Question 1

Glen is considering whether to paint his house and if so,what colour to choose.He settles on three options: leave it "as is",paint it brown,or paint it purple.Glen's neighbours are able to easily see his house.The following table shows the monetary values of utility for Glen and his neighbours under the three possibilities. 
-Refer to the information above.Suppose that an additional rule is adopted: maximize total economic surplus but no outcome with a negative value for either Glenn or his neighbours can be chosen.The outcome now is that Glen's house will
A) not be painted.
B) be painted purple.
C) be painted brown.
D) either remain as is or be painted brown.
E) be of an indeterminate colour.

Accepted Answer

Maximizing total economic surplus while ensuring no negative value for either party means choosing the option that provides the highest net benefit without causing a loss to Glenn or his neighbors. Painting the house brown likely meets these criteria.

Question 2

When there are no externalities,
A) the market equilibrium occurs at the point where the marginal social benefit is equal to the marginal social cost.
B) society is not as well off as it could be.
C) the marginal social cost is different from the marginal private cost.
D) other people must bear part of the cost.
E) there is no market equilibrium.

Accepted Answer

When there are no externalities, the market equilibrium occurs at the point where the marginal social benefit (MSB) is equal to the marginal social cost (MSC). This is because both producers and consumers consider only their private benefits and costs when making decisions in the market, and the market forces of supply and demand serve to equalize the private costs and benefits. However, in the absence of externalities, the private costs and benefits equal the social costs and benefits. Therefore, the efficient level of output is achieved at the market equilibrium where MSB=MSC.

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. 
-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
E) 125;$60

Accepted Answer

Private incentives often result in fewer people receiving the vaccine due to cost barriers, leading to 50 people receiving it at a cost of $60.

Question 4

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. 
-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
E) D-2 + D-1;MC

Accepted Answer

Private benefits are measured by demand (D-1) because individuals are willing to pay a certain amount for the vaccine based on how much they value avoiding getting sick. Social benefits are measured by total demand (D-1 + D-2) because it includes the private benefits as well as the additional benefits to society from reduced transmission and spread of the flu. However, in this scenario, since the question only asks about the measuring of benefits, we can assume that we are only dealing with the demand for the vaccine and not the actual benefits received. Therefore, the answer is C.

Question 5

Assume that the values in the table above are representative of most neighbourhoods,i.e. ,unique colours are an external cost while traditional colours are an external benefit.One could predict that
A) the distribution of unique and traditional colours will be 50-50.
B) if one house is uniquely coloured,all houses will be.
C) if one house is traditionally coloured,no unique coloured houses will be present.
D) colours of houses will be relatively homogeneous.
E) colours of houses will be relatively heterogeneous.

Accepted Answer

Since unique colours are an external cost and traditional colours are an external benefit, it is likely that most people will opt for traditional colours for their house. Therefore, the colours of houses will be relatively homogeneous.

Question 6

After correcting an externality,the equilibrium price and quantity both rose.The externality must have been a(n)
A) negative externality.
B) positional externality.
C) prisoner's dilemma.
D) positive externality.
E) external cost.

Accepted Answer

If both the equilibrium price and quantity increase after correcting an externality, it indicates that the marginal social benefit of the good/service is greater than its private marginal benefit. This happens in the presence of a positive externality, where the market demand curve understates the true social demand curve because individuals do not take into account the benefits they are providing to others by consuming the good/service. By correcting the externality, the true social benefits are considered, leading to an increase in both the equilibrium price and quantity.

Question 7

Glen is considering whether to paint his house and if so,what colour to choose.He settles on three options: leave it "as is",paint it brown,or paint it purple.Glen's neighbours are able to easily see his house.The following table shows the monetary values of utility for Glen and his neighbours under the three possibilities. 
-Refer to the information above.Given a goal of maximizing total economic surplus,a Coase theorem solution would result in
A) no change in the colour of Glen's house.
B) Glen painting his house purple and paying his neighbours $10.
C) Glen's neighbours paying him $20.
D) Glen painting his house brown.
E) Glen painting the front of his house brown and the back purple.

Accepted Answer

Glen painting his house purple and paying his neighbours $10 would result in the highest total economic surplus. This is because the benefit to Glen of painting his house purple ($30) is greater than the cost to his neighbours ($10).

Question 8

The socially optimal number of vaccines is _______.
A) 50
B) 75
C) 125
D) 150
E) 275

Accepted Answer

The answer of The socially optimal number of vaccines is...

Question 9

Which of the following is an example of a governmental solution to an external benefit?
A) Requiring autos to meet minimum emissions standards.
B) Building safety requirements for office buildings.
C) Regulations of food additives.
D) Public service ads encouraging exercise and good nutrition.
E) Public service ads discouraging smoking.

Accepted Answer

Public service ads encouraging exercise and good nutrition are aimed at increasing the external benefits of a healthier population, which can reduce healthcare costs and improve overall societal well-being.

Question 10

Brady owns a beachfront lot with a small house.During hurricanes,he refuses to leave and afterward he applies for government assistance to rebuild and files insurance claims for damages.By doing so,Brady is
A) increasing his economic surplus without harm to others.
B) imposing an external cost on himself.
C) imposing an external cost on rescue workers,taxpayers,and insurance policy holders.
D) treating his property as common property.
E) in a positional arms race.

Accepted Answer

By refusing to leave and applying for government assistance and insurance claims, Brady is imposing an external cost on rescue workers, taxpayers, and insurance policy holders. This is because they will be the ones footing the bill for his decisions and actions, even though they had no say in the matter. Furthermore, Brady is putting himself and potentially others in danger by refusing to evacuate during a hurricane, which can increase the costs and risks associated with rescue efforts.

Question 11

If the flu vaccine is provided by private markets,deadweight loss will be _______.
A) zero
B) $375
C) $500
D) $1,125
E) $2,250

Accepted Answer

If the flu vaccine is provided by private markets, there will be deadweight loss, as some people will not be willing or able to pay the market price for the vaccine. The deadweight loss is equal to half the area of the triangle formed by the supply and demand curves, and is equal to $375 in this case.

Question 12

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. 
-The dollar value of the external ______ is _____.
A) benefit;$30
B) benefit;$20
C) benefit;$75
D) cost;$20
E) cost;$75

Accepted Answer

The sentence implies that there is a positive externality associated with receiving the vaccine, since the likelihood of others getting the flu decreases as more people receive it. The dollar value of this externality is given as $30. Therefore, the correct answer is A) benefit;$30.

Question 13

If the external cost of an activity is added to the private cost,then the
A) supply curve shifts right.
B) quantity supplied rises.
C) supply curve shifts left.
D) quantity supplied falls.
E) demand curve shifts left.

Accepted Answer

When the external cost of an activity is added to the private cost, the total cost of production increases. This leads to a higher marginal cost for the producers, causing a leftward shift in the supply curve. As a result, the quantity supplied falls. Therefore, the correct choice is (C) - supply curve shifts left.

Question 14

Glen is considering whether to paint his house and if so,what colour to choose.He settles on three options: leave it "as is",paint it brown,or paint it purple.Glen's neighbours are able to easily see his house.The following table shows the monetary values of utility for Glen and his neighbours under the three possibilities. 
-Refer to the information above.The ranking of choices from highest to lowest for Glen is
A) brown,no change,purple.
B) purple,no change,brown.
C) purple,brown,no change.
D) no change,brown,purple.
E) brown,purple,no change.

Accepted Answer

The correct ranking for Glen is purple, brown, no change, as it is the only option that lists the choices in descending order of preference based on the given information.

Question 15

If the external benefit of an activity is added to the private benefit,then the
A) demand curve shifts left.
B) quantity demanded rises.
C) supply curve shifts right.
D) demand curve shifts right.
E) quantity demanded falls.

Accepted Answer

When the external benefit of an activity is added to the private benefit, the total benefit increases. This means that consumers are willing to pay more for the product or service, leading to a rightward shift of the demand curve. Therefore, the quantity demanded will increase as well.

Question 16

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
E) relying strictly on market allocation of vaccines.

Accepted Answer

The most effective way to correct a negative externality is to subsidize the activity that produces the positive externality. Therefore, subsidizing vaccines would incentivize individuals to receive them and would help to address the negative externality of disease spread. Taxing vaccines or relying strictly on market allocation would likely reduce the number of people who receive vaccines, exacerbating the negative externality. Encouraging private payments would also be unlikely to address the externality sufficiently. While free provision of vaccines (D) would increase the number of people receiving them, it may not incentivize healthy behaviors in the long term and could become unsustainable.

Question 17

Glen is considering whether to paint his house and if so,what colour to choose.He settles on three options: leave it "as is",paint it brown,or paint it purple.Glen's neighbours are able to easily see his house.The following table shows the monetary values of utility for Glen and his neighbours under the three possibilities. 
-Refer to the information above.The ranking of total economic surplus for Glen and his neighbours from highest to lowest is
A) purple,brown,no change.
B) brown,no change,purple.
C) neon purple,no change,brown.
D) no change,brown,purple.
E) brown,purple,no change.

Accepted Answer

The total economic surplus is highest when Glen paints his house purple. This is because the total utility for both Glen and his neighbours is highest under this option. Painting the house brown is the next best option, followed by leaving it "as is". Therefore, the ranking from highest to lowest is purple, brown, and no change.

Question 18

If,after an externality is corrected,the equilibrium price rises and the equilibrium quantity falls,the externality must have been a(n)
A) external benefit.
B) internal cost.
C) external cost.
D) positive externality.
E) positional externality.

Accepted Answer

If the equilibrium price rises and the equilibrium quantity falls after correcting an externality, it implies that the cost of production has increased due to the correction of the externality, and as a result, the market has shifted leftward to a new equilibrium point. This indicates that the externality was a negative one, specifically an external cost. Therefore, the correct choice is C.

Question 19

In the case of either an external cost or an external benefit,the invisible hand fails to generate the efficient outcome because
A) the model is not capable of incorporating externalities.
B) buyers and sellers only take their self interest into account.
C) too much is produced.
D) too little is produced.
E) the environment is treated as a common property.

Accepted Answer

The invisible hand theory assumes that individuals act in their own self-interest and will make decisions that lead to the most efficient outcome for society. However, in the case of external costs or benefits, individuals do not take into account the impact their actions have on others, leading to an inefficient outcome. Therefore, the invisible hand fails to generate the efficient outcome because individuals are not considering the externalities.

Question 20

Glen is considering whether to paint his house and if so,what colour to choose.He settles on three options: leave it "as is",paint it brown,or paint it purple.Glen's neighbours are able to easily see his house.The following table shows the monetary values of utility for Glen and his neighbours under the three possibilities. 
-Refer to the information above.Assume that Glen and his neighbours both know the payoffs to the three choices.If maintaining relations with his neighbours is valuable,Glen will likely choose
A) brown.
B) purple.
C) to not change the colour.
D) to consider different colours.
E) to move.

Accepted Answer

Since the neighbours can easily see Glen's house, it is important for him to consider their preferences. The table shows that painting the house brown would provide the highest total utility for both Glen and his neighbours, so this would be the best choice if maintaining good relations with his neighbours is important to him.

Quiz 10: Externalities and Property Rights

When there are no externalities,

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. -Private incentives will lead to _ people receiving the vaccine at a cost of _.

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. -Private benefits are measured by __ and social benefits are measured by _.

Assume that the values in the table above are representative of most neighbourhoods,i.e. ,unique colours are an external cost while traditional colours are an external benefit.One could predict that

After correcting an externality,the equilibrium price and quantity both rose.The externality must have been a(n)

The socially optimal number of vaccines is _______.

Which of the following is an example of a governmental solution to an external benefit?

Brady owns a beachfront lot with a small house.During hurricanes,he refuses to leave and afterward he applies for government assistance to rebuild and files insurance claims for damages.By doing so,Brady is

If the flu vaccine is provided by private markets,deadweight loss will be _______.

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. -The dollar value of the external __ is _.

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

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

This externality could most effectively be corrected by

If,after an externality is corrected,the equilibrium price rises and the equilibrium quantity falls,the externality must have been a(n)

In the case of either an external cost or an external benefit,the invisible hand fails to generate the efficient outcome because