Week 14 Quiz

Which of these situations is a negative externality?

Select one.

• A tool factory's smoke leaves soot on the windows of homes nearby whose owners buy nothing from it
• A popular bakery raises the price of its bread, and its regular buyers grumble about it but keep paying the higher price
• A homeowner's flower garden makes the walk to the bus stop nicer for the neighbors
• A shop pays its workers a higher wage, and its costs rise

In the course's illustrative running market, inverse demand is P = 9 − Q ⁄ 10 and inverse supply is P = 3 + Q ⁄ 10, with P in dollars per unit and Q in units per day, and each unit does 2 dollars of harm to neighbors who neither buy nor sell the good. Which line is the marginal social cost?

Select one.

• P = 3 + Q ⁄ 10, the supply curve, because it shows the seller's cost
• P = 1 + Q ⁄ 10, the supply curve moved down by the harm
• P = 5 + Q ⁄ 10, the supply curve with the harm added to every unit
• P = 11 − Q ⁄ 10, the demand curve with the harm added

In the course's illustrative running market, inverse demand is P = 9 − Q ⁄ 10 and inverse supply is P = 3 + Q ⁄ 10, with P in dollars per unit and Q in units per day, and each unit does 2 dollars of harm to neighbors who neither buy nor sell the good. No one outside the trade gains from the good. What are the efficient quantity and price?

Select one.

• 30 units per day at 6 dollars, where demand meets supply
• 20 units per day at 7 dollars, where demand meets marginal social cost
• 40 units per day at 7 dollars, to the right of the market
• 20 units per day at 5 dollars, read from the supply curve

In the course's illustrative running market, inverse demand is P = 9 − Q ⁄ 10 and inverse supply is P = 3 + Q ⁄ 10, with P in dollars per unit and Q in units per day, and each unit does 2 dollars of harm to neighbors who neither buy nor sell the good. The market trades 30 units at 6 dollars. On the last 10 units it trades, marginal social cost is above what buyers value them at, by a gap that grows to 2 dollars at the 30th unit, where marginal social cost is 8 dollars and buyers value the unit at 6. What is the deadweight loss of the externality, in dollars per day?

Select one.

• 60, the harm on all 30 units
• 2, the harm on a single unit
• 20, the gap times the 10 extra units
• 10, the triangle on the 10 extra units

In the course's illustrative running market, inverse demand is P = 9 − Q ⁄ 10 and inverse supply is P = 3 + Q ⁄ 10, with P in dollars per unit and Q in units per day, and each unit does 2 dollars of harm to neighbors who neither buy nor sell the good. In Week 7, with no harm to anyone, a 2-dollar tax per unit on this market shrank the quantity traded and caused a deadweight loss. With the 2-dollar harm, what does the same tax do?

Select one.

• It removes the externality's deadweight loss by moving the market to the efficient quantity
• It causes a deadweight loss, exactly as it did in Week 7, because a tax always shrinks trade
• It has no effect, because the neighbors still bear harm on every unit
• It removes a deadweight loss equal to the revenue it raises

On the course's illustrative running market, each unit does 2 dollars of harm to neighbors, and the market trades 30 units a day, so the harm comes to 2 × 30 = 60 dollars a day. What corrective tax per unit moves the market to the efficient quantity?

Select one.

• 60 dollars a unit, the total harm at the market quantity
• 1 dollar a unit, half the harm, so buyers and sellers share it
• 2 dollars a unit, the marginal external cost
• No tax, because the market already counts every cost

True or false: a factory's smoke does 300 dollars a month of damage to the laundry next door, and a filter costs 200 a month. If the factory holds the right to pollute and the two can bargain cheaply, the filter never goes in.

True or false.

• True
• False

Under the EPA's Acid Rain Program, the cap-and-trade program for power plants, how much pollution does one allowance permit a unit to emit?

Select one.

• One ton of carbon dioxide
• One ton of sulfur dioxide
• One hundred tons of sulfur dioxide a day
• Any amount, as long as the plant pays a fee

A public good is neither rival nor excludable. Which of these are public goods? Select all that apply.

Select every option that applies.

• A neighborhood fireworks show that anyone nearby can watch
• A seat on a crowded city bus that charges a fare
• Fish in open waters that anyone may catch
• A lighthouse beam that every passing boat can see
• A members-only streaming service

In the debate over carbon pricing, which of these statements is normative rather than positive?

Select one.

• A price on emissions raises the cost of the goods whose production emits
• Under a single price, the firms that can cut emissions most cheaply tend to cut first
• If only some places price carbon, some production may move to places that do not
• People who cause a harm ought to pay for it, and the interests of future people deserve real weight