Deck 10: Externalities and Property Rights

Question 1

An external benefit implies that private markets will provide ____ of the good (relative to the social optimum),and an external cost implies that private markets will provide _____ of the good.

A)too much;too much
B)too little;too little
C)too much;too little
D)too little;too much

Answer 1

D
Explanation: External costs are not considered in private decision-making and so too much is produced;external benefits are not compensated and so too little is produced.

Question 2

In the case of either a positive or negative externality,it will always be true that,relative to the social optimum:

A)the market price will be too low.
B)the market price will be too high.
C)the market price will send an inaccurate signal of true cost or benefit.
D)the quantity provided by the market will be too large.

Answer 2

C
Explanation: When there are externalities the market equilibrium price does not capture the true cost or benefit.

Question 3

Suppose that a vaccine is developed for a highly contagious strain of flu.The likelihood that anyone will get this flu decreases as more people receive the vaccine.One of the demand curves in the diagram reflects private benefits and the other reflects social benefits.
Refer to the figure above.Private benefits are measured by ______,and social benefits are measured by _____.

A)D-1;MC
B)D-2;MC
C)D-1;D-2
D)D-2;D-1

Answer 3

C
Explanation: Because the externality is a benefit,D-1 is the private incentives demand curve.Adding the social benefits of vaccination gives D-2.

Question 4

For most people,baking cinnamon rolls generates _____ externality,and burning tires generates _______ externality.

A)a positive;a negative
B)a negative;a positive
C)a positive,no
D)no;a negative

Question 5

Suppose that a vaccine is developed for a highly contagious strain of flu.The likelihood that anyone will get this flu decreases as more people receive the vaccine.One of the demand curves in the diagram reflects private benefits and the other reflects social benefits.
Refer to the figure above.The dollar value of the external ______ is _____ per vaccine.

A)benefit;$30
B)cost;$20
C)benefit;$20
D)benefit;$75

Question 6

When some fraction of the benefit of an activity is received by people not participating in the activity,it is called a(n):

A)winner's curse.
B)positive externality.
C)external cost.
D)efficient allocation.

Question 7

If the market equilibrium quantity is less than the socially optimal quantity,one can infer that:

A)the private supply curve for the activity is below the socially optimal supply curve.
B)the private demand curve for the activity is above the socially optimal demand.
C)there is a positive externality associated with this good.
D)there is a negative externality associated with this good.

Question 8

The existence of a negative externality will result in:

A)a less than optimal level of production.
B)a greater than optimal level of production.
C)prices that are artificially high.
D)elimination of deadweight loss.

Question 9

If the equilibrium quantity is equal to the socially optimal quantity,one can infer that:

A)the supply curve for the activity is below the socially optimal supply curve.
B)there is no externality associated with this good.
C)there is a positive externality associated with this good.
D)there is a negative externality associated with this good.

Question 10

If the external benefit of an activity is added to the private benefits,then the:

A)demand curve shifts left.
B)quantity demanded rises.
C)demand curve shifts right.
D)supply curve shifts right.

Question 11

In the case of ______,the invisible hand fails to generate the efficient outcome because buyers and sellers only take their self-interests into account.

A)either an external cost or an external benefit
B)only an external cost
C)only an external benefit
D)unregulated markets

Question 12

Which of the following is NOT an example of an activity with external benefits?

A)Eating a sandwich in the dining hall
B)Planting flowers in your front yard
C)Attending class when you have the flu
D)Having your car's faulty exhaust system repaired

Question 13

Suppose that a vaccine is developed for a highly contagious strain of flu.The likelihood that anyone will get this flu decreases as more people receive the vaccine.One of the demand curves in the diagram reflects private benefits and the other reflects social benefits.
Refer to the figure above.Private incentives will lead to _____ people receiving the vaccine at a cost of _____.

A)75;$80
B)75;$50
C)50;$60
D)50;$90

Question 14

The presence of an external benefit that is not corrected results in:

A)additional total economic surplus.
B)deadweight loss.
C)a larger economic pie to be distributed among everyone.
D)taxation.

Question 15

If coal mining produces a negative externality in the form of polluted streams then,at the market equilibrium,the:

A)price of coal is too high.
B)quantity of coal produced is too small.
C)quantity of coal produced is too high.
D)supply curve lies to the left of the regulated supply curve.

Question 16

Which of the following is an example of an activity with an external cost?

A)Raising honeybees where neighbors on all sides grow apples.
B)Keeping the front yard clean.
C)Speeding on the interstate.
D)Having to buy batteries for the new remote that came with a TV.

Question 17

If the market equilibrium quantity is greater than the socially optimal quantity,one can infer that:

A)the private supply curve for the activity is to the left of the socially optimal supply curve.
B)the private demand curve for the activity is below the socially optimal demand.
C)there is a positive externality associated with this good.
D)there is a negative externality associated with this good.

Question 18

When part of the cost of an activity falls on people not pursuing the activity,it is call a(n):

A)external benefit.
B)prisoner's dilemma.
C)negative externality.
D)positive externality.

Question 19

If the external cost of an activity is added to the private costs,then the:

A)supply curve shifts right.
B)quantity supplied rises.
C)supply curve shifts left.
D)demand curve shifts right.

Question 20

Private incentives in markets with external benefits lead to _____;private incentives in markets with external costs lead to _____.

A)maximum total economic surplus;deadweight loss
B)deadweight loss;deadweight loss
C)excess total economic surplus;efficiency
D)excess total economic surplus;deadweight loss

Question 21

Suppose that a vaccine is developed for a highly contagious strain of flu.The likelihood that anyone will get this flu decreases as more people receive the vaccine.One of the demand curves in the diagram reflects private benefits and the other reflects social benefits.
Refer to the figure above.This externality could most effectively be corrected by:

A)taxing vaccines.
B)encouraging people to negotiate private payments to those who receive the vaccine.
C)subsidizing vaccines.
D)free provision of 275 vaccines.

Question 22

Suppose there are ten people playing cards in a room.One of them wants to smoke a cigar;nine of them dislike the smell of cigar smoke.The smoker values the privilege of smoking at $5,and each of the other nine occupants of the room would be willing to pay fifty cents for clean air in the room.The rules governing use of the room state that smoking is not allowed unless everyone agrees to allow smoking.
Refer to the information given above.The Coase Theorem would predict that if the property right to smoke belongs to the cigar smoker,then there ________ smoking in the room.If the property right to clean indoor air belongs to the room occupants,then there ________ smoking in the room.

A)will be;will be
B)will be;will not be
C)will not be;will not be
D)will not be;will be

Question 23

Suppose there are ten people playing cards in a room.One of them wants to smoke a cigar;nine of them dislike the smell of cigar smoke.The smoker values the privilege of smoking at $5,and each of the other nine occupants of the room would be willing to pay fifty cents for clean air in the room.The rules governing use of the room state that smoking is not allowed unless everyone agrees to allow smoking.
Refer to the information given above.Declaring the card room a non-smoking area with no opportunity to negotiate would:

A)decrease total economic surplus.
B)increase total economic surplus.
C)leave total economic surplus unchanged,but redistribute benefits.
D)efficiently solve the externality problem.

Question 24

Taylor lives in a residential neighborhood that prides itself on well-groomed lawns.Taylor's neighbors find that the collective marginal benefit of someone else's well-groomed lawn is $10.Taylor,however,dislikes yard work and receives zero net benefit from an unkempt lawn and a net benefit of -$1 for a well-groomed lawn;the cost of maintaining the lawn is a dollar more than the benefit of having a well-groomed lawn. $$\begin{array} { l c c } & \text { Unkempt } & \text { Well-groomed } \\\text { Net Value to Taylor } & 0 & - 1 \\\text { Net Value to Taylor's neighbors } & 0 & + 10\end{array}$$
Refer to the information given above.If Taylor's neighbors pay Taylor $5 to maintain his lawn,Taylor will have a net benefit of ___ and the neighbors will have a net benefit of _____.

A)+$5;-$5
B)+$4;+$5
C)+$9;0
D)+$5;$4

Question 25

Suppose there are ten people playing cards in a room.One of them wants to smoke a cigar;nine of them dislike the smell of cigar smoke.The smoker values the privilege of smoking at $5,and each of the other nine occupants of the room would be willing to pay fifty cents for clean air in the room.The rules governing use of the room state that smoking is not allowed unless everyone agrees to allow smoking.
Refer to the information given above.If the rules governing the room instead stated that smoking is allowed unless everyone in the room agrees to prohibit it:

A)the non-smoking occupants will pay the cigar smoker to not smoke.
B)the cigar smoker will smoke and not have to pay the other occupants for the external cost.
C)the cigar smoker will smoke,and will pay each other occupant 50 cents.
D)the parties may or may not be able to reach a negotiated agreement depending on the bargaining strength of each.

Question 26

Suppose that a vaccine is developed for a highly contagious strain of flu.The likelihood that anyone will get this flu decreases as more people receive the vaccine.One of the demand curves in the diagram reflects private benefits and the other reflects social benefits.
Refer to the figure above.The socially optimal number of vaccines is _______.

A)50
B)75
C)125
D)150

Question 27

Suppose that a vaccine is developed for a highly contagious strain of flu.The likelihood that anyone will get this flu decreases as more people receive the vaccine.One of the demand curves in the diagram reflects private benefits and the other reflects social benefits.
Refer to the figure above.If the flu vaccine is provided by private markets,deadweight loss will be _______.

A)zero
B)$375
C)$500
D)$1,125

Question 28

Suppose there are ten people playing cards in a room.One of them wants to smoke a cigar;nine of them dislike the smell of cigar smoke.The smoker values the privilege of smoking at $5,and each of the other nine occupants of the room would be willing to pay fifty cents for clean air in the room.The rules governing use of the room state that smoking is not allowed unless everyone agrees to allow smoking.
Refer to the information given above.Which outcome is consistent with the Coase Theorem?

A)The cigar smoker will not be able to smoke because there are more non-smokers in the room.
B)The cigar smoker will pay each other occupant fifty-five cents,and they will agree to allow smoking.
C)The cigar smoker will smoke because the external cost of smoking does not need to be taken into consideration.
D)The nine non-smoking occupants will each pay the cigar smoker fifty cents and the cigar smoker will not smoke.

Question 29

Curly and Moe are considering living alone or being roommates and splitting the rent for the next twelve months.If they live alone,they each rent a one bedroom,one bath apartment for $500 per month,while if they are roommates,they can split a two bedroom,one bath apartment for $800 per month.The one difficulty they have is that Moe snores very loudly.Curly estimates the cost of poor sleep due to Moe's snoring at $150 per month.Moe could obtain a snore-eliminating device for $50 per month.
Refer to the information given above.The actual monthly gain in surplus to Curly and Moe from living together after addressing the snoring problems in the least costly way is:

A)$200.
B)$150.
C)$100.
D)$50.

Question 30

The major implication of the _______ is that individuals can solve many externalities if they can buy and sell the right to generate the externality.

A)Sherman Act
B)Coase Theorem
C)tragedy of the commons
D)prisoner's dilemma

Question 31

Taylor lives in a residential neighborhood that prides itself on well-groomed lawns.Taylor's neighbors find that the collective marginal benefit of someone else's well-groomed lawn is $10.Taylor,however,dislikes yard work and receives zero net benefit from an unkempt lawn and a net benefit of -$1 for a well-groomed lawn;the cost of maintaining the lawn is a dollar more than the benefit of having a well-groomed lawn. $$\begin{array} { l c c } & \text { Unkempt } & \text { Well-groomed } \\\text { Net Value to Taylor } & 0 & - 1 \\\text { Net Value to Taylor's neighbors } & 0 & + 10\end{array}$$
Refer to the information given above.Taylor would be willing to keep a well-groomed lawn if the neighbors paid him:

A)less than $1.
B)at least $1.
C)at least $5.
D)at least $10.

Question 32

Taylor lives in a residential neighborhood that prides itself on well-groomed lawns.Taylor's neighbors find that the collective marginal benefit of someone else's well-groomed lawn is $10.Taylor,however,dislikes yard work and receives zero net benefit from an unkempt lawn and a net benefit of -$1 for a well-groomed lawn;the cost of maintaining the lawn is a dollar more than the benefit of having a well-groomed lawn. $$\begin{array} { l c c } & \text { Unkempt } & \text { Well-groomed } \\\text { Net Value to Taylor } & 0 & - 1 \\\text { Net Value to Taylor's neighbors } & 0 & + 10\end{array}$$
Refer to the information given above.Taylor's neighbors would be willing to pay Taylor ______ to keep a well groomed lawn.

A)$1
B)more than $1 but less than $5
C)more than $10
D)no more than $10

Question 33

Curly and Moe are considering living alone or being roommates and splitting the rent for the next twelve months.If they live alone,they each rent a one bedroom,one bath apartment for $500 per month,while if they are roommates,they can split a two bedroom,one bath apartment for $800 per month.The one difficulty they have is that Moe snores very loudly.Curly estimates the cost of poor sleep due to Moe's snoring at $150 per month.Moe could obtain a snore-eliminating device for $50 per month.
Refer to the information given above.The least costly solution to the externality present in this situation is for:

A)Curly to endure Moe's snoring.
B)both to live alone.
C)Moe to eliminate his snoring.
D)Moe to pay Curly for his discomfort.

Question 34

Taylor lives in a residential neighborhood that prides itself on well-groomed lawns.Taylor's neighbors find that the collective marginal benefit of someone else's well-groomed lawn is $10.Taylor,however,dislikes yard work and receives zero net benefit from an unkempt lawn and a net benefit of -$1 for a well-groomed lawn;the cost of maintaining the lawn is a dollar more than the benefit of having a well-groomed lawn. $$\begin{array} { l c c } & \text { Unkempt } & \text { Well-groomed } \\\text { Net Value to Taylor } & 0 & - 1 \\\text { Net Value to Taylor's neighbors } & 0 & + 10\end{array}$$
Refer to the information given above.If Taylor's lawn is unkempt,the situation is __________ because the total economic surplus is __________.

A)efficient;nonnegative
B)inefficient;larger than it could have been
C)efficient;as large as possible
D)inefficient;smaller than it could have been

Question 35

Taylor lives in a residential neighborhood that prides itself on well-groomed lawns.Taylor's neighbors find that the collective marginal benefit of someone else's well-groomed lawn is $10.Taylor,however,dislikes yard work and receives zero net benefit from an unkempt lawn and a net benefit of -$1 for a well-groomed lawn;the cost of maintaining the lawn is a dollar more than the benefit of having a well-groomed lawn. $$\begin{array} { l c c } & \text { Unkempt } & \text { Well-groomed } \\\text { Net Value to Taylor } & 0 & - 1 \\\text { Net Value to Taylor's neighbors } & 0 & + 10\end{array}$$
Refer to the information given above.If Taylor acts independently,Taylor's lawn will be __________,and total economic surplus to the rest of the neighborhood will be __________.

A)well groomed;$10
B)well groomed;$5
C)unkempt;$0
D)unkempt;$5

Question 36

Suppose there are ten people playing cards in a room.One of them wants to smoke a cigar;nine of them dislike the smell of cigar smoke.The smoker values the privilege of smoking at $5,and each of the other nine occupants of the room would be willing to pay fifty cents for clean air in the room.The rules governing use of the room state that smoking is not allowed unless everyone agrees to allow smoking.
Refer to the information given above.What is the total economic surplus if the cigar smoker refrains from smoking?

A)-$4.50
B)-$.50
C)$4.50
D)$9.50

Question 37

Generally,the Coase Theorem implies that the initial allocation of a property right:

A)determines all aspects of the final outcome of the negotiated agreement.
B)does not determine which person will be entitled to engage in the externality generating activity,but does determine which person will receive compensation.
C)determines which person will be entitled to engage in the externality generating activity,but does not affect which person will receive compensation.
D)must be assigned to the person with the greatest costs.

Question 38

Taylor lives in a residential neighborhood that prides itself on well-groomed lawns.Taylor's neighbors find that the collective marginal benefit of someone else's well-groomed lawn is $10.Taylor,however,dislikes yard work and receives zero net benefit from an unkempt lawn and a net benefit of -$1 for a well-groomed lawn;the cost of maintaining the lawn is a dollar more than the benefit of having a well-groomed lawn. $$\begin{array} { l c c } & \text { Unkempt } & \text { Well-groomed } \\\text { Net Value to Taylor } & 0 & - 1 \\\text { Net Value to Taylor's neighbors } & 0 & + 10\end{array}$$
Refer to the information given above.The Coase Theorem suggests that:

A)the rest of the neighborhood will have to tolerate Taylor's lawn.
B)Taylor could pay the neighbors to stop complaining about the lawn,making everyone in the neighborhood better off.
C)Taylor's neighbors could pay Taylor to have a well-groomed lawn,making Taylor and the neighbors better off.
D)Taylor's neighbors could pay Taylor to have a well-groomed lawn,making Taylor better off and the neighbors worse off.

Question 39

Suppose there are ten people playing cards in a room.One of them wants to smoke a cigar;nine of them dislike the smell of cigar smoke.The smoker values the privilege of smoking at $5,and each of the other nine occupants of the room would be willing to pay fifty cents for clean air in the room.The rules governing use of the room state that smoking is not allowed unless everyone agrees to allow smoking.
Refer to the information given above.If the cigar smoker paid each other occupant fifty cents for the right to smoke,the cigar smoker would be ______ and the other occupants would be _______.

A)better off;worse off
B)better off;just as well off as before the payment
C)better off;better off
D)worse off;just as well off as before the payment

Question 40

Curly and Moe are considering living alone or being roommates and splitting the rent for the next twelve months.If they live alone,they each rent a one bedroom,one bath apartment for $500 per month,while if they are roommates,they can split a two bedroom,one bath apartment for $800 per month.The one difficulty they have is that Moe snores very loudly.Curly estimates the cost of poor sleep due to Moe's snoring at $150 per month.Moe could obtain a snore-eliminating device for $50 per month.
Refer to the information given above.Curly would be willing to pay _____ per month to eliminate Moe's snoring.

A)exactly $50
B)no more than $100
C)up to $150
D)nothing

Question 41

Suppose Erie Textiles can dispose of its waste "for free" by dumping it into a nearby river.While the firm benefits from dumping waste into the river,the waste reduces the fish and bird reproduction.This causes damage to local fishermen and bird watchers.At a cost,Erie Textiles can filter out the toxins,in which case local fishermen and bird watchers will not suffer any damage.The relevant gains (in thousands of dollars)and losses for the three parties are listed below. $$\begin{array} { l r c } & \text { With Filter } & \text { Without } \\\text { Gains to Erie } & \$ 200 & \$ 400 \\\text { Fishermen } & \$ 180 & \$ 50 \\\text { Bird Watchers } & \$ 130 & \$ 25\end{array}$$
Refer to the information given above.When Erie Textiles operates without a filter,the total daily gain (in thousands of dollars)by all three parties is _______.

A)$985
B)$325
C)$510
D)$475

Question 42

If an activity generates a positive externality,the government can make provision of that activity more efficient by _____,and if an activity generates a negative externality,the government can make provision of that activity more efficient by _____.

A)taxing it;banning it
B)subsidizing it;banning it
C)subsidizing it;taxing it
D)publicizing it;taxing it

Question 43

Suppose Erie Textiles can dispose of its waste "for free" by dumping it into a nearby river.While the firm benefits from dumping waste into the river,the waste reduces the fish and bird reproduction.This causes damage to local fishermen and bird watchers.At a cost,Erie Textiles can filter out the toxins,in which case local fishermen and bird watchers will not suffer any damage.The relevant gains (in thousands of dollars)and losses for the three parties are listed below. $$\begin{array} { l r c } & \text { With Filter } & \text { Without } \\\text { Gains to Erie } & \$ 200 & \$ 400 \\\text { Fishermen } & \$ 180 & \$ 50 \\\text { Bird Watchers } & \$ 130 & \$ 25\end{array}$$
Refer to the information given above.Suppose that Erie Textiles can only negotiate with one of the affected groups.Will Erie operate with a filter?

A)Yes,if they negotiate with the Bird Watchers,but not if they negotiate with the Fishermen.
B)No,regardless of which group they negotiate with.
C)Yes,if they negotiate with the Fishermen,but not if they negotiate with the Bird Watchers.
D)Yes,regardless of which group they negotiate with.

Question 44

This graph shows the marginal costs and marginal benefits associated with roadside litter clean up.Assume that the marginal cost and marginal benefit curves slope in the usual directions.
Refer to the information given above.From the graph,one can infer that:

A)the benefits of picking up the 10^th bag of litter exceed the costs.
B)the costs of picking up the 10^th bag exceed the benefits.
C)the benefits of picking up the 20^th bag exceed the costs.
D)the total benefit of having 30 bags removed is less than the total benefit of having 25 bags removed.

Question 45

Which one of the following government actions is intended to generate positive externalities?

A)Taxing polluting industries
B)Speed limits on the highways
C)Requiring autos to meet minimum emissions regulations
D)Subsidies for planting trees on hillsides

Question 46

Suppose Erie Textiles can dispose of its waste "for free" by dumping it into a nearby river.While the firm benefits from dumping waste into the river,the waste reduces the fish and bird reproduction.This causes damage to local fishermen and bird watchers.At a cost,Erie Textiles can filter out the toxins,in which case local fishermen and bird watchers will not suffer any damage.The relevant gains (in thousands of dollars)and losses for the three parties are listed below. $$\begin{array} { l r c } & \text { With Filter } & \text { Without } \\\text { Gains to Erie } & \$ 200 & \$ 400 \\\text { Fishermen } & \$ 180 & \$ 50 \\\text { Bird Watchers } & \$ 130 & \$ 25\end{array}$$
Refer to the information given above.If Erie Textiles does not install the filter,there will be a net social _____ of _____ (in thousands of dollars).

A)loss;$35
B)gain;$75
C)loss;$110
D)gain;$200

Question 47

The optimal quantity of a negative externality is zero if:

A)it kills many people.
B)it is costly to negotiate a Coasean solution.
C)people vote against it in a democratic election.
D)the marginal cost of reducing it is zero.

Question 48

Suppose Erie Textiles can dispose of its waste "for free" by dumping it into a nearby river.While the firm benefits from dumping waste into the river,the waste reduces the fish and bird reproduction.This causes damage to local fishermen and bird watchers.At a cost,Erie Textiles can filter out the toxins,in which case local fishermen and bird watchers will not suffer any damage.The relevant gains (in thousands of dollars)and losses for the three parties are listed below. $$\begin{array} { l r c } & \text { With Filter } & \text { Without } \\\text { Gains to Erie } & \$ 200 & \$ 400 \\\text { Fishermen } & \$ 180 & \$ 50 \\\text { Bird Watchers } & \$ 130 & \$ 25\end{array}$$
Refer to the information given above.Local fishermen and bird watchers would be willing to compensate Erie Textiles ______ for operating with a filter.

A)up to $310 thousand dollars
B)no more than $235 thousand dollars
C)no more than $75 thousand dollars
D)nothing

Question 49

Suppose Erie Textiles can dispose of its waste "for free" by dumping it into a nearby river.While the firm benefits from dumping waste into the river,the waste reduces the fish and bird reproduction.This causes damage to local fishermen and bird watchers.At a cost,Erie Textiles can filter out the toxins,in which case local fishermen and bird watchers will not suffer any damage.The relevant gains (in thousands of dollars)and losses for the three parties are listed below. $$\begin{array} { l r c } & \text { With Filter } & \text { Without } \\\text { Gains to Erie } & \$ 200 & \$ 400 \\\text { Fishermen } & \$ 180 & \$ 50 \\\text { Bird Watchers } & \$ 130 & \$ 25\end{array}$$
Refer to the information given above.If all three parties can communicate and negotiate with each other at no cost,will Erie Textiles use a filter?

A)No,because it makes $200 less in profit with the filter.
B)Yes,because the benefit it would receive from being able to advertise that it acts in an environmentally responsible way exceeds the cost of using a filter.
C)No,because use of a filter would result in smaller total economic surplus.
D)Yes,because fishermen and bird watchers are willing to pay enough to Erie Textiles to offset the cost of using a filter.

Question 50

Suppose that the EPA has proposed strict controls on the amount of sulfur that diesel fuel contains.These controls were designed to fully offset the cost of pollution generated by diesel fuel vehicles.The effect of the regulation is estimated to increase the equilibrium price of a gallon of diesel fuel by 10 cents.
Refer to the information given above.Assuming that the supply of diesel fuel has a positive slope and demand has a negative slope,one can infer that the EPA determined that:

A)the external benefit of using diesel fuel is less than 10 cents.
B)the external cost of using diesel fuel is greater than 10 cents.
C)the external cost of using diesel fuel is less than 10 cents.
D)the external cost of using diesel fuel is equal to 10 cents.

Question 51

This graph shows the marginal costs and marginal benefits associated with roadside litter clean up.Assume that the marginal cost and marginal benefit curves slope in the usual directions.
Refer to the information given above.The socially optimal number of bags of litter removed from the roadside is:

A)10.
B)15.
C)20.
D)

Question 52

A policy maker has argued for higher taxes on gasoline to reduce the negative externalities associated with driving.This policy will lead to a relatively ______ reduction in driving if demand is _______.

A)small;perfectly elastic
B)large;perfectly inelastic
C)small;relatively inelastic
D)large;relatively inelastic

Question 53

If the marginal cost of reducing pollution is positive:

A)it should be reduced as much as technically feasible.
B)the marginal benefit is nearly zero.
C)the optimal amount of pollution is zero.
D)the optimal amount of pollution is greater than zero.

Question 54

Suppose that the EPA has proposed strict controls on the amount of sulfur that diesel fuel contains.These controls were designed to fully offset the cost of pollution generated by diesel fuel vehicles.The effect of the regulation is estimated to increase the equilibrium price of a gallon of diesel fuel by 10 cents.
Refer to the information given above.Suppose that demand for diesel fuel is perfectly inelastic and supply has a positive slope.The effect of the regulation will _______ than if demand were not perfectly inelastic.

A)increase price and quantity by more
B)Increase price by less and reduce quantity by more
C)decrease price and quantity by more
D)increase price by more and reduce quantity by less

Question 55

Curly and Moe are considering living alone or being roommates and splitting the rent for the next twelve months.If they live alone,they each rent a one bedroom,one bath apartment for $500 per month,while if they are roommates,they can split a two bedroom,one bath apartment for $800 per month.The one difficulty they have is that Moe snores very loudly.Curly estimates the cost of poor sleep due to Moe's snoring at $150 per month.Moe could obtain a snore-eliminating device for $50 per month.
Refer to the information given above.Curly and Moe have both taken an economics course and so are willing to apply the Coase Theorem and negotiate.Who will compensate the other?

A)Neither Moe nor Curly has the initial property right,and so neither will compensate the other.
B)Moe must compensate Curly because Moe is the one who is snoring.
C)Curly must compensate Moe because Curly is the one who is bothered by the snoring.
D)Either Moe will compensate Curly or Curly will compensate Moe because the alternative,renting separate apartments,leaves each worse off.

Question 56

Suppose Erie Textiles can dispose of its waste "for free" by dumping it into a nearby river.While the firm benefits from dumping waste into the river,the waste reduces the fish and bird reproduction.This causes damage to local fishermen and bird watchers.At a cost,Erie Textiles can filter out the toxins,in which case local fishermen and bird watchers will not suffer any damage.The relevant gains (in thousands of dollars)and losses for the three parties are listed below. $$\begin{array} { l r c } & \text { With Filter } & \text { Without } \\\text { Gains to Erie } & \$ 200 & \$ 400 \\\text { Fishermen } & \$ 180 & \$ 50 \\\text { Bird Watchers } & \$ 130 & \$ 25\end{array}$$
Refer to the information given above.The daily cost (in thousands of dollars)of the filter to Erie Textiles is _______,and the daily net benefit (in thousands of dollars)of the filter to the fishermen and bird watchers is _______.

A)$400;$310
B)$310;$200
C)$200;$75
D)$200;$235

Question 57

Suppose Erie Textiles can dispose of its waste "for free" by dumping it into a nearby river.While the firm benefits from dumping waste into the river,the waste reduces the fish and bird reproduction.This causes damage to local fishermen and bird watchers.At a cost,Erie Textiles can filter out the toxins,in which case local fishermen and bird watchers will not suffer any damage.The relevant gains (in thousands of dollars)and losses for the three parties are listed below. $$\begin{array} { l r c } & \text { With Filter } & \text { Without } \\\text { Gains to Erie } & \$ 200 & \$ 400 \\\text { Fishermen } & \$ 180 & \$ 50 \\\text { Bird Watchers } & \$ 130 & \$ 25\end{array}$$
Refer to the information given above.Suppose you observe that Erie has not added a filter.You could conclude that the Coase Theorem failed to solve the externality problem because:

A)Erie's benefits to operating without a filter are greater than the benefits of a filter to the fishermen and bird watchers.
B)negotiation with many individual fishermen and bird watchers was too costly.
C)Erie has a property right to the river.
D)regulators prevent application of the Coase Theorem when the environment is at stake.

Question 58

Suppose that the EPA has proposed strict controls on the amount of sulfur that diesel fuel contains.These controls were designed to fully offset the cost of pollution generated by diesel fuel vehicles.The effect of the regulation is estimated to increase the equilibrium price of a gallon of diesel fuel by 10 cents.
Refer to the information given above.Assuming that the supply of diesel fuel has a positive slope and demand has a negative slope,the quantity of diesel fuel sold after imposition of the regulation will:

A)remain the same.
B)increase.
C)decrease.
D)decrease only if diesel fuel is a normal good.

Question 59

From the perspective of an externality,most communities have zoning laws to:

A)control external benefits.
B)control external costs.
C)encourage positive externalities.
D)raise government revenues.

Question 60

Suppose Erie Textiles can dispose of its waste "for free" by dumping it into a nearby river.While the firm benefits from dumping waste into the river,the waste reduces the fish and bird reproduction.This causes damage to local fishermen and bird watchers.At a cost,Erie Textiles can filter out the toxins,in which case local fishermen and bird watchers will not suffer any damage.The relevant gains (in thousands of dollars)and losses for the three parties are listed below. $$\begin{array} { l r c } & \text { With Filter } & \text { Without } \\\text { Gains to Erie } & \$ 200 & \$ 400 \\\text { Fishermen } & \$ 180 & \$ 50 \\\text { Bird Watchers } & \$ 130 & \$ 25\end{array}$$
Refer to the information given above.When Erie Textiles operates with a filter,the total daily gain (in thousands of dollars)by all three parties is _______.

A)$985
B)$600
C)$510
D)$475

Question 61

The tragedy of the commons refers to the:

A)overuse of resources that have no price.
B)overuse of resources that have no cost.
C)under production of external benefits.
D)pollution of our natural resources.

Question 62

This graph shows the marginal costs and marginal benefits associated with roadside litter clean up.Assume that the marginal cost and marginal benefit curves slope in the usual directions.
Refer to the information given above.A state initiative requiring towns to spend at least $20 per day on litter removal would be __________ because __________.

A)efficient;any and all reductions in litter are justified
B)inefficient;the marginal costs exceed the marginal benefits
C)inefficient;$20 is insufficient to remove all of the litter
D)efficient;it solves the inefficiency in the market created by the negative externality

Question 63

A property-rights solution to the problem of the poaching of elephants for their ivory would be to:

A)assign the property rights of the elephant herds to specific tribes.
B)increase enforcement efforts against poachers.
C)ban the importation of ivory.
D)tax ivory products.

Question 64

The positive correlation between economic success and well-defined private property rights is:

A)a statistical anomaly,and not a causal relationship.
B)an example of capitalist greed and exploitation.
C)due to the observation that,when resources are owned,they are not treated as if they have a marginal cost of zero.
D)only evident in the Western world.

Question 65

The tragedy of the commons is an example of:

A)efficiency gained through operation of the invisible hand.
B)a smart-for-one,dumb-for-all situation.
C)increasing marginal costs.
D)comparative advantage and specialization.

Question 66

The reason buffalo were driven to extinction while at the same time cattle were thriving is that:

A)cattle were owned by ranchers whereas buffalo were wild.
B)demand for buffalo meat was low,discouraging production.
C)Western expansion required killing the Indian's main resource.
D)the price of buffalo hides was very low.

Question 67

Early settlers in the town of Dry Gulch drilled wells to pump as much water as they wanted from the single aquifer beneath the town.(An aquifer is an underground body of water. )As more people settled in Dry Gulch,the aquifer level fell and new wells had to be drilled deeper at higher cost.
Refer to the information given above.The town council has proposed putting a meter on each household's pump,and charging residents for each gallon of water used.This would:

A)not change water use.
B)price an un-priced resource,increasing incentives to avoid wasting water.
C)convert private property to public property.
D)reduce total economic surplus.

Question 68

This graph shows the marginal costs and marginal benefits associated with roadside litter clean up.Assume that the marginal cost and marginal benefit curves slope in the usual directions.
Refer to the information given above.The marginal cost of removing litter _______ due to the principle of ____________.

A)decreases;gains from specialization
B)increases;the Coase Theorem
C)increases;low-hanging fruit
D)decreases;diminishing returns to inputs

Question 69

Which of the following would be most vulnerable to the tragedy of the commons?

A)Restrooms in a restaurant
B)Timber on public lands
C)Cattle on a ranch
D)Apples in Phoebe's apple farm

Question 70

This graph shows the marginal costs and marginal benefits associated with roadside litter clean up.Assume that the marginal cost and marginal benefit curves slope in the usual directions.
Refer to the information given above.Picking up the 20^th bag of litter would:

A)be efficient.
B)increase total economic surplus.
C)create deadweight loss.
D)be socially efficient,but would not be consistent with following self-interest motives.

Question 71

Early settlers in the town of Dry Gulch drilled wells to pump as much water as they wanted from the single aquifer beneath the town.(An aquifer is an underground body of water. )As more people settled in Dry Gulch,the aquifer level fell and new wells had to be drilled deeper at higher cost.
Refer to the information given above.The aquifer beneath Dry Gulch is:

A)an external cost.
B)private property.
C)a commons.
D)an external benefit.

Question 72

As preferences for a clean environment increases,the socially optimal quantity of pollution will:

A)remain the same because it is not determined by preferences.
B)increase because of increasing opportunity costs.
C)decrease because the demand shift will generate a new social optimum.
D)either increase or decrease depending on whether that demand is reflected in new market prices.

Question 73

A resource that has common property rights is one that:

A)is subject to common law.
B)benefits everyone equally.
C)has no marginal benefit.
D)is treated as though it has a price of zero.

Question 74

Early settlers in the town of Dry Gulch drilled wells to pump as much water as they wanted from the single aquifer beneath the town.(An aquifer is an underground body of water. )As more people settled in Dry Gulch,the aquifer level fell and new wells had to be drilled deeper at higher cost.
Refer to the information given above.In Dry Gulch,the supply of water is:

A)perfectly inelastic.
B)perfectly elastic.
C)upward sloping.
D)downward sloping.

Question 75

This graph shows the marginal costs and marginal benefits associated with roadside litter clean up.Assume that the marginal cost and marginal benefit curves slope in the usual directions.
Refer to the information given above.Suppose the state highway department has picked up 15 bags of litter.Protesters have staged a demonstration demanding that the highway department return to pick up the remaining litter.From an economic efficiency perspective,the protesters have a ________ claim because ________.

A)legitimate;litter generates a negative externality
B)faulty;the additional resources needed to remove more litter could be better used elsewhere
C)faulty;the government is not responsible for taking care of private property
D)legitimate;the government has a responsibility to take action when private market incentives do not yield the socially optimal result

Question 76

This graph shows the marginal costs and marginal benefits associated with roadside litter clean up.Assume that the marginal cost and marginal benefit curves slope in the usual directions.
Refer to the information given above.According to this graph,the marginal benefit of litter removal is maximized when the ___ bag is removed.

A)first
B)10^th
C)15^th
D)30^th

Question 77

Since the cost of obtaining more of any resource is __________,viewing any resource's price as zero leads to __________.

A)positive;underutilization
B)negative;overutilization
C)positive;a surplus
D)positive;overutilization

Question 78

Early settlers in the town of Dry Gulch drilled wells to pump as much water as they wanted from the single aquifer beneath the town.(An aquifer is an underground body of water. )As more people settled in Dry Gulch,the aquifer level fell and new wells had to be drilled deeper at higher cost.
Refer to the information given above.Each resident of Dry Gulch has a private incentive to ____ water because _____.

A)over use;external costs aren't considered
B)under use;it is a scarce resource
C)over use;it is a scarce resource
D)under use;it is characterized by increasing marginal costs

Question 79

Early settlers in the town of Dry Gulch drilled wells to pump as much water as they wanted from the single aquifer beneath the town.(An aquifer is an underground body of water. )As more people settled in Dry Gulch,the aquifer level fell and new wells had to be drilled deeper at higher cost.
Refer to the information given above.Compared to a town in which all residents collectively decide on how much water to use,Dry Gulch will experience:

A)greater water use.
B)the same water use.
C)less water use.
D)the same amount of water use but at a lower cost.

Question 80

According to the textbook,limits on private property rights,e.g. ,zoning laws,are:

A)market interventions that reduce the size of the economic pie.
B)generally unnecessary,as people have an inherent incentive to use private property wisely.
C)an attempt to protect or enlarge the total economic surplus.
D)designed to help one group and harm another.