Exam 7: The Nature of Pollution Problems

Education creates positive externalities.

Due to ongoing drought conditions, many cities in Texas have implemented water conservation measures which prevent homeowners from watering their lawns more than two times per month. Prior to the drought conditions, no restrictions were in place. Discuss this measure from the villain/victim standpoint. Explain who the villains and victims are, and if they really are villains and victims?

Tomas wants the city to convert a portion of an existing public park to a covered bus stop so it is more convenient to catch a bus to work each day. Michelle wants the city to expand the park so the neighborhood kids have an even larger place to play outside. In this situation,

Figure 7.1: Angus and Dudley are neighbors. Angus loves to play the bagpipes and earns a living recording his bagpipe music for use as background music in the movies. If Angus does not earn a living playing bagpipes, his only other talent is mopping floors. Dudley is a linguist whose clients are actors wishing to perfect accents for upcoming roles. When Angus plays his bagpipes, Dudley and his clients have trouble listening to each other, and this has severely affected Dudley's business. Presently, there is no city ordinance against playing loud music. The payoff matrix showing the daily payoffs to each player is shown above. -Refer to Figure 7.1. Suppose the city passes an ordinance banning loud music, and this directly impacts Angus's legal ability to play his bagpipes. In response to this ordinance, Angus agrees to pay Dudley $225 each day to not call the police. Compared to the original scenario where there was no ordinance banning loud music, in this situation the size of the economic pie will

Sarah makes giant wind chime sculptures for a living. When she makes 4 sculptures, she earns $10,000. When the makes 5 sculptures, she earns $12,500. Next door, Gilbert runs a meditation clinic. When Sarah makes 4 giant wind chime sculptures, the noise from the sculptures does not disrupt his patients, and he earns $7,500. When Sarah makes 5 sculptures, the noise is disruptive and Gilbert's profits fall to $6,000. The city has an ordinance which prohibits noise that disrupts the community. a. If bargaining between Sarah and Gilbert requires an enforceable contract to be drawn up at a cost of $1,500, how many sculptures will Sarah make? Explain how you arrived at your answer. b. Is the outcome in part a an outcome that the benevolent social planner would endorse? Why or why not?

Figure 7.1: Angus and Dudley are neighbors. Angus loves to play the bagpipes and earns a living recording his bagpipe music for use as background music in the movies. If Angus does not earn a living playing bagpipes, his only other talent is mopping floors. Dudley is a linguist whose clients are actors wishing to perfect accents for upcoming roles. When Angus plays his bagpipes, Dudley and his clients have trouble listening to each other, and this has severely affected Dudley's business. Presently, there is no city ordinance against playing loud music. The payoff matrix showing the daily payoffs to each player is shown above. -Refer to Figure 7.1. Suppose the city passes an ordinance banning loud music, and this directly impacts Angus's legal ability to play his bagpipes. In response to this ordinance, Angus agrees to pay Dudley $225 each day to not call the police. The payoffs in the appropriate cell in the payoff matrix would change to

Figure 7.1: Angus and Dudley are neighbors. Angus loves to play the bagpipes and earns a living recording his bagpipe music for use as background music in the movies. If Angus does not earn a living playing bagpipes, his only other talent is mopping floors. Dudley is a linguist whose clients are actors wishing to perfect accents for upcoming roles. When Angus plays his bagpipes, Dudley and his clients have trouble listening to each other, and this has severely affected Dudley's business. Presently, there is no city ordinance against playing loud music. The payoff matrix showing the daily payoffs to each player is shown above. -Refer to Figure 7.1. Suppose that instead of $350, Angus earns only $250 by playing the bagpipes, but all other earnings remain the same. Also, suppose the city passes an ordinance banning loud music, and this directly impacts Angus's legal ability to play his bagpipes. In this case, the value of the economic pie will be

A negative externality is

You choose to get a flu shot each fall and your roommate chooses not to get a flu shot. For your roommate, you getting a flu shot is a

Which of the following assertions about pollution is generally agreed with by economists?

Figure 7.1: Angus and Dudley are neighbors. Angus loves to play the bagpipes and earns a living recording his bagpipe music for use as background music in the movies. If Angus does not earn a living playing bagpipes, his only other talent is mopping floors. Dudley is a linguist whose clients are actors wishing to perfect accents for upcoming roles. When Angus plays his bagpipes, Dudley and his clients have trouble listening to each other, and this has severely affected Dudley's business. Presently, there is no city ordinance against playing loud music. The payoff matrix showing the daily payoffs to each player is shown above. -Refer to Figure 7.1. Suppose that instead of $350, Angus earns only $250 by playing the bagpipes, but all other earnings remain the same. Also, suppose the city passes an ordinance banning loud music, and this directly impacts Angus's legal ability to play his bagpipes. Property rights belong to

Legal constraints will always reduce the size of the economic pie.

Of the following activities, specify which ones would typically generate positive externalities, negative externalities, or no externalities: a. You decide to trade in your 1997 Cadillac for a 100% electric Nissan Leaf. b. Every morning while in the shower, you sing at the top of your lungs and very much off-key as long as no one else is at home. c. You choose to not clean up after your German Shepherd when you take him for his midnight walks around the neighborhood. d. After running out of space in your house, you decide to store your collection of 46 broken lawn mowers in your front yard. e. As you do every year, this year you get a flu shot at the local Walgreens.

Figure 7.1: Angus and Dudley are neighbors. Angus loves to play the bagpipes and earns a living recording his bagpipe music for use as background music in the movies. If Angus does not earn a living playing bagpipes, his only other talent is mopping floors. Dudley is a linguist whose clients are actors wishing to perfect accents for upcoming roles. When Angus plays his bagpipes, Dudley and his clients have trouble listening to each other, and this has severely affected Dudley's business. Presently, there is no city ordinance against playing loud music. The payoff matrix showing the daily payoffs to each player is shown above. -Refer to Figure 7.1. If Angus chooses to earn the most money, he will receive a daily payoff of

Figure 7.1: Angus and Dudley are neighbors. Angus loves to play the bagpipes and earns a living recording his bagpipe music for use as background music in the movies. If Angus does not earn a living playing bagpipes, his only other talent is mopping floors. Dudley is a linguist whose clients are actors wishing to perfect accents for upcoming roles. When Angus plays his bagpipes, Dudley and his clients have trouble listening to each other, and this has severely affected Dudley's business. Presently, there is no city ordinance against playing loud music. The payoff matrix showing the daily payoffs to each player is shown above. -Refer to Figure 7.1. Suppose that instead of $350, Angus earns only $250 by playing the bagpipes, but all other earnings remain the same. Who values the property rights to the air more?

If transactions costs are high, the economic pie may not be maximized.

Figure 7.1: Angus and Dudley are neighbors. Angus loves to play the bagpipes and earns a living recording his bagpipe music for use as background music in the movies. If Angus does not earn a living playing bagpipes, his only other talent is mopping floors. Dudley is a linguist whose clients are actors wishing to perfect accents for upcoming roles. When Angus plays his bagpipes, Dudley and his clients have trouble listening to each other, and this has severely affected Dudley's business. Presently, there is no city ordinance against playing loud music. The payoff matrix showing the daily payoffs to each player is shown above. -Refer to Figure 7.1. Suppose the city passes an ordinance banning loud music, and this directly impacts Angus's legal ability to play his bagpipes. In this case, the property rights belong to

When it comes to pollution problems, the polluter and the victim can bargain to arrive at an outcome that benefits both parties.

Which of the following would result in a positive externality?

A negative externality imposes a burden or cost on others.