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Topic16_Externality

For example lets assume one unit of production causes

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For example let’s assume one unit of production causes one unit of pollution. Then as shown in the next slide, the regulator can set the standard at the efficient level E* where MB(E) and MEC(E) intersect. This can be enforced by high enough monetary penalties in case of violations. Policy Solutions 13
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Quiz 1 Which one of the following is an example of a market failure? a) Once Joe buys fire insurance for his home, he will have reduced incentives to take preventive action to reduce the risk of fire. b) A high proportion of Vancouver's workforce earns higher than Canadian average. c) The BC government imposes carbon tax to internalize the negative externality. d) All of the above. 14
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Quiz 2 Inverse demand is given by P = 100 Q. Supply (reflecting private marginal cost) is given by P = Q. There is a marginal external cost given by MEC = 10. Which of the following is true? a) The efficient outcome can be generated with t < $10. b) If output is strictly limited at 45 the new equilibrium price will exceed private marginal cost by 10. c) The efficient Q = 45. d) Both b and c. 15
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Quiz 3 16 Which of the following situations gives rises to an outcome with market failure? a) Market power reflected in perfect price discrimination. b) Multi-group price discrimination. c) An entrepreneur s dual role as owner and manager of a small firm. d) All of the above.
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