A regional airport decides to extend a runway, increasing the amount of noise pollution on nearby homes. Assume that an optimal corrective tax can be applied
Should that tax be paid as compensation to the nearby homeowners? How might compensating the homeowners change their (and potentially others) incentives?
The key to this question is the reciprocal nature of the problem. If residential housing was not located near the airport, then the noise pollution would not be a problem. On the other hand, if the airport had not extended its runaway, then the noise pollution would not have been such a problem. Efficiency requires that both parties have an incentive to avoid the problem. The corrective tax should correct the incentives of the airport. Paying the revenues collected from the airport as compensation to the homeowners, however, would decrease the incentives homeowners would have to avoid the current problem as well as future problems.
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When the price elasticity of demand for a good equals
A) 0, the demand curve is vertical. B) 0, the demand curve is horizontal. C) 1, the demand curve is vertical. D) 1, the demand curve is horizontal.
When parents inoculate their children from communicable diseases prior to sending them off to school they not only provide their own children a benefit but also bestow a benefit on every other student at the school
There are now fewer students who can pass on these types of diseases. However, parents are not likely to take into account the fact that their actions create this external benefit. Therefore, economists argue that the market on its own may not provide for the optimal level of inoculations. What methods might work to get parents to take into account the external benefit when deciding whether to inoculate their children?