Deck 10: Externalities

Question 1

Many people are not familiar with electric cars. By introducing the concept, Tesla, and BYD help to educate car buyers about electric cars. What externality is at work?

A) Positive externality from Tesla and BYD to consumers.
B) Positive externality from Tesla and BYD to other manufacturers of electric cars.
C) Negative externality from Tesla and BYD to consumers.
D) Negative externality from Tesla and BYD to all other car manufacturers.

Answer 1

B

Question 2

Why do businesses that provide "adult entertainment" tend to locate away from mainstream shopping districts?

A) They would impose a negative externality on mainstream businesses.
B) They cannot afford high rents.
C) Their customers tend to be male.
D) They operate mainly after dark.

Answer 2

A

Question 3

Hotel chains employ "mystery shoppers" to secretly check the service quality at franchised hotels. Suppose that you are a franchisee operating a hotel in a chain. Why would you support such secret inspections of other franchisee hotels in the chain?

A) Other franchisees might shirk on the quality of service.
B) The demand for my business depends on the service of other franchisees.
C) Other franchisees might impose a negative externality on my business.
D) a, b and c.
E) None of the above.

Answer 3

D

Question 4

Two farms draw water from the same well. Each complains that the other is taking too much water. How would merging the farms help to resolve the problem?

A) Each farm would balance its marginal benefit with the combined marginal cost of water.
B) The merged farm would balance the combined marginal benefit with the marginal cost of water.
C) The merged farm would maximize profit.
D) All of the above.

Question 5

Two neighbours are embroiled in a dispute. Adam planted a tree in his property which has grown tall. Brenda complains that the tree obstructs her view of the mountains. Which are possible property rights that could help to resolve the dispute?

A) Adam has the right to grow trees to any height.
B) Brenda has the right to an unobstructed view.
C) Either a or b, but not both.
D) Both a and b.

Question 6

In worldwide negotiations over policies to reduce carbon emissions, explain how small countries can exploit the free-rider problem.

A) Large countries may not bother to pressure small countries to reduce emissions.
B) All countries, small or large, would benefit from global reduction of emissions.
C) Either a or b, but not both.
D) Both a and b.

Question 7

In June 2021, Apple announced that it would open its personal communication service, FaceTime, to Internet browsers. That would expand the FaceTime network to anyone using the Internet, including Android and Windows users. Explain the network externality that would result.

A) Android and Windows users can communicate with Apple users through Facetime.
B) Apple users can communicate with Android and Windows users through Facetime.
C) All people (whether they use Apple, Android, or Windows) can communicate with more people through Facetime.
D) None of the above.

Question 8

Suppose that you have developed a spreadsheet program to compete with Microsoft Excel. Explain the critical mass problem in persuading users to buy your software.

A) Enough other people must use the spreadsheet for a person to buy the spreadsheet.
B) If the number of people using the spreadsheet is too few, demand would tip away from the spreadsheet.
C) The number of people using the spreadsheet depends on compatibility with Microsoft Excel.
D) None of the above.

Question 9

Explain how maps are a public good.

A) The content of maps is non-rival.
B) The use of maps is not excludable.
C) Either a or b, but not both.
D) Both a and b.

Question 10

Suppose that you would like to produce a fireworks show to celebrate Independence Day. What challenges might you face in charging consumers to view the fireworks?

A) Fireworks are a public good.
B) Watching fireworks is non-rival.
C) It is difficult to exclude those who do not pay from viewing the fireworks.
D) Fireworks take place at night.

Question 11

Many people are not familiar with electric cars. By introducing the concept, Tesla and BYD help to educate car buyers about electric cars. Explain the externality at work.

Question 12

Why do businesses that provide "adult entertainment" tend to locate away from mainstream shopping districts?

Question 13

Hotel chains employ "mystery shoppers" to secretly check the service quality at franchised hotels. Suppose that you are a franchisee operating a hotel in a chain. Why would you support such secret inspections of other franchisee hotels in the chain?

Question 14

Two farms draw water from the same well. Each complains that the other is taking too much water. How would merging the farms help to resolve the problem?

Question 15

Two neighbours are embroiled in a dispute. Adam planted a tree in his property which has grown tall. Brenda complains that the tree obstructs her view of the mountains. Explain how clear allocation of property rights could resolve this dispute.

Question 16

In worldwide negotiations over policies to reduce carbon emissions, explain how small countries can exploit the free-rider problem.

Question 17

In June 2021, Apple announced that it would open its personal communication service, FaceTime, to Internet browsers. That would expand the FaceTime network to anyone using the Internet, including Android and Windows users. Explain the network externality that would result.

Question 18

Suppose that have developed a spreadsheet program to compete with Microsoft Windows. Explain the critical mass problem in persuading users to buy your software.

Question 19

Explain how maps are a public good.

Question 20

Suppose that you would like to produce a fireworks show to celebrate Independence Day. What challenges might you face in charging consumers to view the fireworks?