Question 1

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
A) a Nash equilibrium.
B) Coase Theorem.
C) Bargaining Theorem.
D) English Bargaining.

Accepted Answer

The result described is known as Coase Theorem, named after economist Ronald Coase. It states that if property rights are well-defined and transaction costs are low, then private bargaining between affected parties will result in an efficient allocation of resources, even in the presence of externalities. No government intervention is necessary in this case.

Question 2

-Suppose that the market for steel is shown in the above figure.Is social welfare greater under monopoly or under competition?

Accepted Answer

The answer of 
-Suppose that the market for steel is...

Question 3

A specific tax in a monopoly market equal to the marginal harm of pollution
A) will increase welfare.
B) will decrease welfare.
C) will leave welfare unchanged.
D) All of the above are possible.

Accepted Answer

The answer of A specific tax in a monopoly market...

Question 4

Because a monopoly ignores external costs,it is possible that it will
A) produce the socially optimal quantity of a good.
B) produce more than the socially optimal quantity of a good.
C) produce less than the socially optimal quantity of a good.
D) All of the above.

Accepted Answer

The answer of Because a monopoly ignores external costs,it is...

Question 5

The existence of externalities is due mainly to the fact that
A) monopolies tend to produce too little of a good anyway.
B) the optimal level of pollution is zero.
C) pollution is not a serious problem.
D) property rights are poorly defined.

Accepted Answer

Externalities arise when the price of a good or service does not fully reflect the costs or benefits of production or consumption. In the case of pollution, for example, the producer of a good or service may not bear the full cost of the pollution they generate. This is because property rights may be poorly defined, making it difficult to attribute responsibility or costs for the pollution. Therefore, choice D is the best answer.

Question 6

In the presence of a negative externality in production,a monopoly will produce
A) more than the social optimum.
B) less than the social optimum.
C) the social optimum.
D) All of the above are possible.

Accepted Answer

The answer of In the presence of a negative externality...

Question 7

-Suppose that the market for steel is shown in the above figure.What specific tax would result in a competitive market producing the socially optimal quantity of steel?

Accepted Answer

The answer of 
-Suppose that the market for steel is...

Question 8

-Suppose the government wishes to regulate mercury emissions of factories in a specific industry by either setting an emissions standard or imposing an emissions fee (per ton of mercury).The government is uncertain as to the marginal abatement costs,which may be high (MC₁)or low (MC₂).
MC₁ = 15M + 500
MC₂ = 15M - 500
where M is the units of mercury abated.The government believes there is a 50% chance of each of the marginal abatement costs.The marginal benefit of abatement is known to be:
MB = 1500 - 10M
a.What is the optimal level of emissions for each of the cost curves above?
b.What is the expected marginal abatement cost (equation)?
c.What is the optimal emissions standard according to the expected abatement costs?
d.What is the optimal abatement fee according to the expected abatement costs?
e.Which regulation will result in a lower DWL in the presence of the uncertainty? Explicitly compute the expected DWL arising from each proposal.

Accepted Answer

The answer of 
-Suppose the government wishes to regulate mercury...

Question 9

A monopoly might produce less than the socially optimal amount of pollution because
A) it likes to be a good citizen.
B) it sets price above marginal cost.
C) it earns economic profit.
D) it internalizes the external costs.

Accepted Answer

Monopolies have the ability to set prices above the marginal cost of production, which results in producing less output than the socially optimal amount. In the case of pollution, producing less would mean polluting less. However, this may not always be the case as some monopolies may not consider environmental concerns and may still pollute at socially harmful levels.

Question 10

A tax on a previously untaxed monopoly-produced good will necessarily lower total welfare if
A) the demand curve is relatively inelastic.
B) the demand curve is relatively elastic.
C) less than the socially optimum is produced before the tax.
D) more than the socially optimum is produced before the tax.

Accepted Answer

The answer of A tax on a previously untaxed monopoly-produced...

Question 11

If the social marginal cost of a good is very high relative to the private marginal cost,then a monopoly will most likely
A) produce more than the social optimum.
B) produce less than the social optimum.
C) produce the social optimum.
D) produce zero pollution.

Accepted Answer

The answer of If the social marginal cost of a...

Question 12

For the following, please answer "True" or "False" and explain why.
-When negative externalities from production exist,the deadweight loss from a competitive market may be larger than with a monopoly.

Accepted Answer

If the competitive market and the monopoly produce more than the social optimum,the monopoly will produce less so the deadweight loss will be smaller.

Question 13

Explain how a specific tax equal to the marginal harm of pollution can increase or decrease total welfare in a monopoly market.

Accepted Answer

The answer of Explain how a specific tax equal to...

Question 14

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
A) Al is fined by the government.
B) Al has the right to leave trash and Bert cannot do anything about it.
C) Al has the right to leave trash and Bert can pay him to limit his dumping.
D) Bert moves.

Accepted Answer

Coase's theorem suggests that if property rights are well-defined and transaction costs are low, then the parties can negotiate and reach an efficient outcome regardless of who initially holds the property rights. In this case, Al has the right to leave trash in the park, but Bert could pay him to limit his dumping to an acceptable level that doesn't bother him. This would be the most efficient outcome, as both parties would benefit from coming to an agreement rather than resorting to fines or one neighbor moving.

Question 15

Production of a good produces pollution that is very damaging with each additional unit.A monopoly facing a very elastic demand curve will most likely produce
A) less than the social optimum of the good.
B) more than the social optimum of the good.
C) the social optimum of the good.
D) no externality.

Accepted Answer

The answer of Production of a good produces pollution that...

Question 16

The exclusive privilege to use an asset is called a(n)
A) property right.
B) exclusive use agreement.
C) property privilege.
D) right to work privilege.

Accepted Answer

The term "property right" refers to the exclusive privilege or claim to use an asset, which may include tangible or intangible assets. It is a legal concept that grants the owner of the property the right to use, sell, rent, or dispose of the asset in any way they see fit. Therefore, option A is the correct choice. Option B is not a commonly used term, and options C and D are incorrect because they are not specific to the concept of owning or using an asset.

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,one necessary condition to alleviate the externality is that
A) Al is fined by the government.
B) Al has the right to leave trash and Bert cannot do anything about it.
C) Bert has the right to a clean park and Al cannot leave trash.
D) Either Al or Bert owns the park.

Accepted Answer

Coase's theorem suggests that if property rights are clearly defined and transaction costs are low, either Al or Bert owning the park would enable them to negotiate a solution to the externality. If Al owns the park, Bert could offer him compensation to stop leaving trash, and if Bert owns the park, he could offer Al a designated area for his trash or even hire someone to clean up the park. Therefore, either Al or Bert owning the park would result in a mutually beneficial outcome.

Question 18

Monopolizing the sale of liquor
A) can lead to an increase total welfare.
B) will decrease total welfare.
C) results in a deadweight loss.
D) is anti-competitive and thus lowers total welfare.

Accepted Answer

The answer of Monopolizing the sale of liquor
A) can lead...

Question 19

For the following, please answer "True" or "False" and explain why.
-Because a monopoly will produce less of a good than a competitive market will,welfare is always greater under monopoly than under competition in the presence of a negative externality.

Accepted Answer

If monopoly produces more than the social optimum,then it does generate greater welfare than competition.If monopoly produces less than the social optimum,then it may or may not generate greater welfare.

Question 20

If both a monopoly and a competitive market with the same marginal cost would produce a quantity that is greater than the social optimum in a market because of externalities,then
A) welfare is greater under monopoly.
B) welfare is greater under competition.
C) welfare is the same for both market structures.
D) the social optimum must be zero.

Accepted Answer

In the presence of externalities that lead to production quantities greater than the social optimum, a monopoly, by producing less than a competitive market due to its profit-maximizing behavior (higher prices and lower quantities), inadvertently moves closer to the social optimum. This results in a potentially higher welfare under monopoly conditions compared to a competitive market, where the quantity produced would be higher and further from the social optimum.

Quiz 17: Property Rights, externalities, rivalry, and Exclusion

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

-Suppose that the market for steel is shown in the above figure.Is social welfare greater under monopoly or under competition?

A specific tax in a monopoly market equal to the marginal harm of pollution

Because a monopoly ignores external costs,it is possible that it will

The existence of externalities is due mainly to the fact that

In the presence of a negative externality in production,a monopoly will produce

-Suppose that the market for steel is shown in the above figure.What specific tax would result in a competitive market producing the socially optimal quantity of steel?

A monopoly might produce less than the socially optimal amount of pollution because

A tax on a previously untaxed monopoly-produced good will necessarily lower total welfare if

If the social marginal cost of a good is very high relative to the private marginal cost,then a monopoly will most likely

For the following, please answer "True" or "False" and explain why. -When negative externalities from production exist,the deadweight loss from a competitive market may be larger than with a monopoly.

Explain how a specific tax equal to the marginal harm of pollution can increase or decrease total welfare in a monopoly market.

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

Production of a good produces pollution that is very damaging with each additional unit.A monopoly facing a very elastic demand curve will most likely produce

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

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

Monopolizing the sale of liquor

For the following, please answer "True" or "False" and explain why. -Because a monopoly will produce less of a good than a competitive market will,welfare is always greater under monopoly than under competition in the presence of a negative externality.

If both a monopoly and a competitive market with the same marginal cost would produce a quantity that is greater than the social optimum in a market because of externalities,then