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.

Accepted Answer

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.

Accepted Answer

Businesses that provide "adult entertainment" often locate away from mainstream shopping districts because they can impose a negative externality on mainstream businesses. This is due to the nature of their services, which might not be deemed appropriate by all segments of the public and could potentially deter some customers from visiting the area, thus affecting the foot traffic and sales of nearby mainstream businesses.

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.

Accepted Answer

All three reasons given (A, B, and C) are valid concerns for a franchisee. A) highlights the risk of other franchisees reducing service quality, B) acknowledges the interconnected demand within a franchise chain, and C) points out the potential negative externalities other franchisees' actions could have on one's own business.

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.

Accepted Answer

Merging the farms would internalize the externality, allowing the combined entity to balance the overall marginal benefit of water usage with the marginal cost, leading to more efficient water usage.

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.

Accepted Answer

Property rights can vary significantly by jurisdiction, but generally, a property owner has the right to use their property as they see fit (including growing trees), and there may also be rights concerning views. However, these rights are often mutually exclusive in specific disputes, meaning either Adam's right to grow his tree or Brenda's right to her view could prevail, depending on local laws and ordinances, but not both simultaneously.

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.

Accepted Answer

Small countries can exploit the free-rider problem because large countries may not pressure them to reduce emissions, and all countries benefit from global reductions, allowing small countries to benefit without necessarily contributing significantly.

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.

Accepted Answer

Network externality refers to a situation where the value of a product or service increases for its users as more people use it. By opening FaceTime to Android and Windows users, all people, regardless of their device's operating system, can communicate with a larger group of people through FaceTime. This expansion increases the service's value for all users by enlarging the network of potential contacts.

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.

Accepted Answer

Enough other people must use the spreadsheet for a person to buy the spreadsheet.

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.

Accepted Answer

The answer of Explain how maps are a public good.
A)...

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.

Accepted Answer

It is difficult to exclude those who do not pay from viewing the fireworks.

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.

Accepted Answer

The answer of Many people are not familiar with electric...

Question 12

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

Accepted Answer

The answer of Why do businesses that provide "adult entertainment"...

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?

Accepted Answer

The answer of Hotel chains employ "mystery shoppers" to secretly...

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?

Accepted Answer

The answer of Two farms draw water from the same...

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.

Accepted Answer

The answer of Two neighbours are embroiled in a dispute....

Question 16

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

Accepted Answer

The answer of In worldwide negotiations over policies to reduce...

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.

Accepted Answer

The answer of In June 2021, Apple announced that it...

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.

Accepted Answer

The answer of Suppose that have developed a spreadsheet program...

Question 19

Explain how maps are a public good.

Accepted Answer

The answer of 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?

Accepted Answer

The answer of Suppose that you would like to produce...

Quiz 10: Externalities

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?

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

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?

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?

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?

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

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.

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.

Explain how maps are a public good.

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?

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.

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

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?

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?

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.

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

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.

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

Explain how maps are a public good.

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?