Question 1

-The above figure shows the payoff matrix for two firms.A chemical firm must choose between a low level of production which yields one ton of pollution into a nearby lake and a high level of production which yields two tons of pollution into the nearby lake.A private beach on the lake must decide whether to operate or not.Increased pollution reduces the number of people who wish to visit the beach.As long as someone owns the lake and the two parties can negotiate,then

Accepted Answer

When the lake is owned and the parties can negotiate, they will likely reach an agreement that maximizes their combined profits. Operating the beach with 1 ton of pollution is likely the optimal solution, as it allows the beach to operate while minimizing pollution.

Question 2

For the following, please answer "True" or "False" and explain why.
-Firms that are most likely to buy marketable pollution rights are those that produce the most pollution per unit of output produced.

Accepted Answer

Firms that will buy pollution rights are those whose products are worth a lot relative to the harm from pollution they create.

Question 3

-The above figure shows the marginal benefit from pollution for two firms.If both firms receive a marketable permit to pollute 25 units of pollution each,how much will each firm pollute and how much will a permit for one unit of pollution be worth?

Accepted Answer

The answer of 
-The above figure shows the marginal benefit...

Question 4

According to the Coase approach,to achieve socially optimal outcome,two sides must bargain.The bargaining might not be successful because

Accepted Answer

The Coase approach recognizes that bargaining between the two sides is necessary to achieve an efficient and socially optimal outcome. However, if firms engage in strategic bargaining, where one side has more bargaining power or uses tactics such as threats or deception, the bargaining may not result in an efficient outcome. Transaction costs and perfect information are also important factors, but the presence of strategic bargaining is the most likely reason for an unsuccessful agreement.

Question 5

-The above figure shows the marginal benefit from pollution for two firms.If each firm receives a marketable permit to produce 25 units of pollution,which one of the following is most likely to happen?

Accepted Answer

The answer of 
-The above figure shows the marginal benefit...

Question 6

-The above figure shows the payoff matrix for two firms.A chemical firm must choose between a low level of production which yields one ton of pollution into a nearby lake and a high level of production which yields two tons of pollution into the nearby lake.A private beach on the lake must decide whether to operate or not.Increased pollution reduces the number of people who wish to visit the beach.If the beach owner also owns the lake,and the chemical firm must pay $10 per ton to pollute,then

Accepted Answer

If the beach owner also owns the lake and charges the chemical firm $10 per ton to pollute, the chemical firm will choose to produce at a level that minimizes its costs. Producing 1 ton of pollution incurs a lower cost than producing 2 tons, allowing the beach to operate without excessive pollution.

Question 7

-The above figure shows the marginal benefit to a firm of polluting in the local river while producing its output,and the marginal cost to the surrounding neighbors.The marginal cost of production is zero for the firm.If the firm owns the river and there is just one neighbor affected by the pollution,how much pollution is likely to occur?

Accepted Answer

Given that the firm owns the river and there is only one neighbor affected by the pollution, the firm will likely pollute until its marginal benefit equals the marginal cost to the neighbor. This is typically represented by the intersection point on a graph of marginal benefit and marginal cost curves, which, based on standard economic theory, would suggest an equilibrium point. Without seeing the actual figure, the scenario described implies that the firm will continue to pollute as long as the benefits of doing so (to the firm) outweigh the costs (borne by the neighbor). Assuming a rational economic model, this would likely result in a specific, finite amount of pollution that balances these factors, rather than an extreme or zero amount.

Question 8

A firm operates and produces pollution that only harms an individual,Bob.The firm and Bob both know the costs and benefits of reducing pollution.Neither the firm nor Bob acts strategically while bargaining,and there are no transaction costs associated with bargaining.Explain how the efficient level of pollution occurs no matter whether the firm or Bob owns the property right to pollution.

Accepted Answer

The answer of A firm operates and produces pollution that...

Question 9

-The above figure shows the payoff matrix for two firms.A chemical firm must choose between a low level of production which yields one ton of pollution into a nearby lake and a high level of production which yields two tons of pollution into the nearby lake.A private beach on the lake must decide whether to operate or not.Increased pollution reduces the number of people who wish to visit the beach.Determine the Nash equilibrium without property rights.

Accepted Answer

The answer of 
-The above figure shows the payoff matrix...

Question 10

Suppose twenty neighbors share a park.One of the neighbors,Al,leaves trash in the park.This bothers the other neighbors.According to Coase's theorem,assigning the property rights to the park to Al

Accepted Answer

Coase's theorem states that as long as property rights are well-defined and there are no transaction costs, the market will lead to an efficient outcome, regardless of the initial assignment of property rights. However, in practice, it may not be feasible for the other nineteen neighbors to coordinate and negotiate with Al to reach an efficient solution. Therefore, assigning property rights to Al may not necessarily achieve the socially optimal quantity of trash, and coordinating with the other neighbors may be costly.

Question 11

-The above figure shows the payoff matrix for two firms.A chemical firm must choose between a low level of production which yields one ton of pollution into a nearby lake and a high level of production which yields two tons of pollution into the nearby lake.A private beach on the lake must decide whether to operate or not.Increased pollution reduces the number of people who wish to visit the beach.If nobody owns the lake,then

Accepted Answer

The answer of 
-The above figure shows the payoff matrix...

Question 12

-The above figure shows the payoff matrix for two firms.A chemical firm must choose between a low level of production which yields one ton of pollution into a nearby lake and a high level of production which yields two tons of pollution into the nearby lake.A private beach on the lake must decide whether to operate or not.Increased pollution reduces the number of people who wish to visit the beach.If the chemical firm owns the lake,and the beach owner must pay $10 to keep the chemical firm at just one ton of pollution,then

Accepted Answer

If the beach owner pays $10 to the chemical firm to keep pollution at one ton, the beach can operate with reduced pollution, making it viable for visitors.

Question 13

If the government wanted to efficiently limit the emission of Carbon Monoxide by all firms to exactly 4 Million tons it could

Accepted Answer

By issuing rights to pollute worth 4 Million tons and letting firms trade those rights in a market, they will be incentivized to reduce their emissions if they can profit from selling their remaining emissions rights. This market-based approach promotes efficiency in limiting emissions and allows firms to find the least costly way to reduce emissions.

Question 14

-The above figure shows the payoff matrix for two firms.A chemical firm must choose between a low level of production which yields one ton of pollution into a nearby lake and a high level of production which yields two tons of pollution into the nearby lake.A private beach on the lake must decide whether to operate or not.Increased pollution reduces the number of people who wish to visit the beach.If nobody owns the lake,then

Accepted Answer

Joint profits are not maximized because of the "tragedy of the commons," where individual firms' actions (in this case, the chemical firm choosing a high level of production and thus polluting the lake) lead to a suboptimal outcome for the group (reduced profits for both the chemical firm and the beach due to decreased beach attendance).

Question 15

-The above figure shows the payoff matrix for two firms.A chemical firm must choose between a low level of production which yields one ton of pollution into a nearby lake and a high level of production which yields two tons of pollution into the nearby lake.A private beach on the lake must decide whether to operate or not.Increased pollution reduces the number of people who wish to visit the beach.Joint profits are maximized when

Accepted Answer

Joint profits are maximized when the beach operates and the chemical firm produces 1 ton of pollution, as this allows both the chemical firm to produce and the beach to attract visitors, balancing production and environmental impact.

Question 16

-The above figure shows the marginal benefit to a firm of polluting in the local river while producing its output,and the marginal cost to the surrounding neighbors.The marginal cost of production is zero for the firm.If the firm owns the river and there are thousands of surrounding neighbors,how much pollution is likely to occur?

Accepted Answer

The answer of 
-The above figure shows the marginal benefit...

Question 17

-The above figure shows the marginal benefit to a firm of polluting in the local river while producing its output,and the marginal cost to the surrounding neighbors.The marginal cost of production is zero for the firm.According to Coase's Theorem,which of the following scenarios is most likely to lead to the socially optimal level of pollution?

Accepted Answer

Coase's Theorem suggests that if transaction costs are low and property rights are clearly defined, parties will negotiate to correct externalities and reach a socially optimal outcome. With only one nearby neighbor, transaction costs (e.g., for bargaining or reaching an agreement) are likely to be lower than in a scenario with many neighbors, making it easier for the firm and the neighbor to negotiate an optimal level of pollution.

Question 18

Suppose two neighbors share a park.One neighbor,Al,leaves trash in the park.This bothers the other neighbor,Bert.According to Coase's theorem,the optimal level of trash in the park can be achieved if

Accepted Answer

According to Coase's theorem, assigning property rights to the park would lead to the optimal level of trash in the park. This would create a potential cost to Al for leaving trash in the park, as Bert, as the owner of the park, would be able to enforce restrictions and potentially charge Al for any damage caused to the park. Alternatively, if the property rights were assigned to Al, Bert may be willing to pay him to keep the park clean as it is valued by both players. This would create a bargaining opportunity for both parties resulting in an efficient outcome.

Question 19

-The above figure shows the marginal benefit to a firm of polluting in the local river while producing its output,and the marginal cost to the surrounding neighbors.The marginal cost of production is zero for the firm.If property rights are not defined,how much pollution will occur?

Accepted Answer

The answer of 
-The above figure shows the marginal benefit...

Question 20

-The above figure shows the marginal benefit to a firm of polluting in the local river while producing its output,and the marginal cost to the firm's neighbor.The marginal cost of production is zero for the firm.If there is just one neighbor who owns the river,how much pollution is likely to occur?

Accepted Answer

The optimal amount of pollution occurs where the marginal benefit to the firm equals the marginal cost to the neighbor. This is typically at the intersection point of the marginal benefit and marginal cost curves, which, based on the description, is at 500 units.

Quiz 17: Property Rights, externalities, rivalry, and Exclusion

For the following, please answer "True" or "False" and explain why. -Firms that are most likely to buy marketable pollution rights are those that produce the most pollution per unit of output produced.

-The above figure shows the marginal benefit from pollution for two firms.If both firms receive a marketable permit to pollute 25 units of pollution each,how much will each firm pollute and how much will a permit for one unit of pollution be worth?

According to the Coase approach,to achieve socially optimal outcome,two sides must bargain.The bargaining might not be successful because

-The above figure shows the marginal benefit from pollution for two firms.If each firm receives a marketable permit to produce 25 units of pollution,which one of the following is most likely to happen?

Suppose twenty neighbors share a park.One of the neighbors,Al,leaves trash in the park.This bothers the other neighbors.According to Coase's theorem,assigning the property rights to the park to Al

If the government wanted to efficiently limit the emission of Carbon Monoxide by all firms to exactly 4 Million tons it could

Suppose two neighbors share a park.One neighbor,Al,leaves trash in the park.This bothers the other neighbor,Bert.According to Coase's theorem,the optimal level of trash in the park can be achieved if

-The above figure shows the marginal benefit to a firm of polluting in the local river while producing its output,and the marginal cost to the surrounding neighbors.The marginal cost of production is zero for the firm.If property rights are not defined,how much pollution will occur?

-The above figure shows the marginal benefit to a firm of polluting in the local river while producing its output,and the marginal cost to the firm's neighbor.The marginal cost of production is zero for the firm.If there is just one neighbor who owns the river,how much pollution is likely to occur?