Chapter 14 Review Questions:
1. What is an externality?
The effect of a market exchange on a third party who is outside or “external” to the exchange, sometimes also called a “spillover”
2. Give an example of a positive externality and an example of a negative externality?
A negative externality would be living next to someone who always has loud music at night, when you are trying to sleep. A positive externality would be receiving free tickets to concerts to want to go to.
3. In a market without environmental regulations, will the supply curve for a firm take into account private costs, social costs, both, or neither? Explain.
In a market without environmental regulations, the supply curve for a firm would only take into account the private costs of that firm, not the social costs. Because without environmental regulations firms would not need to worry about costs incurred by third parties, because it would not affect them in any way, which would be cheaper for them.
4. What is command-and-control environmental regulations?
Laws that specify allowable quantities of pollution and may also detail which pollution-control technologies must be used. Penalties imposed is limit exceeded.
5. What are the three problems that economists have noted with regard to command-and-control regulation?
Command-and-control regulations offer no incentive to improve the quality of the environment beyond the standard set by the law. It also usually requires the same standard for all potential polluters which makes it inflexible. Lastly the command-and-control regulations are set by real-world legislators, so they are subject to compromises in the political process.
6. What is pollution charge, and what incentive does it provide for a firm to take social costs into account?
A pollution charge is a tax