Question 1

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 the firms trade those rights in a market, the government can ensure that the total emissions of carbon monoxide are limited to exactly 4 million tons while also allowing for market efficiency and flexibility in achieving the reduction. Option B is too vague and relies too much on firms voluntarily acting in the best interest of the environment. Option C, subsidizing production, does not directly address carbon monoxide emissions and may in fact lead to an increase in emissions if production increases. Option D, the Coase Theorem, is a theoretical concept that requires specific conditions to be met and may not be practical or feasible in this scenario.

Question 2

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,one necessary condition to alleviate the externality is that

Accepted Answer

Coase's Theorem suggests that the externalities can be resolved through private bargaining as long as property rights are clearly defined. In this case, either Al or Bert should own the park to have the authority to make decisions and control the use of the park. Once property rights are established, the parties can negotiate a solution that is mutually beneficial, such as Al agreeing not to leave trash or Bert agreeing to clean the park regularly in exchange for compensation from Al. Therefore, option D is the best choice. Options A, B, and C do not address the property rights issue, and they may not lead to an efficient solution to the problem.

Question 3

-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 4

The exclusive privilege to use an asset is called a(n)

Accepted Answer

The term "property right" refers to the legal right to use and exclude others from using a particular asset or property. It is an exclusive privilege granted to the owner of the asset. This right is protected by law and can be enforced against others who violate it. Therefore, option A is the most appropriate choice. Option B is incorrect because an exclusive use agreement is a type of contract that restricts the use of an asset, but it does not confer property rights. Option C is similar to option A but is not the commonly used terminology. Option D is also incorrect because the right to work privilege pertains to the right to engage in a particular profession or trade and is not related to property rights.

Question 5

-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 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

Since the beach owner also owns the lake, they would likely find a balance between allowing some pollution for economic gain from the chemical firm and keeping the beach attractive for visitors. Charging $10 per ton of pollution, the beach owner would prefer the chemical firm to produce at a level that minimizes pollution while still operating, which is 1 ton, to maintain the beach's attractiveness.

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 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.

Question 8

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

Coase's Theorem suggests that if property rights are assigned to the park, the parties involved can negotiate and come to an agreement that satisfies both parties' preferences. For example, if Bert has property rights to the park, he can negotiate with Al and ask him to clean up his trash or pay a fee for the right to leave trash in the park. Alternatively, if Al has property rights to the park, he can negotiate with Bert to agree on an optimal level of trash in the park. In this way, the parties involved can reach an efficient outcome without the need for government intervention or Bert having to move.

Question 9

-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 10

-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

Given that the chemical firm owns the lake, it has the power to decide the level of pollution. If the beach owner pays $10 to keep the pollution to one ton, it indicates a cooperative effort to maintain the attractiveness of the beach while allowing the chemical firm to operate at a lower pollution level. This scenario benefits both parties: the beach can operate, attracting visitors, and the chemical firm can continue its production, albeit at a lower level, with an additional $10 from the beach owner.

Question 11

-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 12

The existence of externalities is due mainly to the fact that

Accepted Answer

Externalities arise when the cost or benefit of a transaction or activity is not fully reflected in the market price. One reason for this is poorly defined property rights, where individuals or firms may not be held accountable for the costs they impose on others. This can lead to overproduction or consumption of goods with negative externalities, such as pollution. Therefore, option D is the correct answer.

Question 13

-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 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.As long as someone owns the lake and the two parties can negotiate,then

Accepted Answer

This scenario is an example of the Coase Theorem, which states that if trade in an externality is possible and there are no transaction costs, bargaining will lead to an efficient outcome regardless of the initial allocation of property rights. In this case, the efficient outcome is likely where the chemical firm produces less pollution (1 ton) to allow the beach to operate, as this maximizes overall welfare by reducing the negative externality of pollution while still allowing both businesses to operate.

Question 15

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

While assigning property rights to Al might solve the problem of trash in the park, it may still not achieve the socially optimal outcome. Coordinating with the other nineteen neighbors can be costly, and it is possible that Al may not take into account the negative externalities his trash dumping creates for the other neighbors. Therefore, assigning property rights alone may not be sufficient to ensure an efficient outcome.

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 property rights are not defined,how much pollution will occur?

Accepted Answer

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

Question 17

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

Coase's Theorem suggests that the optimal solution can be reached through bargaining between the two parties and their property rights. In this scenario, giving Al the right to leave trash in the park and allowing Bert to pay him to limit his dumping would incentivize both parties to negotiate and find a mutually agreeable solution that minimizes the amount of trash in the park. Option A of fining Al by the government would not involve bargaining between the parties, as it assumes that one party has the power to impose a solution on the other. Option B of giving Al the unrestricted right to leave trash without consequences from Bert goes against the idea of finding an optimal solution for both parties. Option D of Bert moving would not address the root of the problem and is not a sustainable solution.

Question 18

-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 chemical firm produces at a level that allows the beach to operate while minimizing pollution, hence option C is correct as it balances production with environmental impact, allowing both businesses to profit.

Question 19

-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 20

The result that,under certain circumstances,no government action is needed to control an externality because it can be eliminated by bargaining between the affected parties is called

Accepted Answer

The result that, under certain circumstances, no government action is needed to control an externality because it can be eliminated by bargaining between the affected parties is called the Coase Theorem. This theorem suggests that if property rights are well-defined and transaction costs are sufficiently low, parties can negotiate and bargain with each other to arrive at an efficient outcome without government intervention.

Quiz 18: Externalities, Open-Access, and Public Goods

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,one necessary condition to alleviate the externality is that

The exclusive privilege to use an asset is called a(n)

-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?

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 existence of externalities is due mainly to the fact that

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

-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?

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 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?

The result that,under certain circumstances,no government action is needed to control an externality because it can be eliminated by bargaining between the affected parties is called