Page 750 - Microeconomics, Fourth Edition

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724 CHAPTER 17 EXTERNALITIES AND PUBLIC GOODS
5. How might an emissions fee lead to an efficient level 8. How does a nonrival good differ from a nonexclusive
of output in a market with a negative externality? good?
6. How might an emissions standard lead to an efficient 9. What is a public good? How can one determine the
level of output in a market with a negative externality? optimal level of provision of a public good?

7. What is the Coase Theorem, and when is it likely 10. Why does the free-rider problem make it difficult or
to be helpful in leading a market with externalities to impossible for markets to provide public goods efficiently?
provide the socially efficient level of output?

PROBLEMS

17.1. Why is it not generally socially efficient to set an b) Why is the optimal toll during the peak period not
emissions standard allowing zero pollution? $3, the difference between the marginal social cost
and the marginal private cost when the traffic volume
17.2. Education is often described as a good with pos- is Q 5 ?
itive externalities. Explain how education might generate
positive external benefits. Also suggest a possible action c) How much revenue will the toll authority collect per
the government might take to induce the market for hour if it charges the economically efficient toll during
education to perform more efficiently. the peak period?
17.6. The accompanying graph (on next page) shows
17.3. a) Explain why cigarette smoking is often described
as a good with negative externalities. the demand curve for gasoline and the supply curve for
gasoline. The use of gasoline creates negative externali-
b) Why might a tax on cigarettes induce the market for ties, including CO 2 , which is an important source of
cigarettes to perform more efficiently?
global warming. Using the graph and the table below,
c) How would you evaluate a proposal to ban cigarette identify:
smoking? Would a ban on smoking necessarily be eco- • The equilibrium price and quantity of gasoline
nomically efficient?
• The producer and consumer surplus at the market
17.4. Consider Learning-By-Doing Exercise 17.2, equilibrium
with a socially efficient emissions fee. Suppose a techno- • The cost of the externality at the free-market
logical improvement shifts the marginal private cost equilibrium
curve down by $1. If the government calculates the opti- • The net social benefits arising at the free-market
mal fee given the new marginal private cost curve, what equilibrium
will happen to the following?
• The socially optimal price of gasoline
a) The size of the optimal tax
• The consumer and producer surplus at the social
b) The price consumers pay
optimum
c) The price producers receive
• The cost of the externality at the social optimum
17.5. Consider the congestion pricing problem illus- • The net social benefits arising at the social
trated in Figure 17.5. optimum
a) What is the size of the deadweight loss from the neg- • The deadweight loss due to the externality
ative externalities if there is no toll imposed during the
peak period?
Equilibrium Price Social Optimum Difference Between Social
and Quantity Price and Quantity Optimum and Equilibrium
Consumer surplus
Private producer surplus
Cost of externality
Net social benefits
Deadweight loss