Question 1

If an environmental group wanted to prevent the habitat destruction of the Wyoming pocket gopher, the Coase theorem would direct the group to

Accepted Answer

A)  try to get laws enacted to protect the species. 
B)  bargain in order to obtain the property rights of the gopher habitat. 
C)  physically block any efforts to destroy the habitat. 
D)  protest the destruction while gaining media attention for their cause. 
A)  try to get laws enacted to protect the species. 
B)  bargain in order to obtain the property rights of the gopher habitat. 
C)  physically block any efforts to destroy the habitat. 
D)  protest the destruction while gaining media attention for their cause.

Question 2

Pollution problems are usually cases of good versus evil.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following activities creates a negative externality?

Accepted Answer

A)  cleaning up a public garden in your neighborhood 
B)  graduating from college 
C)  keeping an old refrigerator on your front porch 
D)  using a pooper-scooper every time you walk your dog 
A)  cleaning up a public garden in your neighborhood 
B)  graduating from college 
C)  keeping an old refrigerator on your front porch 
D)  using a pooper-scooper every time you walk your dog

Question 4

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 Coase theorem predicts that

Accepted Answer

A)  Dudley will pay Angus to not play the bagpipes. 
B)  Angus will pay Dudley so Angus can play the bagpipes. 
C)  Dudley will do nothing and Angus will mop floors. 
D)  no bargain can be reached between Angus and Dudley. 
A)  Dudley will pay Angus to not play the bagpipes. 
B)  Angus will pay Dudley so Angus can play the bagpipes. 
C)  Dudley will do nothing and Angus will mop floors. 
D)  no bargain can be reached between Angus and Dudley.

Question 5

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. The payoffs in the lower-right cell of the payoff matrix would change to

Accepted Answer

A)  0, 0. 
B)  550, 100. 
C)  100, 550. 
D)  The payoffs would not change. 
A)  0, 0. 
B)  550, 100. 
C)  100, 550. 
D)  The payoffs would not change.

Question 6

Laws regulating pollution emissions can change the size of the economic pie.

Accepted Answer

A) True 
 B)False

Question 7

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. If Angus continues to play the bagpipes and Dudley calls the police, the payoffs in the appropriate cell in the payoff matrix would change to

Accepted Answer

A)  N/A. 
B)  550, 100. 
C)  100, 550. 
D)  The payoffs would not change. 
A)  N/A. 
B)  550, 100. 
C)  100, 550. 
D)  The payoffs would not change.

Question 8

Suppose a chemical plant regularly dumps chemicals into a river that must be cleaned up before farmers located downstream can use the water on their crops. Dumping the chemicals into the river saves the chemical plant $750,000 in yearly disposal costs and cleaning the water costs farmers $825,000 each year. Explain what the benevolent social planner would like to see happen in this case.

Accepted Answer

Since the cost to clean the water is gre

Question 9

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. Angus values playing the bagpipes at

Accepted Answer

A)  $100. 
B)  $250. 
C)  $350. 
D)  $700. 
A)  $100. 
B)  $250. 
C)  $350. 
D)  $700.

Question 10

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. In this case, the property rights belong to

Accepted Answer

A)  Angus. 
B)  Dudley. 
C)  no one. 
D)  both Angus and Dudley. 
A)  Angus. 
B)  Dudley. 
C)  no one. 
D)  both Angus and Dudley.

Question 11

According to ________, the law's assignment of property rights would have no effect on the way resources would end up being used.

Accepted Answer

A)  Milton Friedman 
B)  Ronald Coase 
C)  Aaron Director 
D)  George Stigler 
A)  Milton Friedman 
B)  Ronald Coase 
C)  Aaron Director 
D)  George Stigler

Question 12

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 her kids have an even larger place to play outside. In this situation, Tomas's and Michelle's actions

Accepted Answer

A)  reflect natural and morally neutral preferences. 
B)  are easy to separate into right and wrong. 
C)  are all about greed and take no one else into consideration. 
D)  have no possible way of resulting in compromise. 
A)  reflect natural and morally neutral preferences. 
B)  are easy to separate into right and wrong. 
C)  are all about greed and take no one else into consideration. 
D)  have no possible way of resulting in compromise.

Question 13

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. If there is no ordinance against loud music, the Coase theorem predicts that

Accepted Answer

A)  Dudley will pay Angus to not play the bagpipes. 
B)  Angus will pay Dudley so Angus can play the bagpipes. 
C)  Dudley will do nothing and Angus will mop floors. 
D)  no bargain can be reached between Angus and Dudley. 
A)  Dudley will pay Angus to not play the bagpipes. 
B)  Angus will pay Dudley so Angus can play the bagpipes. 
C)  Dudley will do nothing and Angus will mop floors. 
D)  no bargain can be reached between Angus and Dudley.

Question 14

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. The equilibrium outcome of this game will be for Angus to ________ and for Dudley to ________.

Accepted Answer

A)  play the bagpipes; do nothing 
B)  play the bagpipes; call the police 
C)  mop floors; do nothing 
D)  Both B and C are correct. 
A)  play the bagpipes; do nothing 
B)  play the bagpipes; call the police 
C)  mop floors; do nothing 
D)  Both B and C are correct.

Question 15

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. The benevolent social planner would choose an outcome where Angus ________ and Dudley ________.

Accepted Answer

A)  plays the bagpipes; does nothing 
B)  plays the bagpipes; calls the police 
C)  mops floors; does nothing 
D)  mops floors; calls the police 
A)  plays the bagpipes; does nothing 
B)  plays the bagpipes; calls the police 
C)  mops floors; does nothing 
D)  mops floors; calls the police

Question 16

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. Angus values playing the bagpipes at

Accepted Answer

A)  $100. 
B)  $150. 
C)  $250. 
D)  $600. 
A)  $100. 
B)  $150. 
C)  $250. 
D)  $600.

Question 17

The higher the transactions costs, the easier it is to negotiate an agreement involving negative externalities.

Accepted Answer

A) True 
 B)False

Question 18

When it comes to pollution problems, the polluter and the victim can bargain to arrive at the outcome desired by the benevolent social planner.

Accepted Answer

A) True 
 B)False

Question 19

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. If there is no ordinance against loud music, the Coase theorem predicts that the value of the economic pie will be

Accepted Answer

A)  $250. 
B)  $600. 
C)  $650. 
D)  $700. 
A)  $250. 
B)  $600. 
C)  $650. 
D)  $700.

Question 20

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. At the equilibrium outcome, the size of the economic pie will be

Accepted Answer

A)  $350. 
B)  $550. 
C)  $650. 
D)  $700. 
A)  $350. 
B)  $550. 
C)  $650. 
D)  $700.

If an environmental group wanted to prevent the habitat destruction of the Wyoming pocket gopher, the Coase theorem would direct the group to

Pollution problems are usually cases of good versus evil.

Which of the following activities creates a negative externality?

Laws regulating pollution emissions can change the size of the economic pie.

According to ________, the law's assignment of property rights would have no effect on the way resources would end up being used.

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 her kids have an even larger place to play outside. In this situation, Tomas's and Michelle's actions

The higher the transactions costs, the easier it is to negotiate an agreement involving negative externalities.

When it comes to pollution problems, the polluter and the victim can bargain to arrive at the outcome desired by the benevolent social planner.

Fundamental Concepts in Economics

Cost-Benefit Analysis and the Value of a Life

Basic Game Theory: Games Between Two Players

Game Theory: Games Between Three or More Players

Free Exchange: Individual and International Trade

The Market System: Functions, Structure, and Institutions

Government Policies to Regulate Pollution

Resource Depletion and Sustainability

Public Goods and the Role of Government

Public Goods: Tackling Large Projects and Eminent Domain

The Volunteers Dilemma: a Collective Inaction Problem

Voting: You Cant Always Get What You Want

The Economics of Health Insurance and Health Care

Segregation and Discrimination

Gross Domestic Product and the Wealth of Nations: an Introduction to the Macroeconomy

Unemployment

An Introduction to Money, Banks, and the Financial System

The Federal Reserve: Monetary Policy, Economic Activity, and Inflation

The Federal Government: Taxes, Spending, and Fiscal Policy

Income Inequality and the Redistribution of Income

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Exam 7: The Nature of Pollution Problems

If an environmental group wanted to prevent the habitat destruction of the Wyoming pocket gopher, the Coase theorem would direct the group to

Pollution problems are usually cases of good versus evil.

Which of the following activities creates a negative externality?

Laws regulating pollution emissions can change the size of the economic pie.

According to ________, the law's assignment of property rights would have no effect on the way resources would end up being used.

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 her kids have an even larger place to play outside. In this situation, Tomas's and Michelle's actions

The higher the transactions costs, the easier it is to negotiate an agreement involving negative externalities.

When it comes to pollution problems, the polluter and the victim can bargain to arrive at the outcome desired by the benevolent social planner.

Fundamental Concepts in Economics

Cost-Benefit Analysis and the Value of a Life

Basic Game Theory: Games Between Two Players

Game Theory: Games Between Three or More Players

Free Exchange: Individual and International Trade

The Market System: Functions, Structure, and Institutions

Government Policies to Regulate Pollution

Resource Depletion and Sustainability

Public Goods and the Role of Government

Public Goods: Tackling Large Projects and Eminent Domain

The Volunteers Dilemma: a Collective Inaction Problem

Voting: You Cant Always Get What You Want

The Economics of Health Insurance and Health Care

Segregation and Discrimination

Gross Domestic Product and the Wealth of Nations: an Introduction to the Macroeconomy

Unemployment

An Introduction to Money, Banks, and the Financial System

The Federal Reserve: Monetary Policy, Economic Activity, and Inflation

The Federal Government: Taxes, Spending, and Fiscal Policy

Income Inequality and the Redistribution of Income

Filters