Exam 11: Public Goods: Tackling Large Projects and Eminent Domain

Scenario 11.1: Mariana has decided that she would like to build a private electric railway that would directly connect her small town to her favorite casino 75 miles away. She discovers that to build her railway, she will need to purchase an equal amount of land from 5 ranchers: Abe, Ben, Cat, Don, and Eve. Mariana believes that the revenue she would receive from running the railroad would be enough to cover all of her construction costs and leave her $3 million to buy the land. Mariana calculates the land she needs to build the railway will cost her $2 million. -Refer to Scenario 11.1. Suppose all five ranchers know that Mariana has $3 million to spend on their land and they also know that their land that Mariana needs is worth a total of $2 million. Each rancher believes that one or more of the other ranchers will settle for less than the maximum value of their land and therefore each decides to ask Mariana to pay $750,000 for their parcel of land. The logical outcome in this situation is for the railway ________ , and the benevolent social planner is ________.

Eminent domain

Scenario 11.1: Mariana has decided that she would like to build a private electric railway that would directly connect her small town to her favorite casino 75 miles away. She discovers that to build her railway, she will need to purchase an equal amount of land from 5 ranchers: Abe, Ben, Cat, Don, and Eve. Mariana believes that the revenue she would receive from running the railroad would be enough to cover all of her construction costs and leave her $3 million to buy the land. Mariana calculates the land she needs to build the railway will cost her $2 million. -Refer to Scenario 11.1. Suppose all five ranchers know that their land that Mariana needs is worth a total of $2 million. If each rancher agrees to sell his or her parcel of land to Mariana for $600,000, the logical outcome in this situation is for the railway ________ , and the benevolent social planner is ________.

A professional hockey franchise is trying to assemble a parcel of land to build an arena. There is one vacant warehouse on the land the franchise needs. In this case,

When the transactions costs involved in putting a project together exceed the difference in the value of land with the project completed and the value of the land without the project, the project should be undertaken.

Daphne actually values her home at $250,000 but claims she values the home at $300,000. In an eminent domain situation, the government would pay Daphne ________ for her home.

Six Flags Entertainment Corp. is trying to acquire 300 acres of land to build a new amusement park in Miami. There are 150 houses and 2 strip malls on the land the company needs. Which of the following statements is most likely true regarding Six Flags' ability to buy the land and build the amusement park?

The use of eminent domain is probably more justifiable if the parcels of land needed for a project are