Question 1

Lawyer Ayres and economist Levitt considered the net benefits of installing a LoJack from the society's standpoint positive, because the annual installation and service charges on this equipment was:
A)more than the average loss per stolen car.
B)higher than the auto theft insurance paid by car owners
C)lower than the auto theft insurance paid by car owners.
D)less than the average loss per year due to deterred theft.

Accepted Answer

The net benefits of installing a LoJack are considered positive because the cost of installation and service is less than the average loss per year due to deterred theft, meaning the savings from reduced theft outweigh the costs.

Question 2

The table given below represents the marginal valuation of a beekeeper (collecting honey) and an orchard farmer (producing mangoes).The beekeeper's opportunity cost reflects the loss in honey collection resulting from the usage of the same orchard again and again.

$\begin{array}{|c|c|c|c|c|c|}
\hline \text { Days used } & \begin{array}{c}
\text { Total honey } \
\text { value }(\$)
\end{array} & \begin{array}{c}
\text { Marginal } \
\text { honey value } \
(\$)
\end{array} & \begin{array}{c}
\text { Beekeeper's } \
\text { opportunity cost } \
(\$)
\end{array} & \begin{array}{c}
\text { Total value } \
\text { of mangoes } \
\mathbf{( \$ )}
\end{array} & \begin{array}{c}
\text { Marginal value } \
\text { of mangoes (\$) }
\end{array} \
\hline 1 & 18 & 18 & 4 & 10 & 10 \
\hline 2 & 23 & 6 & 4 & 17 & 7 \
\hline 3 & 27 & 5 & 4 & 23 & 6 \
\hline 4 & 30 & 3 & 4 & 28 & 5 \
\hline 5 & 32 & 2 & 4 & 32 & 4 \
\hline 6 & 33 & 1 & 4 & 30 & 2 \
\hline 7 & 34 & 1 & 4 & 29 & 1 \
\hline
\end{array}$

-Refer to Table .What will be the maximum number of days for which the orchard owner would prefer the beekeeper to stay in his orchard without having to pay any compensation?
A)3 days
B)6 days
C)1 day
D)5 days

Accepted Answer

The orchard owner would prefer the beekeeper to stay as long as the marginal value of mangoes is greater than or equal to the beekeeper's opportunity cost. This is true up to the 5th day, where the marginal value of mangoes is 4 and the beekeeper's opportunity cost is also 4. Beyond the 5th day, the marginal value of mangoes drops below the opportunity cost, making it unprofitable for the orchard owner without compensation.

Question 3

Farmers can avoid the free rider problem associated with the benefits received from beekeepers by:
A)forming local associations who contract with beekeepers.
B)excluding non payers from using the services provided by beekeepers.
C)fixing a low charge for the service provided by beekeepers.
D)contracting with selective beekeepers and giving them a share of farm output.

Accepted Answer

By forming local associations, farmers can contract with beekeepers and ensure that each farmer pays for the service provided by beekeepers. This eliminates the possibility of free riders benefiting from the service without paying for it. It also allows for collective bargaining power and more control over the quality of the service received.

Question 4

Jeanie Reuter and Ruth Oslen are tenants in first and second floor apartments.Jeanie practices her piano lessons in the morning, while Ruth practices aerobics on drum beats at the same time.Further assume that the value of the practice to Jeanie is $10 while the value of aerobic exercises to Ruth is $6.Which of the following is a feasible solution to the problem if the cost of negotiation is zero?
A)Ruth will pay Jeanie $6 to make her change the time for piano practice.
B)Ruth will pay Jeanie $10 to make her change the time for piano practice.
C)Jeanie will pay Ruth $4 to make her change the time for aerobics exercises.
D)Jeanie will pay Ruth $6 to make her change the time for aerobics exercises.

Accepted Answer

The answer of Jeanie Reuter and Ruth Oslen are tenants...

Question 5

Government has the power to reduce the _____ associated with air pollution by automobiles because it can force changes in car design, can impose taxes on drivers, and has the power to punish those who fail to comply.
A)private cost
B)transaction cost
C)opportunity cost
D)positive externality

Accepted Answer

The government can reduce transaction costs associated with air pollution by implementing regulations and policies that streamline compliance and enforcement, making it easier and less costly for individuals and businesses to adhere to environmental standards.

Question 6

In a society, if negotiation among parties leads to a politically unsatisfactory distribution of income:
A)the legislature can enact laws to redistribute this income.
B)the society can on its own reallocate resources to bring about a politically satisfactory outcome.
C)the parties will renegotiate until they reach a politically satisfactory outcome.
D)the parties will refuse to carry out future transactions.

Accepted Answer

The legislature has the power to enact laws that can redistribute income if negotiation among parties leads to a politically unsatisfactory outcome. This is a common practice in many societies, where the government intervenes in the economy through taxation and welfare policies to ensure a fair and equitable distribution of income.

Question 7

The _____ is both a forum where farmers decide what their dues will purchase, and an organization that informally coerces payments from them.
A)beekeeper's cooperative
B)government cooperative
C)beekeeper's association
D)farmer's association

Accepted Answer

The description fits a farmer's association which acts as a forum for decision-making and also has informal methods of collecting dues from its members. The other options don't fit the description as well.

Question 8

Which of the following activities can create a beneficial externality?
A)Parking cars on the road in front of your house.
B)Encouraging children to play on the field opposite a hospital.
C)Planting colorful flowers in your garden.
D)Practicing and playing drums in the morning hours.

Accepted Answer

Planting colorful flowers in your garden can create a beneficial externality by enhancing the aesthetic appeal of the neighborhood, potentially increasing property values and providing enjoyment to others without them having to contribute to the cost or effort of maintaining the garden.

Question 9

Under low-cost contracting like that between beekeepers and farmers, the agreement between the two parties is not self-enforcing because:
A)the terms of contract are laid down by a third party.
B)the initial distribution of rights between the two parties is unequal.
C)services and payments take place over a span of time, and either might choose to default on his obligations at some point.
D)the contract distributes gross revenue between the two parties unequally.

Accepted Answer

In low-cost contracting between beekeepers and farmers, services and payments take place over a span of time, which creates uncertainties regarding the future delivery of goods, and either party might choose to default on their obligations at some point. Therefore, the agreement between the two parties is not self-enforcing.

Question 10

Which of the following is an example of an obligation associated with a right?
A)Providing adequate notice period to your tenants to vacate your house.
B)Allowing your kids to play with other children in the neighborhood.
C)Allowing neighbors to use your lawn to maintain healthy public relations.
D)Providing proper education and adequate nutrition to your children.

Accepted Answer

Providing adequate notice period to your tenants to vacate your house is an obligation associated with the right of property ownership, which includes the responsibility to follow legal procedures when asking tenants to leave.

Question 11

According to economists, an individual who tries to derive utility from the consumption of a good without paying for it is called:
A)a utility maximizer.
B)a free rider.
C)an opportunist.
D)a profit maximizer.

Accepted Answer

A free rider is someone who benefits from a good without contributing to its production or consumption costs. This behavior can be observed in public goods, which are non-excludable and non-rivalrous. Free riding can lead to market failure, as some individuals may enjoy the benefits of the good without paying for it, causing a decline in demand and a reduction in production, which, in turn, harm the overall welfare of the society.

Question 12

An externality can occur when:
A)a voluntary transaction between two individuals creates economic value.
B)a person's action affects another's wealth either positively or negatively.
C)a self-interested individual tries to maximize his/her profits.
D)a voluntary transaction between two individuals creates economic loss.

Accepted Answer

An externality occurs when a person's action affects another's wealth either positively or negatively. This can happen without the affected party's consent or involvement in the initial transaction. For example, pollution from a factory can negatively affect the health and property values of nearby residents, even if they have no say in the factory's operations.

Question 13

Jeanie Reuter and Janet Rothman are tenants in first and second floor apartments.Jeanie practices her piano lessons in the morning, while Janet practices aerobics on drum beats at the same time.Further assume that the value of practice to Jeanie is $10 while the value of aerobic exercises to Janet is $6.If Jeanie has the right to practice piano peacefully, which of the following will be a feasible solution to the problem?
A)Janet will choose a different time for practicing aerobics.
B)Janet will pay Jeanie $6 to make her change the time for piano practice.
C)Janet will pay Jeanie $10 to make her change the time for piano practice.
D)Jeanie will pay Janet $4 to make her change the time for aerobics exercises.

Accepted Answer

The feasible solution in this case would be to ask Janet to choose a different time for practicing aerobics. This solution does not involve any exchange of money and allows both tenants to have their preferred activities without disturbing each other's peace. Therefore, option A is the best choice. Option B may appear to be a solution but it involves an exchange of money which may not be acceptable to either tenant. Option C is not a feasible solution as Janet's value for aerobic exercise is less than Jeanie's value for piano practice, and paying a higher amount to change the time may not be acceptable to Janet. Option D is not a feasible solution as it involves an exchange of money and may not be acceptable to Jeanie.

Question 14

Which of the following statements about Coasian reasoning is true?
A)Coasian reasoning lacks symmetry, it does not provide a starting point for negotiations toward an efficient outcome.
B)Coasian reasoning emphasizes on the benefits received by the person having more rights compared to the others in the group.
C)Coasian reasoning explains how the costs and benefits of a transaction are distributed among the parties.
D)Coasian reasoning provides a starting point for negotiations toward an efficient outcome, if the cost of negotiation is low.

Accepted Answer

Coasian reasoning provides a starting point for negotiations toward an efficient outcome, if the cost of negotiation is low. This is because Coasian reasoning emphasizes the importance of negotiating property rights and analyzing the costs and benefits of different allocations of those rights, in order to come to an efficient outcome. However, if the cost of negotiation is too high, it may not be feasible to reach an efficient outcome through bargaining.

Question 15

How can the government cut the cost of negotiation among car owners regarding LoJack installation?
A)The government can impose a quota on the import of LoJacks.
B)The government can invite public opinion on LoJacks.
C)The government can limit the number of companies producing LoJacks.
D)The government can randomly select cars to install LoJacks.

Accepted Answer

Randomly selecting cars to install LoJacks would eliminate the need for negotiation among car owners regarding installation. This would help to reduce the time and cost associated with negotiations. The other options, such as imposing a quota, inviting public opinion, or limiting the number of companies producing LoJacks, may not significantly reduce negotiation costs or may even create additional problems.

Question 16

Which of the following remedies can be used to prevent the beekeeper and the farmer from breaking the contract?
A)Separating the ownership and management of the bees and trees.
B)Merging the ownership and management of the bees and the trees.
C)Providing the farmer a larger share of the net benefit received from the contract.
D)Providing the bee keeper a larger share of the net benefit received from the contract.

Accepted Answer

Merging the ownership and management of the bees and the trees aligns the interests of both parties, reducing the incentive for either to break the contract. This integrated approach ensures that both the beekeeper and the farmer work towards a common goal, benefiting from the success of both the bees and the trees.

Question 17

According to Coasian reasoning, if negotiation is costless:
A)irrespective of the initial distribution of rights, the efficient outcome will minimize the net benefit of the group.
B)the efficient outcome will minimize the net benefit of the individual who has more rights compared to the others in the group.
C)irrespective of the initial distribution of rights, the efficient outcome will maximize the net benefit of the group.
D)the efficient outcome will maximize the net benefit of the individual who has more rights compared to the others in a group.

Accepted Answer

According to Coasian reasoning, if negotiation is costless, the initial distribution of rights does not matter, as the efficient outcome will always maximize the total net benefit of the group. This is because, in a costless negotiation, the parties will be able to negotiate an efficient outcome regardless of their initial bargaining positions. Therefore, irrespective of who has more rights, if the parties negotiate without any transaction costs, the outcome will be efficient and maximize the net benefit of the group.

Question 18

The table given below represents the marginal valuation of a beekeeper (collecting honey) and an orchard farmer (producing mangoes).The beekeeper's opportunity cost reflects the loss in honey collection resulting from the usage of the same orchard again and again.

$\begin{array}{|c|c|c|c|c|c|}
\hline \text { Days used } & \begin{array}{c}
\text { Total honey } \
\text { value }(\$)
\end{array} & \begin{array}{c}
\text { Marginal } \
\text { honey value } \
(\$)
\end{array} & \begin{array}{c}
\text { Beekeeper's } \
\text { opportunity cost } \
(\$)
\end{array} & \begin{array}{c}
\text { Total value } \
\text { of mangoes } \
\mathbf{( \$ )}
\end{array} & \begin{array}{c}
\text { Marginal value } \
\text { of mangoes (\$) }
\end{array} \
\hline 1 & 18 & 18 & 4 & 10 & 10 \
\hline 2 & 23 & 6 & 4 & 17 & 7 \
\hline 3 & 27 & 5 & 4 & 23 & 6 \
\hline 4 & 30 & 3 & 4 & 28 & 5 \
\hline 5 & 32 & 2 & 4 & 32 & 4 \
\hline 6 & 33 & 1 & 4 & 30 & 2 \
\hline 7 & 34 & 1 & 4 & 29 & 1 \
\hline
\end{array}$

-Refer to Table.What will be the maximum number of days for which the beekeeper would like to stay in the orchard without being compensated for his stay by the orchard owner?
A)1 day
B)6 days
C)3 days
D)4 days

Accepted Answer

To find the maximum number of days for which the beekeeper would like to stay without being compensated for his stay, we need to look at the point where the beekeeper's marginal valuation equals his opportunity cost. 
From the table, we see that the beekeeper's opportunity cost is constant at $4 for all days. 
The beekeeper's marginal valuation decreases as the number of days increases, reaching $1 on day 6 and 7. 
Therefore, the beekeeper will stay for a maximum of 3 days (day 1, 2, and 3) as on day 4, the marginal valuation drops below the opportunity cost of $4, and it does not make sense for the beekeeper to stay longer since their benefit from additional honey collected is less than the opportunity cost.

Question 19

The table given below represents the marginal valuation of a beekeeper (collecting honey) and an orchard farmer (producing mangoes).The beekeeper's opportunity cost reflects the loss in honey collection resulting from the usage of the same orchard again and again.

$\begin{array}{|c|c|c|c|c|c|}
\hline \text { Days used } & \begin{array}{c}
\text { Total honey } \
\text { value }(\$)
\end{array} & \begin{array}{c}
\text { Marginal } \
\text { honey value } \
(\$)
\end{array} & \begin{array}{c}
\text { Beekeeper's } \
\text { opportunity cost } \
(\$)
\end{array} & \begin{array}{c}
\text { Total value } \
\text { of mangoes } \
\mathbf{( \$ )}
\end{array} & \begin{array}{c}
\text { Marginal value } \
\text { of mangoes (\$) }
\end{array} \
\hline 1 & 18 & 18 & 4 & 10 & 10 \
\hline 2 & 23 & 6 & 4 & 17 & 7 \
\hline 3 & 27 & 5 & 4 & 23 & 6 \
\hline 4 & 30 & 3 & 4 & 28 & 5 \
\hline 5 & 32 & 2 & 4 & 32 & 4 \
\hline 6 & 33 & 1 & 4 & 30 & 2 \
\hline 7 & 34 & 1 & 4 & 29 & 1 \
\hline
\end{array}$

-Refer to Table .What would be the maximum number of days for which the orchard owner would wish to keep the beekeeper in the orchard by paying him a compensation which is sufficient to cover the latter's opportunity cost?
A)5 days
B)7 days
C)More than 7 days
D)3 days

Accepted Answer

The orchard owner would wish to keep the beekeeper in the orchard for a maximum of 5 days. This is because, up to the 5th day, the marginal value of mangoes produced exceeds the beekeeper's opportunity cost of $4. Beyond the 5th day, the marginal value of mangoes falls below the beekeeper's opportunity cost, making it unprofitable for the orchard owner to compensate the beekeeper.

Question 20

Which of the following activities can create an external cost?
A)Honking continuously while driving past a hospital.
B)Reducing the use of plastic carry bags while shopping.
C)Burying garbage under the soil and planting trees on it.
D)Using smog controls on private cars.

Accepted Answer

Honking continuously while driving past a hospital can create noise pollution which is an external cost to the patients and staff at the hospital.

Answer: C
 Burying garbage under the soil and planting trees on it can create environmental pollution and health hazards for people living in the vicinity. This is an external cost.

Answer: D
 Using smog controls on private cars can create a benefit to the environment and public health by reducing pollution levels. This is not an example of an external cost.

Therefore, the best choices are A and C.

Quiz 9: Beyond Markets; Property and Contracts

Lawyer Ayres and economist Levitt considered the net benefits of installing a LoJack from the society's standpoint positive, because the annual installation and service charges on this equipment was:

Farmers can avoid the free rider problem associated with the benefits received from beekeepers by:

Government has the power to reduce the _____ associated with air pollution by automobiles because it can force changes in car design, can impose taxes on drivers, and has the power to punish those who fail to comply.

In a society, if negotiation among parties leads to a politically unsatisfactory distribution of income:

The _____ is both a forum where farmers decide what their dues will purchase, and an organization that informally coerces payments from them.

Which of the following activities can create a beneficial externality?

Under low-cost contracting like that between beekeepers and farmers, the agreement between the two parties is not self-enforcing because:

Which of the following is an example of an obligation associated with a right?

According to economists, an individual who tries to derive utility from the consumption of a good without paying for it is called:

An externality can occur when:

Which of the following statements about Coasian reasoning is true?

How can the government cut the cost of negotiation among car owners regarding LoJack installation?

Which of the following remedies can be used to prevent the beekeeper and the farmer from breaking the contract?

According to Coasian reasoning, if negotiation is costless:

Which of the following activities can create an external cost?