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purplecoyote918Lv1

28 Sep 2019

The Coase Theorem suggests that, under some conditions, private bargaining will resolve negative externalities. Does this mean that pollution problems should be left for the market to solve? Why or why not? Discuss this from the perspective of efficiency, as well as equity.

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Kritika KrishnakumarLv10

28 Sep 2019

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Related questions

Suppose the power plants in Cheshire produce electricity with sulfur dioxide as a byproduct. Sulfur dioxide (a negative externality) is harmful to the health of residents in Cheshire.

(2 points) In the presence of sulfur dioxide (a negative externality), will the equilibrium output of electricity in Cheshire under free market be economically efficient? If not, will electricity production under free market be higher or lower than the efficient output level? Briefly explain.

According to Coase Theorem,

(3 points) Under which three conditions, private bargaining between power plants and Cheshire residents could resolve the inefficiency caused by sulfur dioxide?

(2 points) What is the role of government in private solutions to inefficiency caused by sulfur dioxide?

As discussed in class, when private solutions to sulfur dioxide are not feasible, government may use price instruments or quantity instruments to resolve the inefficiency caused by sulfur dioxide.

(2 points) What is the price instrument government may use to reduce sulfur dioxide? Briefly explain.

(3 points) What are the two quantity instruments government may use to reduce sulfur dioxide? Briefly explain.

(3 points) Briefly discuss the advantage and disadvantage of each quantity instrument.

orchidcricket617

Consider the market for cement production. Suppose that cementproduction emits a cloud that causes breathing problems for peoplethat live in the neighborhood, thus creating health problems forby-standers. With that in mind, answer the followingquestions.

a) (4 pts) Do the cement industry have a negative or a positiveexternality? Is it an externality in production or inconsumption?

b) (5 pts) Describe how the externality affects the private marketfor cement. Make sure your discussion uses p*& q* to indicatethe private market equilibrium price and quantity, and a pE &qE to indicate the socially optimal price and quantity.

c) (3 pts) Given this externality, list the three things that thegovernment can do to get the private market closer to the sociallyoptimal outcome.

d) (3 pts) Which of the three things you listed in part c is thebest way for the government to increase societyâs welfare? Explainwhy.

e) (2 pts) Describe Coase Bargaining by defining the CoaseTheorem.

f) (2 pts) Now suppose that the benefit of cement production forthe firm is B = $100,000 and the cost to the local community inhealth related expenses is $95,000. Should the cement be produced?Explain.

g) (2 pts) If the Coase Theorem were applied to this situation,what would be the outcome? Describe how this outcome could beachieved.

h) (3 pts) List the three things that will prevent Coase Bargainingfrom working.

coralox732

Question 1

An externality

		enhances market efficiency.
		is a private cost or benefit that results from the production or consumption of a good or service that is external to a market.
		is a benefit or cost that affects someone who is not directly involved in the production or consumption of a good or service.
		refers to production or consumption that occurs outdoors.

5 points

Question 2

Externalities can be produced by:

		the high price of goods and services
		individuals; firms
		market prices; market incomes
		oceans; streams

5 points

Question 3

When an external cost exists that is NOT taken into account in the production of a product,

		the level of output is too high, and the supply curve should shift to the left to account for the externality.
		the price of the product is too high, and production should be expanded to lower the price.
		the level of output is optimal, and there should be no change in the supply curve.
		the level of output is too low, and the supply curve should shift to the right to account for the externality.

5 points

Question 4

Which of the following is correct?

		MSC = MPC - MD
		MPC = MSC + MD
		MSC = MPC + MD
		MD = MSC + MPC

5 points

Question 5

If external costs (costs of cleaning up) are included and added to a firm's private costs, then

		the demand curve will shift to the left.
		the supply curve will shift to the right.
		the demand curve will shift to the right
		the supply curve will shift to the left.

5 points

Question 6

The Coase Theorem states that

		government intervention is always needed if externalities are present.
		assigning property rights is the only thing the government should do in a market economy.
		if transaction costs are low, private bargaining will result in an efficient solution to the problem of externalities.
		a free-market equilibrium is the best solution to address externalities.

5 points

Question 7

Buffalo in the United States almost became extinct while cattle, an animal that provides similar products, never have been close to extinction. The difference is due to

		the use of private property rights on cattle and common property rights on buffalo.
		the greater marginal value of a head of cattle relative to buffalo, leading to over-hunting of buffalo.
		cattle existing in Europe also while buffalo were specific to North America.
		the greater marginal value of a buffalo relative to a steer, leading to the overharvesting of buffalo.

5 points

Question 8

In theory, the Emissions Fee would

		cause firms to generate less pollution than their allowed limits.
		raise the production costs of all firms.
		cause firms to generate more pollution than their allowed limits.
		lower the production costs of all firms.