curves, and would apply to every unit of pollutants
44、the firm emitted above the standard.C) the vertical intercept of the MSB curve.D) the vertical intercept of the MCA curve.E) the vertical distance between the intercepts of the MSB curve and the MCA curve.Answer: ADiff： 1Section: 18.27) Refer to Figure 18.2.2 above. Which of the dashed lines corresp
45、onds to an emissions standard?A) The horizontal lineThe vertical lineB) Both lines represent standards.C) Neither line represents standards.Answer: BDiff： 1Section: 18.2Refer to Figure 18.2.2 above. Which of the following achieves the efficient level of emissions?A) A feeA standardB) Either a fee or
46、 a standardNeither a fee nor a standardAnswer: BDiff: 1Section: 18.28) Refer to Figure 18.2.2 above. Which of the following areas represents the total abatement cost?A) The rectangleThe triangleB) Both the rectangle and the triangleNeither the rectangle nor the triangleAnswer: BDiff: 1Section: 18.2I
47、f the MSB/MCA graph indicates that an emissions fee of $10 per unit would lead to the optimum level of emissions, but the government set a fee of $5 per unit, emissions would:A) not be reduced at all.B) not occur at all.C) be above the optimum level, but curtailed somewhat from what they would have
48、been with no fee at all.D) be above the optimum level by 50%.E) be below the optimum level by 50%.Answer: CDiff: 1Section: 18.2rugpw*f unit of 向9) Refer to Figure 18.2.3 above. Which of the following statements is correct?A) In this case, a fee is better, because the MEC curve is flat and the MCA curve is steep.B) In this case, a fee is better, because the MEC curve is steep and the MCA curve is flat.C) In this case, either a fee or a standard work the same because the MEC curve is steep and th