Determine an equation for marginal social cost

Question

Assignment:

Question 1  Assume that the demand curve for an environmental good is fully coincidental with the marginal social benefit function and can be described as MSB = MPB = 12-3q, where q refers to the quantity of the good. Assume that the marginal private cost function can be described by MPC = q, and that marginal social costs are always triple the marginal private cost. Determine an equation for Marginal Social Cost (MSC).

• MSC= 3+q
• MSC= 3q
• MSC = 3(12-3q)
• MSC = MPC +3q

Question 2 This is a continuation of Question 1.

Assume that the dema

• q=2
• q=3
• q=0
• q cannot be determined

Question 3 This is also a continuation of Q1 and Q2.

Assume that the demand curve for an environmental good is fully coincidental with the marginal social benefit function and can be described as MSB = MPB = 12-3q, where q refers to the quantity of the good. Assume that the marginal private cost function can be described by MPC = q, and that marginal social costs are always triple the marginal private cost.

Calculate the socially optimal level of output.

• q = 1
• q=3
• q=0.5
• q=2

Question 4  This is a continuation of Q1, 2 or 3. Fee free to use the correct answers from the previous three questions to solve this one. Assume that the demand curve for an environmental good is fully coincidental with the marginal social benefit function and can be described as MSB = MPB = 12-3q, where q refers to the quantity of the good. Assume that the marginal private cost function can be described by MPC = q, and that marginal social costs are always triple the marginal private cost.

Calculate the total efficiency loss or deadweight loss at the market equilibrium

• $2
• $3
• There is no deadweight loss
• $4

Question 5 Suppose the state is trying to decide how many miles of a very scenic river it should preserve. There are 200 people in the community, each of whom has an identical demand function given by P=10-0.5q, where q is the number of miles preserved and P is the per mile price he or she is willing to pay for q miles of preserved river. (Hint: treat this river as a public good. )

If the marginal cost of preservation is $750 per mile, how many miles would be preserved in an efficient allocation?

• 8
• 5
• 10.6
• 12.5

Question 6 A market failure can be resolved in the following ways

• Pigouvian taxes or private bargaining
• there is no solution for market failures
• increasing the equilibrium price
• decreasing the equilibrium price

Question 7 Which one of the following is one of the most important assumptions underlying the Coasian bargaining solution to market failure?

• The victim must be given the property rights
• The parties involved must be present in the same geographical location
• The government should play an active role in the negotiation process
• Transaction costs must be zero or negligible

Question 8 The Perrier and Vittel case study shows

• how imposing Pigouvian taxes can solve the externality problem
• that a public good, such as, clean water, can only be provided by the government
• a successful application of Coasian bargaining
• transaction costs are too high for private bargaining to take place

Question 9 Which of the following are found to be true in the context of ecocertification of Ecuadorian bananas (in reference to the article on Eco-certification of Ecuadorian bananas? (There are more than one correct answers to this question)

• In many cases, the certified farms were not conforming to the Ecuadorian environmental laws
• Certified farms significantly outperform the non-certified farms
• Non-certified farms significantly outperform the certified farms
• In many cases, the non-certified farms were not conforming to the Ecuadorian environmental laws

Question 10 A good with a negative externality will be _____ by an unregulated market. Public goods are typically ______ due to there being a __________

• undersupplied; oversupplied; negative externality
• oversupplied; undersupplied; free rider problem
• oversupplied; oversupplied; free rider problem
• oversupplied; undersupplied; negative externality

Readings:

EMPIRICAL ASSESSMENT OF ECO-CERTIFICATION

The Case of Ecuadorian Bananas

By CRISTIAN J. MELO