Deck 11: Public Goods: Tackling Large Projects and Eminent Domain

Question 1

In economics, a negotiator who hopes to get an unusually large amount of money for land by refusing to come to terms is called a(n)

A) entrepreneur.
B) lobbyist.
C) holdout.
D) socialist.

Answer 1

holdout.

Question 2

For which of the following projects would it likely be most difficult to acquire 1,000 acres of land?

A) growing wheat
B) building an amusement park
C) building storage sheds
D) digging wells

Answer 2

building an amusement park

Question 3

For which of the following projects would it likely be least difficult to acquire 1,000 acres of land?

A) growing radishes
B) constructing a baseball stadium
C) building a private airport
D) digging a lake

Answer 3

growing radishes

Question 4

Providing a good would likely be most difficult when the project involves assembling

A) a few parcels of contiguous land.
B) a few parcels of noncontiguous land.
C) many parcels of contiguous land.
D) many parcels of noncontiguous land.

Question 5

Scenario 11.1: Mariana has decided that she would like to build a private electric railway that would directly connect her small town to her favorite casino 75 miles away. She discovers that to build her railway, she will need to purchase an equal amount of land from 5 ranchers: Abe, Ben, Cat, Don, and Eve. Mariana believes that the revenue she would receive from running the railroad would be enough to cover all of her construction costs and leave her $3 million to buy the land. Mariana calculates the land she needs to build the railway will cost her $2 million.

-Refer to Scenario 11.1. How much would Mariana expect to pay each landowner for his or her land?

A) $200,000
B) $400,000
C) $600,000
D) $3 million

Question 6

Scenario 11.1: Mariana has decided that she would like to build a private electric railway that would directly connect her small town to her favorite casino 75 miles away. She discovers that to build her railway, she will need to purchase an equal amount of land from 5 ranchers: Abe, Ben, Cat, Don, and Eve. Mariana believes that the revenue she would receive from running the railroad would be enough to cover all of her construction costs and leave her $3 million to buy the land. Mariana calculates the land she needs to build the railway will cost her $2 million.

-Refer to Scenario 11.1. Suppose Mariana purchases the needed land from Abe, Ben, Cat, and Don for the value she calculated the land to be worth, but Eva refuses to sell the land for the same price as the other 4 ranchers. Economists wold refer to Eva as a

A) miser.
B) negative externality.
C) deadweight loss.
D) holdout.

Question 7

Scenario 11.1: Mariana has decided that she would like to build a private electric railway that would directly connect her small town to her favorite casino 75 miles away. She discovers that to build her railway, she will need to purchase an equal amount of land from 5 ranchers: Abe, Ben, Cat, Don, and Eve. Mariana believes that the revenue she would receive from running the railroad would be enough to cover all of her construction costs and leave her $3 million to buy the land. Mariana calculates the land she needs to build the railway will cost her $2 million.

-Refer to Scenario 11.1. Suppose Mariana purchases the needed land from Abe, Ben, Cat, and Don for the value she calculated the land to be worth, but Eva refuses to sell the land for the same price as the other 4 ranchers. What is the maximum amount Mariana would be willing to pay Eva for her land and still be willing to build the railway?

A) $400,000
B) $1 million
C) $1.4 million
D) $3 million

Question 8

Scenario 11.1: Mariana has decided that she would like to build a private electric railway that would directly connect her small town to her favorite casino 75 miles away. She discovers that to build her railway, she will need to purchase an equal amount of land from 5 ranchers: Abe, Ben, Cat, Don, and Eve. Mariana believes that the revenue she would receive from running the railroad would be enough to cover all of her construction costs and leave her $3 million to buy the land. Mariana calculates the land she needs to build the railway will cost her $2 million.

-Refer to Scenario 11.1. Suppose all five ranchers know that Mariana has $3 million to spend on their land and they also know that their land that Mariana needs is worth a total of $2 million. If all five ranchers got together and decided to sell the land to Mariana, what is the maximum amount that each rancher should ask to be paid for his or her land?

A) $400,000
B) $600,000
C) $750,000
D) $1 million

Question 9

Scenario 11.1: Mariana has decided that she would like to build a private electric railway that would directly connect her small town to her favorite casino 75 miles away. She discovers that to build her railway, she will need to purchase an equal amount of land from 5 ranchers: Abe, Ben, Cat, Don, and Eve. Mariana believes that the revenue she would receive from running the railroad would be enough to cover all of her construction costs and leave her $3 million to buy the land. Mariana calculates the land she needs to build the railway will cost her $2 million.

-Refer to Scenario 11.1. Suppose all five ranchers know that their land that Mariana needs is worth a total of $2 million. If each rancher agrees to sell his or her parcel of land to Mariana for $500,000, Mariana will purchase

A) all five parcels of land and the railway will be built.
B) all five parcels of land but the railway will not be built.
C) only four parcels of land and the railway will be built.
D) no parcels of land and the railway will not be built.

Question 10

Scenario 11.1: Mariana has decided that she would like to build a private electric railway that would directly connect her small town to her favorite casino 75 miles away. She discovers that to build her railway, she will need to purchase an equal amount of land from 5 ranchers: Abe, Ben, Cat, Don, and Eve. Mariana believes that the revenue she would receive from running the railroad would be enough to cover all of her construction costs and leave her $3 million to buy the land. Mariana calculates the land she needs to build the railway will cost her $2 million.

-Refer to Scenario 11.1. Suppose all five ranchers know that their land that Mariana needs is worth a total of $2 million. If each rancher agrees to sell his or her parcel of land to Mariana for $500,000, the economic pie will

A) grow by $500,000.
B) grow by $1 million.
C) grow by $2 million.
D) shrink by $500,000.

Question 11

Scenario 11.1: Mariana has decided that she would like to build a private electric railway that would directly connect her small town to her favorite casino 75 miles away. She discovers that to build her railway, she will need to purchase an equal amount of land from 5 ranchers: Abe, Ben, Cat, Don, and Eve. Mariana believes that the revenue she would receive from running the railroad would be enough to cover all of her construction costs and leave her $3 million to buy the land. Mariana calculates the land she needs to build the railway will cost her $2 million.

-Refer to Scenario 11.1. Suppose all five ranchers know that their land that Mariana needs is worth a total of $2 million. If each rancher agrees to sell his or her parcel of land to Mariana for $500,000, the logical outcome in this situation is for the railway ________ , and the benevolent social planner is ________.

A) to be built; pleased
B) to be built; indifferent
C) not to be built; unhappy
D) not to be built; indifferent

Question 12

Scenario 11.1: Mariana has decided that she would like to build a private electric railway that would directly connect her small town to her favorite casino 75 miles away. She discovers that to build her railway, she will need to purchase an equal amount of land from 5 ranchers: Abe, Ben, Cat, Don, and Eve. Mariana believes that the revenue she would receive from running the railroad would be enough to cover all of her construction costs and leave her $3 million to buy the land. Mariana calculates the land she needs to build the railway will cost her $2 million.

-Refer to Scenario 11.1. Suppose all five ranchers know that their land that Mariana needs is worth a total of $2 million. If each rancher agrees to sell his or her parcel of land to Mariana for $600,000, Mariana will purchase

A) all five parcels of land and the railway will be built.
B) all five parcels of land but the railway will not be built.
C) only four parcels of land and the railway will be built.
D) no parcels of land and the railway will not be built.

Question 13

Scenario 11.1: Mariana has decided that she would like to build a private electric railway that would directly connect her small town to her favorite casino 75 miles away. She discovers that to build her railway, she will need to purchase an equal amount of land from 5 ranchers: Abe, Ben, Cat, Don, and Eve. Mariana believes that the revenue she would receive from running the railroad would be enough to cover all of her construction costs and leave her $3 million to buy the land. Mariana calculates the land she needs to build the railway will cost her $2 million.

-Refer to Scenario 11.1. Suppose all five ranchers know that their land that Mariana needs is worth a total of $2 million. If each rancher agrees to sell his or her parcel of land to Mariana for $600,000, the economic pie will

A) not grow.
B) grow by $1 million.
C) grow by $2 million.
D) shrink by $ million.

Question 14

Scenario 11.1: Mariana has decided that she would like to build a private electric railway that would directly connect her small town to her favorite casino 75 miles away. She discovers that to build her railway, she will need to purchase an equal amount of land from 5 ranchers: Abe, Ben, Cat, Don, and Eve. Mariana believes that the revenue she would receive from running the railroad would be enough to cover all of her construction costs and leave her $3 million to buy the land. Mariana calculates the land she needs to build the railway will cost her $2 million.

-Refer to Scenario 11.1. Suppose all five ranchers know that their land that Mariana needs is worth a total of $2 million. If each rancher agrees to sell his or her parcel of land to Mariana for $600,000, the logical outcome in this situation is for the railway ________ , and the benevolent social planner is ________.

A) to be built; pleased
B) to be built; indifferent
C) not to be built; unhappy
D) not to be built; indifferent

Question 15

Scenario 11.1: Mariana has decided that she would like to build a private electric railway that would directly connect her small town to her favorite casino 75 miles away. She discovers that to build her railway, she will need to purchase an equal amount of land from 5 ranchers: Abe, Ben, Cat, Don, and Eve. Mariana believes that the revenue she would receive from running the railroad would be enough to cover all of her construction costs and leave her $3 million to buy the land. Mariana calculates the land she needs to build the railway will cost her $2 million.

-Refer to Scenario 11.1. Suppose all five ranchers know that Mariana has $3 million to spend on their land and they also know that their land that Mariana needs is worth a total of $2 million. Each rancher believes that one or more of the other ranchers will settle for less than the maximum value of their land and therefore each decides to ask Mariana to pay $750,000 for their parcel of land. In this situation, Mariana will purchase

A) all five parcels of land and the railway will be built.
B) all five parcels of land but the railway will not be built.
C) only four parcels of land and the railway will be built.
D) no parcels of land and the railway will not be built.

Question 16

Scenario 11.1: Mariana has decided that she would like to build a private electric railway that would directly connect her small town to her favorite casino 75 miles away. She discovers that to build her railway, she will need to purchase an equal amount of land from 5 ranchers: Abe, Ben, Cat, Don, and Eve. Mariana believes that the revenue she would receive from running the railroad would be enough to cover all of her construction costs and leave her $3 million to buy the land. Mariana calculates the land she needs to build the railway will cost her $2 million.

-Refer to Scenario 11.1. Suppose all five ranchers know that Mariana has $3 million to spend on their land and they also know that their land that Mariana needs is worth a total of $2 million. Each rancher believes that one or more of the other ranchers will settle for less than the maximum value of their land and therefore each decides to ask Mariana to pay $750,000 for their parcel of land. In this situation, the economic pie will

A) grow by $3.75 million.
B) grow by $3 million.
C) not grow.
D) shrink by $1 million.

Question 17

Scenario 11.1: Mariana has decided that she would like to build a private electric railway that would directly connect her small town to her favorite casino 75 miles away. She discovers that to build her railway, she will need to purchase an equal amount of land from 5 ranchers: Abe, Ben, Cat, Don, and Eve. Mariana believes that the revenue she would receive from running the railroad would be enough to cover all of her construction costs and leave her $3 million to buy the land. Mariana calculates the land she needs to build the railway will cost her $2 million.

-Refer to Scenario 11.1. Suppose all five ranchers know that Mariana has $3 million to spend on their land and they also know that their land that Mariana needs is worth a total of $2 million. Each rancher believes that one or more of the other ranchers will settle for less than the maximum value of their land and therefore each decides to ask Mariana to pay $750,000 for their parcel of land. The logical outcome in this situation is for the railway ________ , and the benevolent social planner is ________.

A) to be built; pleased
B) to be built; indifferent
C) not to be built; unhappy
D) not to be built; indifferent

Question 18

When providing a good involves assembling several parcels of contiguous land, private individuals may encounter difficulty negotiating the purchase of those parcels.

Question 19

Economists refer to a holdout as someone who refuses to produce a pure public good with private funds.

Question 20

In general, it is easier to negotiate the purchase of noncontiguous parcels of land than it is to negotiate the purchase of similar land parcels that are contiguous.

Question 21

In general, the more parties there are to a negotiation, the more difficult it becomes to successfully reach an agreement with all parties.

Question 22

Holdouts who set a price for land above their opportunity cost and refuse to budge on selling their land for a lower price can reduce the size of the economic pie.

Question 23

When the transactions costs involved in putting a project together exceed the difference in the value of land with the project completed and the value of the land without the project, the project should be undertaken.

Question 24

Emma hopes to get $5 million for her land by refusing to come to terms with the company that wants to buy the land to build apartments. The apartment builders have offered Emma $1.5 million for her land, which is what they paid other land owners in her area for similar-size parcels. Economists would refer to Emma as a ________.

Question 25

Why would acquiring 20,000 acres of land in Florida to build an amusement park be more difficult than acquiring 20,000 acres of land in Florida to grow oranges?

Question 26

Explain why the transactions costs involved with trying to acquire 100 acres of land from one landowner are probably going to be less than the transactions costs involved with trying to acquire 10 acres of land from each of 10 different landowners.

Question 27

The authority of the government to take private property for public use, given just compensation to the owner, is known as

A) search and seizure.
B) eminent domain.
C) authoritarian capitalism.
D) internalizing an externality.

Question 28

Government gets its takings power from

A) the International Court of Justice.
B) the Ten Commandments.
C) the U.S. Constitution.
D) the Declaration of Independence.

Question 29

Compared to private bargaining, using eminent domain to acquire land generally

A) keeps negotiation costs low.
B) is more time consuming and less successful.
C) reduces cooperative surplus.
D) is frowned upon by the government.

Question 30

The U.S. Constitution stipulates that when government uses its takings powers to acquire land for a project,

A) the government must own and operate the completed project.
B) the government can resell the land to a private developer.
C) the government must turn over the land to state or city governments.
D) none of the above

Question 31

The use of eminent domain is probably more justifiable if the parcels of land needed for a project are

A) contiguous.
B) noncontiguous.
C) owned by the federal government.
D) owned by one party instead of many parties.

Question 32

Eminent domain is used by

A) the federal government.
B) state governments.
C) local governments.
D) All of the above are correct.

Question 33

Eminent domain

A) is used only in the United States.
B) is legal only in market economies.
C) is authorized only in member-nations of the United Nations.
D) is used by virtually all governments.

Question 34

A condition for the use of eminent domain is that the property being taken

A) must remain the property of the government entity which authorized the use of eminent domain.
B) must be intended for public use.
C) must be undeveloped property.
D) must be considered blighted property.

Question 35

Under the conditions set for the taking of property by eminent domain, the government could take private property

A) to build a highway.
B) to allow a private developer to construct residential housing.
C) so a professional sports franchise can build a new stadium.
D) all of the above

Question 36

Government's use of eminent domain is a solution to

A) the problem of negative externalities.
B) potential monopolization of a market.
C) the holdout problem.
D) the free-rider problem.

Question 37

Six Flags Entertainment Corp. is trying to acquire 300 acres of land to build a new amusement park in Miami. There are 150 houses and 2 strip malls on the land the company needs. Which of the following statements is most likely true regarding Six Flags' ability to buy the land and build the amusement park?

A) Some of the property owners might ask for more money than their property is worth and prevent the project from moving forward.
B) The transactions costs of bargaining with the current landowners is likely to be quite low.
C) The government would likely not use eminent domain in this situation since it involves a private corporation trying to acquire land from private landowners.
D) The land must be undervalued for a large corporation like Six Flags to want to acquire it.

Question 38

When the Dallas Cowboys decided on Arlington, Texas as the home for their new stadium in 2005, the City of Arlington used eminent domain to acquire property from individuals who were either unwilling to sell or demanded what the city deemed were unreasonable prices for their property. In this situation, eminent domain

A) reduced transactions costs.
B) solved the holdout problem.
C) accelerated the process of getting the stadium built.
D) all of the above

Question 39

A professional hockey franchise is trying to assemble a parcel of land to build an arena. There is one vacant warehouse on the land the franchise needs. In this case,

A) eminent domain will reduce transactions costs and make a pie-increasing arena possible.
B) eminent domain will reduce the likelihood of holdouts and make a pie-increasing arena possible.
C) eminent domain is not called for as the land can probably be acquired more efficiently through bargaining.
D) Both A and B are correct.

Question 40

A homeowner, frustrated with his next-door-neighbor's refusal to mow his lawn, decides he wants to purchase the house from his neighbor and rent it to a more conscientious person, but his neighbor refuses to sell. In this case,

A) eminent domain would likely be used to reduce transactions costs.
B) eminent domain would likely be used to reduce the holdout problem.
C) eminent domain would not likely be used.
D) eminent domain would likely be used because this transaction would increase cooperative surplus.

Question 41

A homeowner wants to purchase the property on both sides of his house so he can expand the size of his home and increase property values throughout his neighborhood. In this case,

A) eminent domain would likely be used to reduce transactions costs.
B) eminent domain would likely be used to reduce the holdout problem.
C) eminent domain would not likely be used.
D) eminent domain would likely be used because this transaction would increase cooperative surplus.

Question 42

A Chinese restaurant wants to expand its business by acquiring a neighboring dry cleaner. In this case,

A) eminent domain would likely be used to reduce transactions costs.
B) eminent domain would likely be used to reduce the holdout problem.
C) eminent domain would not likely be used.
D) eminent domain would likely be used because this transaction would increase cooperative surplus.

Question 43

Lolita wants to purchase a rather bland-looking shopping center built in the 1970s, tear it down, and construct an architecturally-stimulating office building that will confer $750,000 of benefits to society. In its current state, the shopping center is worth $900,000. Lolita goes to the city council with her proposal and tells the council members that the new office building will beautify the city and increase property-tax revenues. If the city council agrees to use eminent domain to allow Lolita to proceed with her project, society as a whole will

A) be made richer since property-tax revenues will increase.
B) be made richer since the area will be more aesthetically beautiful.
C) be made poorer since the project confers benefits that are lower than the current value of the shopping center.
D) not be affected since the project only encompasses one small parcel of land.

Question 44

Lolita wants to purchase a rather bland-looking shopping center built in the 1970s, tear it down, and construct an architecturally-stimulating office building that will confer $750,000 of benefits to society. In its current state, the shopping center is worth $900,000. Lolita goes to the city council with her proposal and tells the council members that the new office building will beautify the city and increase property-tax revenues. If the city council agrees to use eminent domain to allow Lolita to proceed with her project, the benevolent social planner will

A) rejoice since the area will become more beautiful.
B) rejoice since the size of the economic pie will increase.
C) remain indifferent since the enhanced beauty will offset the change in the size of the economic pie.
D) be unhappy since the size of the economic pie will decrease.

Question 45

Lolita wants to purchase a beautiful art deco office building built in the 1920s, tear it down, and construct a rather bland, glass-and-steel office building that will confer $2 million of benefits to society. In its current state, the art deco office building is worth $1.7 million. Lolita goes to the city council with her proposal and tells the council members that the new office building will hold more tenants and therefore increase employment and tax revenues. If the city council agrees to use eminent domain to allow Lolita to proceed with her project, society as a whole will

A) be made poorer since eminent domain is a costly process.
B) be made poorer since the area will be less aesthetically beautiful.
C) be made richer since the project confers benefits that are greater than the current value of the art deco office building.
D) not be affected since the project only encompasses one small parcel of land.

Question 46

Lolita wants to purchase a beautiful art deco office building built in the 1920s, tear it down, and construct a rather bland, glass-and-steel office building that will confer $2 million of benefits to society. In its current state, the art deco office building is worth $1.7 million. Lolita goes to the city council with her proposal and tells the council members that the new office building will hold more tenants and therefore increase employment and tax revenues. If the city council agrees to use eminent domain to allow Lolita to proceed with her project, the benevolent social planner will

A) be unhappy since the area will become less interesting, aesthetically.
B) rejoice since the size of the economic pie will increase.
C) remain indifferent since the reduced beauty will be offset by the change in the size of the economic pie.
D) be unhappy since the size of the economic pie will decrease.

Question 47

Geraldo wants to purchase Marlena's 1914 prairie-style house so he can tear it down to build a 10,000 square foot home with space to operate his hypnotherapy practice. Marlena's great-grandfather built the 1914 house and she has no intention of selling it, especially to someone who wants to tear it down. The mayor, who is a friend and client of Geraldo, talks to Marlena and tells her that since Geraldo's proposed house would generate 20 times as much property tax for the city as Marlena's current house does, Marlena will need to either tear down the house herself and build a house comparable to the one Geraldo wants to build, or eminent domain will be used to force the sale of her house. In this case, the threat of eminent domain

A) is in the best interest of society in general.
B) would move a resource from someone who values it less to someone who values it more.
C) gives people incentives to make second-best choices.
D) would increase the size of the economic pie since property-tax revenues would increase.

Question 48

What is a standard process used to determine fair market value of a property?

A) the comparable sales method
B) just compensation
C) eminent domain
D) the equitable transactions cost method

Question 49

Which standard states that "the owner is entitled to receive 'what a willing buyer would pay in cash to a willing seller' at the time of the taking"?

A) the comparable sales method
B) just compensation
C) fair market value
D) the equitable transactions cost method

Question 50

Daphne actually values her home at $250,000 but claims she values the home at $300,000. In an eminent domain situation, the government would pay Daphne ________ for her home.

A) $250,000
B) $275,000
C) $300,000
D) the fair market value

Question 51

Arturo actually values his home at $120,000 and claims he values the home at $120,000. In an eminent domain situation, the government would pay Arturo ________ for his home.

A) exactly $120,000
B) more than $120,000
C) less than $120,000
D) the fair market value

Question 52

With eminent domain, landowners ________ in the gains that result from the taking of their property, and with private bargaining, landowners ________ in the gains that result from the taking of their property.

A) share; share
B) share; do not share
C) do not share; share
D) do not share; do not share

Question 53

If the government seizes Lucy's property and resells it to Ethel,

A) Lucy and Ethel collectively capture the resulting gains.
B) Lucy captures the resulting gains.
C) Ethel captures the resulting gains.
D) Neither Lucy nor Ethel capture any resulting gains.

Question 54

The government's authority to take private property for public use is referred to in economics as a land grab.

Question 55

In the United States, the powers of eminent domain are put forth in the Fifth Amendment to the Constitution.

Question 56

According to the U.S. Constitution, if government seizes your land through eminent domain, it must be taken for public use.

Question 57

Eminent domain can help eliminate the holdout problem.

Question 58

Since property seized through eminent domain must be taken for public use, the government cannot legally sell this seized property to private investors.

Question 59

The use of eminent domain to seize private property always results in an increase in cooperative surplus.

Question 60

The standard method of determining fair market value is called the comparable sales method.

Question 61

Landowners whose property is seized through eminent domain share in the gains that result from the taking of their property.

Question 62

Some governments have adopted statutes that require, under certain circumstances, payment greater than fair market value be paid to property owners for property seized through eminent domain.

Question 63

What is eminent domain and what gives the government the authority to exercise eminent domain?

Question 64

What does the takings clause indicate as far as why and how private property can be seized?

Question 65

The takings clause indicates that private property can be seized only if the property in question is being taken for public use. Does "public use"mean using seized property only for pure public goods and services? Explain your answer.

Question 66

Las Vegas Sands Corporation is trying to acquire 50 acres of land to build a casino resort in Pennsylvania. There are 60 houses on the land the company needs. Explain how eminent domain could be beneficial in the process of acquiring this land in terms of transactions costs and the holdout problem.

Question 67

The method of determining the value of land by determining what similar properties have sold for in the recent past is called the ________.

Question 68

In terms of which party or parties capture any gains from a land transaction, what is the difference when land is acquired through eminent domain and when land is acquired through the bargaining process?