Indicate whether the statement is true or false, and justify your answer.Suppose Fred imposes negative externalities on Wilma when he engages in some otherwise productive activity (like yelling “Yabba Dabba Doo!” to encourage himself, for instance). Suppose further that Fred and Wilma know each other well, communicate effectively and trust each other, and generally have low costs from transacting with each other. In this setting, having the government impose a Pigouvian tax on Fred each time he yells “Yabba Dabba Doo!” is the only way to generate socially optimal levels of yelling.

Indicate whether the statement is true or false, and justify your answer.Suppose Fred imposes negative externalities on Wilma when he engages in some otherwise productive activity (like yelling “Yabba Dabba Doo!” to encourage himself, for instance). Suppose further that Fred and Wilma know each other well, communicate effectively and trust each other, and generally have low costs from transacting with each other. In this setting, having the government impose a Pigouvian tax on Fred each time he yells “Yabba Dabba Doo!” is the only way to generate socially optimal levels of yelling.

Economics:

10th Edition

ISBN:9781285859460

Author:BOYES, William

Publisher:BOYES, William

Chapter27: Markets And Government

Section: Chapter Questions

Problem 4E

See similar textbooks

Similar questions

Given 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 externalities
True or False? For a perfectly competitive market (with no externalities) where a positive per unit tax has been imposed by the government, the sum of consumer surplus, producer surplus, and tax revenue is always less than the sum of consumer surplus and producer surplus before the tax is imposed. If true, is it always the case that government intervention reduces total social welfare? If false, provide a numerical example where a positive per unit tax increases total social welfare in a perfectly competitive market (with no externalities). Briefly explain
Pareto-optimality can theoretically be achieved, even in the presence of negative externalities, by setting a tax at the correct level. is it true or false
Which of the following statements is TRUE?I. A Pigouvian subsidy reduces the market price to encourage consumption and correct for the underproduction of a good.II. A Pigouvian tax increases the market price to discourage consumption and correct for the overproduction of a good.III. Negative externalities create deadweight losses, but positive externalities do not. I, II, and III I only III only I and II only
The Coase theorem states that if transactions costs are low, property rights are assigned, and parties understand how much they value something, private bargaining will result in an efficient solution to the problem of externalities. government intervention is always needed if externalities are present. a free market equilibrium is the best solution to address externalities. assigning property rights is the only thing the government should do in a market economy.
Discuss how compensation differs from taxation as a solution to the externality problem? use graphs and explain in detail.
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
Suppose a positive externality is associated with college enrollment. Assume that college instruction is sold in a competitive market and that the marginal social cost of providing it increases with enrollment. Show how a corrective subsidy to college students will increase the market price of instruction. Show the net gain in well-being possible from the subsidy and the amount of tax revenue required to finance its costs on your graph. Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.
Consider a two-firm model with a negative production externality. Let xi denote firm i’s output, with i = 1, 2. Suppose that two firms operate in two different competitive markets and each firm sells its product in its respective competitive market, at the prices p1 = 100 and p2 = 150, respectively, and that they face the same direct production cost ci (xi ) = xi2 /2. Let e(x1 , x2 ) = x1 x2 be the external cost on firm 2’s activity generated by the production of firm 1. Find each firm’s best response function to the output set by the other firm and compute the Nash equilibrium assuming that firms choose their output non-cooperatively and independently. Illustrate the equilibrium in an appropriate graph. Calculate each firm’s equilibrium profits and the total external cost imposed on firm 2. c. Rational choice theory assumes that economic agents are rational and self-interested. Based on the evidence from behavioural laboratory experiments (e.g., dictator games),…
In theory, the Pigouvian tax... Group of answer choices revenue should be spent on mitigating the damage caused by the negative externality. requires the introduction of an additional policy such as an information-based policy so people know about the tax. is a sufficient and complete solution to a negative externality type environmental problem.
Why are taxes, one traditional remedy for negative externalities, less than ideal for smoking cessation in the United States? Nicotine is addictive/demand is inelastic, and smokers are mostly poor, so in effect cigarette taxes reduce the quality of life of people we’re trying to help without substantially reducing smoking Demand is inelastic, and smokers are mostly rich, so they don’t reduce smoking as a result of taxes Demand is elastic, and smokers are mostly old, so taxes reduce smoking but cause increased anxiety among the elderly Demand is elastic, and smokers are mostly young, so they quit smoking but are then more likely to experiment with illegal drugs
Before Coase's 1960 paper the only real course of action economists prescribed for dealing with externalities (based on the work of A.C. Pigou) was to: a. subsidize all goods with externalities. b. tax goods with positive externalities and subsidize goods with negative externalities. c. tax goods with negative externalities and subsidize goods with positive externalities. d. tax all goods with externalities.