Deck 7: The Nature of Pollution Problems

Question 1

Jolie grows asparagus for a living. Her asparagus beds, fertilized with manure, are extraordinarily productive. When Jolie tends five beds, her profits are $3,000. When Jolie expands her operation to six beds, she earns $3,600. Next door, Maddox runs a tea shop. When Jolie tends five beds of asparagus, Maddox's customers can't detect the smell of manure from Jolie's beds, and Maddox earns $1,200. When Jolie tends six beds, the smell of manure is noticeable, and Maddox's profits fall to $800. Explain why it is probably unfair (though convenient) to characterize Jolie as the polluter and Maddox as the victim.

Answer 1

Pollution:
Pollution refers to the releasing the harmful substance in to the environment.
'J' growth and profit:
When 'J' produces five beds, then the profit is $3,000. After some time she decides to expand their produce to 6 beds, then it earns the profit of $3,600. 'M' growth and profit:
If 'J' produces 5 beds, then 'M' customer can't identify the smell of goods and services and 'M' earns the profit of $1,200.
When 'J' decides to enlarge their production of goods and services and she produces 6 beds, then the 'M' production is affected and the profit is decreased from $1,200 to $800. Polluter and victim:
When the person 'J' increases his profit by increasing number of bed, it leads to hurt he profit of the person 'M'. Since the person 'J' causes the damage to the person 'M', the villain is the person 'J' and the victim is the person 'M'.
On the other hand, the person 'J' has all the rights to increase his profit. If the person 'M' has forcing to decrease the number of bed to 5, then he causing the damage to the person 'J'. Thus, in this situation villain is 'M' and the victim is the person 'J'.

Question 2

What implications do high transactions costs hold for the Coase theorem?

A) Society cannot rely on arm's-length bargaining to resolve resource disputes.
B) The economic pie may not be maximized.
C) Legal constraints can affect whether the economic pie is maximized.
D) All of the above are true.

Answer 2

Bargaining:
Bargaining to resolve resource disputes is partially correct. Therefore, option "a" is incorrect.
Minimize the economic activity:
Reducing the economic activity is one impact of the coase theorem. Therefore option "b" is incorrect
Legal constraint:
Legal constraint refers the failure of imposing law to protect the resource. when it is impossible to bring government enforcement, then coase theorem would help to reduce the pollution amount or over usage of resource. This is partially correct. Therefore option "c" is incorrect.
Coase theorem:
Coase theorem is one of the ways to solve the problem of externality without government intervention. There is an assignment of property rights, but still negotiation round between the agents can end up with the efficient outcome.
Thus, the Coase theorem is entirely based on the negotiation process irrespective of the fact that there is assignment of property rights because property rights can be sold.
Thus, option "d" is the correct answer.

Question 3

In 1992, the federal government mandated a switch to low-flow showerheads that only allowed 2.5 gallons of water to be used eacl1 minute. Prior to the measure, showerheads routinely allowed a flow of between 5 and 8 gallons per minute. The rationale for the measure was conservation: to reduce the wasteful use of water in tl1e shower. Discuss this measure from the villain/victim standpoint. Who are the villains (and are they really villains)? Who are the victims the law is designed to protect (and are they really victims)?

Answer 3

Villains:
Villain refers to the person whose activity affects the well being of other people. In this scenario, villains are those people who uses too much of water for bathing.
Victims:
Victim are the people who borne the negative impact that created by some other people or an event. Thus, the victims are the people who need water for some other purpose. The law is designed to protect:
This scenario reveals that the problem arises due to the allocation of resource. If the law is executed, then it leads to ineffective showers. On the other hand, if there is no law, then people face shortage of water for lawn and wash the cars. Thus, the problem can be resolved through pricing the water. When water is priced, people use the water for most valued activity and water will be conserved.

Question 4

Nobel Prize winner Ronald Cease's famous theorem suggests that ______

A) Pollution problems can't be solved without strong government
B) Imposing taxes on polluters is the best way to solve pollution problems
C) High transactions costs are good for society because they prevent polluters from buying the right to pollute
D) Some pollution problems can be solved via negotiations between polluter and victim

Question 5

Suppose that a brewer regularly dumps used yeast into a river and that a downstream water bottler must clean up the water before using it. Dumping the yeast into the river saves the brewer $500 in disposal costs each day. Cleaning up the water costs the bottler $600 each day. In this case, the benevolent social planner would _________.

A) Like to see the brewer pollute
B) Like to see the brewer dispose of the yeast somewhere other than the river
C) Strongly encourage the government to pass a law giving the brewer the right to pollute the river
D) We don't have enough information to determine what the benevolent social planner might want.

Question 6

A majority of the states have laws that ban smoking in enclosed public locations, including. bars and restaurants. Do you suppose this law maximizes the economic pie? Why or why not? Why do you suppose state governments didn't leave this issue to be resolved by bargaining between smoking and nonsmoking restaurant patrons? Explain your reasoning.

Question 7

When it comes to pollution problems, Section 7.3 suggests that ______.

A) Whether we will have pollution or not depends on what the law allows
B) Polluter and victim can negotiate to the outcome that the benevolent social planner would want
C) Both a and b are true.
D) Neither a nor b is true.

Question 8

Consider the case of Jolie and Maddox outlined in problems 1 and 2.
a. Suppose that drawing up an enforceable contract costs $250. How many beds will Jolie end up keeping? Explain your answer carefully.
b. Is the outcome Jolie and Maddox achieve in (a) an outcome that the benevolent social planner would endorse? Why or why not?
Problem 1:
Jolie grows asparagus for a living. Her asparagus beds, fertilized with manure, are extraordinarily productive. When Jolie tends five beds, her profits are $3,000. When Jolie expands her operation to six beds, she earns $3,600. Next door, Maddox runs a tea shop. When Jolie tends five beds of asparagus, Maddox's customers can't detect the smell of manure from Jolie's beds, and Maddox earns $1,200. When Jolie tends six beds, the smell of manure is noticeable, and Maddox's profits fall to $800. Explain why it is probably unfair (though convenient) to characterize Jolie as the polluter and Maddox as the victim.
Problem 2:
Consider the case of Jolie and Maddox outlined in problem 1. Suppose that the law states that anyone using manure for fertilizer may not use so much that it bothers his or her neighbors.
a. If you were the benevolent social planner, would you like to see Jolie keep five beds or six? Why?
b. If bargaining between Jolie and Maddox is easy, how many beds will Jolie keep? Describe the bargain that results, if any, including the amount of money changing hands.
c. Is the outcome in (b) an outcome that the benevolent social planner would endorse? Why or why not?

Question 9

[Related to Application 7.2 on page 147] According to the Centers for Disease Control and Prevention, the most common sexually transmitted infection is the genital human papilloma virus (HPV). It's so common that nearly all sexually active men and women get it at some point in their lives. In 2006, the Food and Drug.Administration approved the first HPV vaccine. What is the direct effect of the HPV vaccine? Does the HPV vaccine create an externality? If so, explain what that externality is and discuss whether it is positive or negative.

Question 10

"I never get a flu shot... but I always make sure my wife does." Discuss this statement and link your discussion to recent outbreaks of measles, mumps, and whooping cough. Your discussion should be based on game theory and should also explicitly mention externalities.

Question 11

A by-product of an activity that affects someone else is called a(n) ______

Question 12

Consider the case of Jolie and Maddox outlined in problem. Suppose that the law states that anyone using manure for fertilizer may not use so much that it bothers his or her neighbors.
a. If you were the benevolent social planner, would you like to see Jolie keep five beds or six? Why?
b. If bargaining between Jolie and Maddox is easy, how many beds will Jolie keep? Describe the bargain that results, if any, including the amount of money changing hands.
c. Is the outcome in (b) an outcome that the benevolent social planner would endorse? Why or why not?
Problem:
Jolie grows asparagus for a living. Her asparagus beds, fertilized with manure, are extraordinarily productive. When Jolie tends five beds, her profits are $3,000. When Jolie expands her operation to six beds, she earns $3,600. Next door, Maddox runs a tea shop. When Jolie tends five beds of asparagus, Maddox's customers can't detect the smell of manure from Jolie's beds, and Maddox earns $1,200. When Jolie tends six beds, the smell of manure is noticeable, and Maddox's profits fall to $800. Explain why it is probably unfair (though convenient) to characterize Jolie as the polluter and Maddox as the victim.

Question 13

A(n) _______ is a by-product of an activity that imposes a burden or cost on others.

Question 14

When the law grants somebody control of a resource, that control is referred to as a(n) _____.

Question 15

If an externality makes a bystander better off than he was before the activity was undertaken, that externality is referred to as a(n) ________.

Question 16

The states that under certain conditions, the property right to an activity will be acquired by the party that values it most.

Question 17

Sporting events are a source of income for some cities, but in 2011, followi11g tl1e defeat of the Vancouver Canucks by the Boston Bruins, a riot broke out in downtown Vancouver. In this instance, at least 140 people were reported injured. This type of Violence would be considered a of hockey games.

A) Positive externality
B) Transactions cost
C) Negative externality
D) Collective action

Question 18

Suppose that in problem 3.1, the law gave the brewer the right to dump yeast in the stream. Assuming that the conditions of the Coase theorem are met, the Coase theorem suggests that _____.
A) The brewer will pay the water bottler for the right to dump yeast in the river
B) The brewer will dump yeast, and there's nothing the water bottler can do about it
C) The water bottler will have the police stop the brewer from dumping yeast
D) The water bottler will pay the brewer not to dump yeast in the river
Problem:
Suppose that a brewer regularly dumps used yeast into a river and that a downstream water bottler must clean up the water before using it. Dumping the yeast into the river saves the brewer $500 in disposal costs each day. Cleaning up the water costs the bottler $600 each day. In this case, the benevolent social planner would _________.

A) Like to see the brewer pollute
B) Like to see the brewer dispose of the yeast somewhere other than the river
C) Strongly encourage the government to pass a law giving the brewer the right to pollute the river
D) We don't have enough information to determine what the benevolent social planner might want.

Question 19

Since World War II, antibiotics have been available for use in treating bacterial infections. Increased antibiotic use has caused some antibiotic-resistant strains to evolve. Antibiotic resistance is a(n) _________ of antibiotic usage.

A) Transactions Cost
B) Negative Externality
C) Explicit Cost
D) Deadweight Loss

Question 20

Assuming sufficiently low transactions costs, the Coase theorem asserts that the property right to an activity will be acquired by the party that values it most. What are the two implications of the Coase theorem that are listed in the chapter?

Question 21

John lives in a second-floor apartment in Missoula, Montan a. An elderly resident who prefers a very warm apart1nent lives directly beneath him. As a result, John rarely has to run tl1e heat in his own apartment. The heat John receives from his downstairs neighbor could be considered a _________.

A) Transactions cost
B) Positive externality
C) Negative externality
D) Property right

Question 22

Assuming that transactions costs are sufficiently low, the Coase theorem results in the economic pie being maximized, regardless of legal constraints. What impact, then, do legal constraints have?

Question 23

A majority of the states have laws that ban smoking in enclosed public locations, including bars and restaurants. Can you think of a potential negative externality associated with these laws?

Question 24

[Related to Application 7.3 on page 149] The Nature Conservancy is one tool that consumers can use to put their money where their mouth is, but it's not the only one. Discuss how Internet technology is helping large groups of consumers raise money for causes they support. Does this teclU1ology make it more likely or less likely that the economic pie will be maximized?

Question 25

[Related to Application 7.1 on page 143] Read Application 7.1 carefully. Suppose that sex offenders move around often, rarely staying in the same place for more than a year or two. Under those circumstances, why might a person be interested in purchasing a house next door to a sex offender? Over a longer time horizon, does the sex offender confer a negative or positive externality on the homebuyer?

Question 26

Create tl1e relevant payoff matrixes to illustrate the section "The Coase Theorem: A Second Example" on pages 150-151.

Question 27

When discussing problems of pollution, it is clear that ___________.

A) We can clearly delineate who is the victim and who is the villain
B) Polluters must be made to stop polluting: they're harming other people
C) Both a and b are true.
D) N either a nor b is true.

Question 28

The costs of arranging and enforcing bargains are called _____.

Question 29

Economists generally assert the following about pollution: ________.

A) The ideal amount of pollution is no pollution at all
B) The problem we face in dealing with pollution is figuring out how much pollution is too much and how much pollution is not enough
C) Because we like the products that polluters make, the best solution to pollution is to simply let polluters pollute as much as they wish
D) Pollution is never a problem because polluters and victims can always bargain with one another

Question 30

Fred lives in the United States and is interested in purchasing a crate of Trappist Westvleteren 12, a beer brewed by Belgian monks. The beer costs €40. In addition, the beer is sold only at the monastery gates, to customers who have made a reservation by telephone and who agree not to resell the beer to any third party. The costs of acquiring Westvleteren 12 above and beyond the €40 that would change hands for the purchase are called _______.

A) Transactions costs
B) Private costs
C) External costs
D) Side bargains