Exam 16: Externalities, Property Rights, and the Coase Theorem

Each citizen in a small town suffers 5 units of irritation for each bushel of leaves burned in the town. The charge for hauling a bushel of leaves to the land fill is a fee equal to 20 units of irritation. There are 25 people in the town, each of whom minimizes personal irritation and has 10 bushels of leaves. If each person pursues their own self-interest, how much irritation will each person in the town experience from burning leaves each fall?

A positional externality occurs when

Given high transactions costs, the best way to deal with a positive externality is

Laws are efficient if they

Each citizen in a small town suffers 5 units of irritation for each bushel of leaves burned in the town. The charge for hauling a bushel of leaves to the land fill is a fee equal to 20 units of irritation. There are 25 people in the town, each of whom minimizes personal irritation and has 10 bushels of leaves. What is the marginal cost to society when a bushel of leaves is burned?

Define in technical terms the tragedy of the commons.

Provide an example of a positive externality and explain: 1) why it should be considered a positive externality and 2) what could be done in order to internalize the externality.

Peter studies at the coffee shop around the corner, at the same time that John talks loudly on his cell phone. The costs and benefits of each cell phone call made by John are given by the following table: \# of cell phone calls Marginal Costs to Peter Marginal Benefits to John 0 \ 0 \ 0 1 \ 2 \ 10 2 \ 6 \ 8 3 \ 10 \ 6 If the both Peter and John could negotiate a settlement without transactions costs, how many phone calls would John end up making if he (John) had the rights to make any calls he liked at the coffee shop?

If grazing land is used by all individuals on a free open range, they will operate until the

Each citizen in a small town suffers 5 units of irritation for each bushel of leaves burned in the town. The charge for hauling a bushel of leaves to the land fill is a fee equal to 20 units of irritation. There are 25 people in the town, each of whom minimizes personal irritation and has 10 bushels of leaves. In this problem we change several of the assumptions used so far. Individuals now vary in their distaste for carrying leaves to the land-fill. Also, the first 100 bushels burned do not create a problem for anyone because the air could dissipate the smoke without harm. However, after the first 100 bushels the problem sets in as described earlier. How could efficiency be reached under these new circumstances?

Peter studies at the coffee shop around the corner, at the same time that John talks loudly on his cell phone. The costs and benefits of each cell phone call made by John are given by the following table: \# of cell phone calls Marginal Costs to Peter Marginal Benefits to John 0 \ 0 \ 0 1 \ 2 \ 10 2 \ 6 \ 8 3 \ 10 \ 6 According to the Coase theorem, when the parties affected by externalities can negotiate costlessly with one another

Suppose the problem is the stereo noise in the dorm. On the graph on the next page the amplifier dial numbers are located on the horizontal axis. The vertical axis measures the marginal costs and benefits of various levels of music (noise). Also measured on the vertical axis is the marginal cost of insulating the walls to prevent the externalities from penetrating the wall. What if negotiation is impossible and you have the rights to play?

Each citizen in a small town suffers 5 units of irritation for each bushel of leaves burned in the town. The charge for hauling a bushel of leaves to the land fill is a fee equal to 20 units of irritation. There are 25 people in the town, each of whom minimizes personal irritation and has 10 bushels of leaves. How much irritation is the most efficient amount for each person in the town to absorb?

Consider an intersection on a country road. Cars could negotiate with each other by waving to each other to pass or we could have stop signs or we could have yield signs. Which of these makes the most sense on a country road and what difference would it make if the intersection was in the city?