Michael Parkin
ISBN #9780133872279
12th Edition
839 Questions
Homework Questions
Externalities occur when the actions of producers or consumers have effects on third parties that are not considered in market transactions. Negative externalities, such as pollution and overfishing, lead to market inefficiencies because social costs outweigh private costs. Conversely, positive externalities, like those stemming from education, yield social benefits that are greater than the private benefits. Various policy remedies – including Pigovian taxes, property rights assignments, regulations, production quotas, and individual transferable quotas – aim to align private incentives with social optimum, minimizing deadweight loss and promoting efficient resource use.
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Describe three consumption activities that create external costs.
Describe three production activities that create external benefits.
Use the following figure, which illustrates the market for cotton, to work. Suppose that the cotton growers use a chemical to control insects and waste flows into the town's river. The marginal social cost of producing the cotton is double the marginal private cost. If no one owns the river and the town takes no action to control the waste, what is the quantity of cotton and the deadweight loss created?
Use the following figure, which illustrates the market for cotton, to work. Suppose that the cotton growers use a chemical to control insects and waste flows into the town's river. The marginal social cost of producing the cotton is double the marginal private cost. If the town owns the river and taxes cotton growers so that the efficient quantity is grown, how much tax revenue does the town receive? Is the quantity of waste zero? Explain your answer.
Use the figure in the next column to work.The figure illustrates the market for North Atlantic tuna. a. What is the quantity of tuna that fishers catch and the price of tuna? Is the tuna stock being used efficiently? Explain why or why not. b. What would be the price of tuna, if the stock of tuna were used efficiently?