Each resident is willing to pay $10 for each additional streetlight installed in the neighborhood. There are 15 residents in the neighbourhood. The cost of installing streetlights is x², where x is the number of streetlights. So the marginal cost of installing another streetlight is given by 2x. The efficient number of streetlights to be installed in this neighborhood is:

(2020 Spring Exam Q66) Li can produce with or without a filter on his smokestack. Production without a filter results in greater smoke damage to Fung, say to Fung’s health.

Suppose the property right is well assigned to either parties. When the negotiation cost for the two parties to reach an agreement is zero, we would expect Li to produce [ Answer ] filter.

A competitive firm pollutes the air. The following graph shows the demand for the firm’s product and the private and social marginal cost curves. The numbers in the graph represent areas measured in dollars.

Suppose that there are no transaction costs, that there is no legal penalty for polluting, and that it is impossible for the neighbours to move. According to the Coase Theorem, a deal would be struck between the firm and the neighbours to produce  __________  units of output, thereby generating an additional gain of  __________  to the society.

A government is torn between selling annual pollution allowances (pollution permits) and setting an annual pollution tax. Unlike in the messy real world, this government is quite certain that it can achieve the same price and quantity either way. It wants to choose the method that will pull in more government revenue. Which policies should the government implement?

A government is considering three options to reduce pollution by certain amount:

(I) Command the firms to adopt the same technology in production so that the targeted pollution is achieved.

(II) Tax the firms on the pollution they produce and set the tax so that the targeted pollution is achieved.

(III) Allocate pollution permits to firms so that the targeted pollution is achieved, and allow the firms to trade the permits in a pollution permit market. 

Which option is better in terms of social efficiency? 

Positive externalities occurs when

(I) Consumers reduce their demand for textbooks and price thereby declines.

(II) Producers increase their demand for textbooks and price thereby surges.

(III) A steel producing firm pumps pollutants into the air.

(IV) A person keeps his yard well maintained helps value of houses around.

Statement 1: The Coase Theorem’s conditions are ideally applicable to the case of traffic congestion externality on public roads.

Statement 2: Travelers in a congested public road system inflict negative externality on each other.

Suppose the gain to Lehman from an unobstructed view is 120, the gain to Normura from having a one-story house is 220, and the gain to Normura from a two-story house is 300. It is assumed that negotiations between the two parties were costless and Normura has the right to build as tall as she can. What is the optimal private solution to the problem?

(I) The price you pay for an iTunes download

(II) The benefit your neighbour receives from hearing you play your pleasant music

(III) The annoyance of your neighbour because she doesn't like your achingly conventional music

(IV) The pleasure you receive from listening to your iTunes download