ECON 213 Problem Set 7 Market Inefficiencies Assignment solutions complete answers

ECON 213 Problem Set 7 Market Inefficiencies Assignment solutions complete answers 

 

A firm that electroplates inexpensive jewelry produces toxic waste, some of which ends up in a nearby river because of pipe leakage. If state regulators notice the problem and order the firm to make repairs and improve its monitoring processes, the supply curve will shift from S1 to S2.
What region of the graph represents the deadweight loss that is eliminated by the change? Use the area tool to outline the region.

 

A study finds that the noise from airplanes is harmful; hence, the government imposes a $25 tax on the sale of every airplane. This amount accurately accounts for the external cost of the noise pollution. Before the corrective tax, airplane tickets regularly sold for $190. After the tax is in place, the market price for airplane tickets rises to $195. 

 

Water use in a small town is high as people get ready to leave for work and after they arrive home at the end of the day. During the middle of the day, household use of this utility is very low. Increasing capacity seems like a bad idea because resources would sit idle during the time people are at work.  

The town council asks for your advice about the best way to solve the problem of quantity demanded during peak use hours. What advice would you give?

 

Which anti-pollution policy does not make use of cost-benefit analysis?

 

Suppose that a mechanic owns a building and is renting part of the building's space to a doctor. Further suppose that because the mechanic is the owner, he has the right to make noise during the day while he fixes cars. While the doctor cannot insist on a quiet environment, the doctor could move to a quieter building. However, rent in the next best building is $250/month more than rent in the noisy building. The mechanic can adopt a new technology that eliminates the noise for $175/month. Given this situation, can the doctor find a private solution with the mechanic that will make both better off?

 

A study finds that the noise from airplanes is harmful; hence, the government imposes a $30 tax on the sale of every unit. This amount accurately accounts for the external cost of the noise pollution. Before the corrective tax, airplane tickets regularly sold for $190. After the tax is in place, the market price for airplane tickets rises to $205. 

 

Suppose that a surfboard designer owns a building and is renting part of the building's space to a library. Further suppose that because the surfboard designer is the owner, he has the right to make noise during the day while he sands the boards. While the library cannot insist on a quiet environment, it could move to a quieter building. However, rent in the next best building is $250/month more than rent in the noisy building. The surfboard designer can adopt a new technology that eliminates the noise for $175/month. Given this situation, can the library find a private solution with the surfboard designer that will make both better off?

 

Construction is an example of a     externality. One way to correct this problem is to impose a tax equal to the externality. This is why many cities have noise ordinances that impose     fines and penalties for early-morning and late-evening disturbances than for disturbances at other times of the day.

 

Suppose that a mechanic owns a building and is renting part of the building's space to a spa. Further suppose that because the mechanic is the owner, he has the right to make noise during the day while he fixes cars. While the spa cannot insist on a quiet environment, it could move to a quieter building. However, rent in the next best building is $400/month more than rent in the noisy building. The mechanic can adopt a new technology that eliminates the noise for $325/month. Given this situation, can the spa find a private solution with the mechanic that will make both better off?

 

Noisy neighbors are an example of a   externality. One way to correct this problem is to impose a tax equal to the externality. This is why many cities have noise ordinances that impose   fines and penalties for early-morning and late-evening disturbances than for disturbances at other times of the day.

 

Airport traffic is an example of a     externality. One way to correct this problem is to impose a tax equal to the externality. This is why many cities have noise ordinances that impose     fines and penalties for early-morning and late-evening disturbances than for disturbances at other times of the day.

 

Indicate whether the following activities create a positive externality, a negative externality, or neither.

Late-night road construction begins on a new bridge. As a consequence, traffic is rerouted past your house while the construction takes place. 

An excavation firm pollutes a local stream with acid rock drainage.

A homeowner whose property is next to a city park enjoys the sounds of kids playing soccer. 

You and your friends volunteer to plant wildflowers along the local highway.

A student uses her cell phone during class.

 

A pastrami sandwich is an example of which kind of good?

If you are hunting deer, what kind of good is the deer? (Assume the deer is roaming in a public forest.)

A Memorial Day parade is an example of which kind of good?

A public swimming pool is an example of which kind of good? (Assume that the pool is not too crowded.)
A dose of flu vaccine is an example of which kind of good?

A mosquito abatement program is an example of which kind of good?

 

Suppose that a mechanic owns a building and is renting part of the building's space to a doctor. Further suppose that because the mechanic is the owner, he has the right to make noise during the day while he fixes cars. While the doctor cannot insist on a quiet environment, the doctor could move to a quieter building. However, rent in the next best building is $400/month more than rent in the noisy building. The mechanic can adopt a new technology that eliminates the noise for $325/month. Given this situation, can the doctor find a private solution with the mechanic that will make both better off?

What is the minimum and maximum payment the doctor would make to the mechanic to get the doctor to install the noise-reducing equipment? NOTE: Round your answers to the nearest dollar.

 

Which of these situations would give rise to the free-rider problem?

 

Use of Internet service in a small town is high as people get ready to leave for work and after they arrive home at the end of the day. During the middle of the day, household use of this utility is very low. Increasing capacity seems like a bad idea because resources would sit idle during the time people are at work.  

The town council asks for your advice about the best way to solve the problem of quantity demanded during peak use hours. What advice would you give?

 

If a good that generates negative externalities is priced to internalize the externality, then its price will     and its output will    .

 

A study finds that the noise from lawn mowers is harmful; hence, the government imposes a $20 tax on the sale of every unit. This amount accurately accounts for the external cost of the noise pollution. Before the corrective tax, basic push mowers regularly sold for $190. After the tax is in place, the market price for basic push mowers rises to $205. 

Because of the tax, the number of basic push mowers sold will

The socially optimal price of basic push mowers is

The private market price is

A firm selling basic push mowers receives     after it pays the tax.

 

Use the following graph to identify the equilibrium at the social optimum (ES), the competitive market equilibrium (EM), the quantity produced at the social optimum (QS), and the quantity produced at the competitive market equilibrium (QM).

 

Please read the article below, and use the information in the article to answer this question.

Clearly establishing property rights for water ownership would result in which of the following? 

 

A city water district wants to encourage local businesses and homeowners to landscape with drought-tolerant plants. After disappointing results from a publicity campaign, the water district decides to subsidize local plant nurseries so they can offer the plants at a lower price.

Suppose the graph shows the supply and demand curves for a drought-tolerant plant, such as purple sage. Drag the appropriate curve to show the impact of the water district subsidy.

 

All jurisdictions in the United States have laws against drunk driving, with penalties ranging from lost driving privileges to jail time. But in many jurisdictions, establishments can also be held liable for selling alcohol to visibly intoxicated patrons who then cause accidents. In those locales, having drunk drivers on the road is a negative externality that both consumers and producers must internalize.

The effect on the supply and demand curves for alcoholic beverages is to shift both curves to the left: as drinkers moderate their intake, demand drops from D1 to D2, and as bars and liquor stores refuse service to drunk patrons, supply drops from S1 to S2. Which point on the graph represents the social optimum in this situation? Mark your answer using the point tool.

 

A city council decides to address the problem of disposable plastic shopping bags littering public places and clogging drainpipes. The council's solution is to ban the bags in stores, so customers must bring their own bags. 

Suppose that the graph shows the supply and demand curves for a consumer good, such as frozen chicken, that would normally be carried in bags. Drag the appropriate curve to identify the impact of the city council's new shopping bag ordinance.

 

Suppose that a surfboard designer owns a building and is renting part of the building's space to a spa. Further suppose that because the surfboard designer is the owner, he has the right to make noise during the day while he sands the boards. While the spa cannot insist on a quiet environment, it could move to a quieter building. However, rent in the next best building is $350/month more than rent in the noisy building. The surfboard designer can adopt a new technology that eliminates the noise for $275/month. Given this situation, can the spa find a private solution with the surfboard designer that will make both better off?

 

If a good that generates positive externalities is priced to internalize the externality, then its price will     and its output will    .