Chapter 5, Externalities, Environmental Policy, and Public Goods Video Solutions, Economics

02:12

Problem 1

What is an externality? Give an example of a positive externality, and give an example of a negative externality.

Daniel Cisneros

Numerade Educator

02:33

Problem 2

When does the private cost of producing a good differ from the social cost? Give an example. When does the private benefit from consuming a good differ from the social benefit? Give an example.

Pavitr Ahuja

Numerade Educator

01:54

Problem 3

What is economic efficiency? How do externalities affect the economic efficiency of a market equilibrium?

Xiaomin Bian

Numerade Educator

02:18

Problem 4

What is market failure? When is market failure likely to arise?

Mihir Nayar

Numerade Educator

03:06

Problem 5

Briefly explain the relationship between property rights and the existence of externalities.

Oluwadamilola Ameobi

Numerade Educator

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A neighbor's barking dog can be both a positive externality and a negative externality. Under what circumstances would a dog's bark be a positive externality? Under what circumstances would a dog's bark be a negative externality?

Rashmi Sinha

Numerade Educator

04:23

Problem 7

Yellowstone National Park is in bear country. The National Park Service, at its Yellowstone Web site, states the following about camping and hiking in bear country: Do not leave packs containing food unattended, even for a few minutes. Allowing a bear to obtain human food even once often results in the bear becoming aggressive about obtaining such food in the future. Aggressive bears present a threat to human safety and eventually must be destroyed or removed from the park. Please obey the law and do not allow bears or other wildlife to obtain human food. What negative externality does obtaining human food pose for bears? What negative externality do bears obtaining human food pose for future campers and hikers?

Ankit Gupta

Numerade Educator

04:12

Problem 8

Every year at the beginning of flu season, many people, including the elderly, get a flu shot to reduce their chances of contracting the flu. One result is that people who do not get a flu shot are less likely to contract the flu.
a. What type of externality (negative or positive) arises from getting a flu shot?
b. On the graph that follows, show the effects of this externality by drawing in and labeling any additional curves that are needed and by labeling the efficient quantity and the efficient price of flu shots. Label the area representing deadweight loss in this market.

Joanna Quigley

Numerade Educator

02:37

Problem 9

John Cassidy, a writer for the New Yorker, wrote a blog post arguing against New York City's having installed bike lanes. Cassidy complained that the bike lanes had eliminated traffic lanes on some streets as well as some on-street parking. A writer for the Economist disputed Cassidy's argument with the following comment: "I hate to belabour the point, but driving, as it turns out, is associated with a number of negative externalities." What externalities are associated with driving? How do these externalities affect the debate over whether big cities should install more bike lanes?

Nick Johnson

Numerade Educator

02:36

Problem 10

In a study at a large state university, students were randomly assigned roommates. Researchers found that, on average, males assigned to roommates who reported drinking alcohol in the year before entering college earned GPAs one-quarter point lower than those assigned to nondrinking roommates. For males who drank frequently before college, being assigned to a roommate who also drank frequently before college reduced their GPAs by two-thirds of a point. Draw a graph showing the price of alcohol and the quantity of alcohol consumption on college campuses. Include in the graph the demand for drinking and the private and social costs of drinking. Label any deadweight loss that arises in this market.

Rashmi Sinha

Numerade Educator

04:24

Problem 11

Tom and Jacob are college students. Each of them will probably get married later and have two or three children. Each knows that if he studies more in college, he'll get a better job and earn more money. Earning more will enable them to spend more on their future families for things such as orthodontia, nice clothes, admission to expensive colleges, and travel. Tom thinks about the benefits to his potential children when he decides how much studying to do. Jacob doesn't.
a. What type of externality arises from studying?
b. Draw a graph showing this externality, contrasting the responses of Tom and Jacob. Who studies more? Who acts more efficiently? Briefly explain.

Rashmi Sinha

Numerade Educator

01:08

Problem 12

In recent years, companies have used fracking, or hydraulic fracturing, in drilling for oil and natural gas that previously could not be profitably recovered. According to an article in the New York Times, "horizontal drilling has enabled engineers to inject millions of gallons of high-pressure water directly into layers of shale to create the fractures that release the gas. Chemicals added to the water dissolve minerals, kill bacteria that might plug up the well, and insert sand to prop open the fractures." Experts are divided about whether fracking results in significant pollution, but some people worry that chemicals used in fracking might lead to pollution of underground supplies of water used by households and farms.
a. First, assume that fracking causes no significant pollution. Use a demand and supply graph to show the effect of fracking on the market for natural gas.
b. Now assume that fracking does result in pollution. On your graph from part (a), show the effect of fracking. Be sure to carefully label all curves and all equilibrium points.
c. In your graph in part (b), what has happened to the efficient level of output and the efficient price in the market for natural gas compared with the situation before fracking? Can you be certain that the efficient level of output and the efficient price have risen or fallen as a result of fracking? Briefly explain.

Kaylee Mcclellan

Numerade Educator

07:39

Problem 13

In an article in the agriculture magazine Choices, Oregon State University economist JunJie Wu made the following observation about the conversion of farmland to urban development: Land use provides many economic and social benefits, but often comes at a substantial cost to the environment. Although most economic costs are figured into land use decisions, most environmental externalities are not. These environmental "externalities" cause a divergence between private and social costs for some land uses, leading to an inefficient land allocation. For example, developers may not bear all the environmental and infrastructural costs generated by their projects. Such "market failures” provide a justification for private conservation efforts and public land use planning and regulation. What does the author mean by market failures and inefficient land allocation? Explain why the author describes inefficient land allocation as a market failure. Illustrate your argument with a graph showing the market for land to be used for urban development.

Jonathan Tapiwa

Numerade Educator

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