Macroeconomics: Principles, Problems, & Policies
20th Edition
ISBN: 9780077660772
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
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Chapter 4, Problem 6DQ
To determine
The positive externalities.
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An apple grower’s orchard provides nectar to a neighbor’s bees, while the beekeeper’s bees help the apple grower by pollinating the apple blossoms. Use Figure 16.2b to explain why this situation of dual positive externalities might lead to an underallocation of resources to apple growing and to beekeeping. How might this underallocation get resolved via the means suggested by the Coase theorem?
61) The Coase Theorem points out that externality problems can be eliminated if the number of parties involved is small and if property rights
A) are granted solely to consumers.
B) are granted solely to producers.
C) are eliminated.
D) are granted to either consumers or producers and transactions costs are low.
62) The Coase Theorem says that which of the following is necessary to lead to an efficient use of resources?
A) presence of transaction costs
B) existence of property rights
C) government intervention
D) All of the above answers are correct.
63) According to the Coase theorem, which of the following are necessary for the efficient levels of pollution to be achieved?
I.Property rights are defined.
II.Transactions costs are low.
A) I only
B) II only
C) both I and II
D) neither I nor II
64) Which condition(s) must exist for the Coase Theorem to hold?
I.Property rights must exist.
II.Transactions costs must be measurable.
III.A small…
What does Coase mean by "the reciprocal nature" of the problem of negative externalities?
the avoidance of harm done by one party causes harm to that party
all people hurt all other people
people take turns hurting each other
Chapter 4 Solutions
Macroeconomics: Principles, Problems, & Policies
Ch. 4.A - Prob. 1ADQCh. 4.A - Prob. 2ADQCh. 4.A - Prob. 3ADQCh. 4.A - Prob. 1ARQCh. 4.A - Prob. 2ARQCh. 4.A - Prob. 3ARQCh. 4.A - Prob. 1APCh. 4 - Prob. 1DQCh. 4 - Prob. 2DQCh. 4 - Prob. 3DQ
Ch. 4 - Prob. 4DQCh. 4 - Prob. 5DQCh. 4 - Prob. 6DQCh. 4 - Prob. 7DQCh. 4 - Prob. 8DQCh. 4 - Prob. 9DQCh. 4 - Prob. 1RQCh. 4 - Prob. 2RQCh. 4 - Prob. 3RQCh. 4 - Prob. 4RQCh. 4 - Prob. 5RQCh. 4 - Prob. 6RQCh. 4 - Use marginal cost/marginal benefit analysis to...Ch. 4 - Prob. 1PCh. 4 - Prob. 2PCh. 4 - Prob. 3PCh. 4 - Prob. 4PCh. 4 - Prob. 5PCh. 4 - Prob. 6PCh. 4 - Prob. 7P
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- Suppose that a flower nursery benefits from having a butterfly farm located only a few miles away, because the presence of the insects greatly improves flower pollination. Lawyers for the two companies meet to draft a legal document specifying the number of butterflies the farm promises to maintain in exchange for payments to be made by the nursery. Which of the following types of private solutions to the externality of pollination has occurred in this case? Charities Contracts Integration of different types of businesses through merger or acquisition Moral codes and social sanctions It's important to note that sometimes private solutions to externalities do not work. For example, this occurs when the number of parties involved is so large that it makesarrow_forwardHomework (Ch 10) 7. Correcting for negative externalities - Taxes versus tradablepermits Power stations emit sulfur dioxide as a waste product. This generates a cost to society that is not paid for by the firm; therefore, pollution is a negative externality of power production. Suppose the U.S. government wants to correct this market failure by getting firms to internalize the cost of pollution. To do this, the government can charge firms for pollution rights (the right to emit a given quantity of sulfur dioxide). The following graph shows the daily demand for pollution rights. Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph. Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly. Graph Input Tool 90 Daily Demand for Pollution Rights 81 I Price (Dollars per ton) 72 Quantity Demanded (Millions of tons) 180 E 63 8 54 45 36 27 Demand…arrow_forwardDiscuss the externality problem, and state Coase’s theorem as a solution. Clearly illustrate the application of Coase’s theorem with an example.arrow_forward
- Consider the market for charcoal briquettes in a small neighborhood. Neighborhoods residents buy charcoal briquettes to grill food. Their demand curve is given by ?? =110−4??. Charcoal briquettes are sold by several local stores. Their supply curve is given by ?? = 10+??. When people grill food, they fill their neighborhood with wonderful barbeque smells that are appealing to all residents. The value of this external benefit is $5 for every bag of charcoal briquettes sold. a.) Solve for the competitive equilibrium in the market for charcoal briquettes. b.) Compute consumer surplus, producer surplus, and total surplus in this equilibrium. c.) Solve for the socially optimal quantity of bags of charcoal briquettes. d.) Give an example of a command and control policy the neighborhood government could use to implement this socially efficient quantity. e.) Suppose the neighborhood government decides to implement the socially optimal quantity with a Pigouvian subsidy. Compute consumer…arrow_forwardGiven extremely high rates of obesity, diabetes and cancer, should the U.S. Government implement or increase previously established sin taxes on soda, junk foods, cigarettes and alcohol? Provide a justification for your response. Discuss this in the context of the economic concept of externalitiesarrow_forwardAssume a market for fertilizers, and let D denote the demand of fertilizers while S their supply. The inverse demand is p = 10 - q, and the supply is MC = q. The marginal damage created by runoff water being exposed to fertilizers is MEC = q/2 The use of fertilizers is creating an externality and the government wishes to intervene in the market. Use a figure to depict the competitive outcome. Derive the competitive equilibrium outcome. Use a second figure to explain the negative externality attributed to the use of fertilizers. The use of fertilizers improves yield, but it also damages the underground aquifer. What is the Pigovian Tax? Use a figure to explain. Can it be used to correct for the externality? Derive the Pigovian tax and characterize the social optimum solution. Can a standard achieve the social optimum? What about a quota? Explain using a figure. Explain and show step-by-step!arrow_forward
- Assume a market for fertilizers, and let D denote the demand of fertilizers while S their supply. The inverse demand is p = 10 - q, and the supply is MC = q. The marginal damage created by runoff water being exposed to fertilizers is MEC = q/2 The use of fertilizers is creating an externality and the government wishes to intervene in the market. Use a figure to depict the competitive outcome. Derive the competitive equilibrium outcome. Use a second figure to explain the negative externality attributed to the use of fertilizers. The use of fertilizers improves yield, but it also damages the underground aquifer. What is the Pigovian Tax? Use a figure to explain. Can it be used to correct for the externality? Derive the Pigovian tax and characterize the social optimum solution. Can a standard achieve the social optimum? What about a quota? Explain using a figure. Explain and show step-by-step for last two questions please!arrow_forwardHow does the Coase Theorem illustrate the role of property rights and bargaining in resolving externalities within economic transactions?arrow_forwardConsider the market for plastic straws, in which production causes pollution (air pollution, waste pollution). Quantity demanded is given by Qd=6200-4*P Marginal Private Costs (determines individual supply costs of producers) is given by Qs=2*MPC-1000. Marginal Social Costs (MPC plus the costs of externalities) is given by Qs=2*MPC-1300. Plot these 3 curves on a graph with 6 points at Q=1000, 1100, 1200, 1300, 1400, 1500 What is the deadweight loss if only free market forces are at play (i.e. externalities are not considered by the producers)?arrow_forward
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