Exam 10: Externalities and Property Rights

Your economics professor has announced the following grading policy: For each exam,the highest score in the class will be entered as a 100%;all other scores will be entered as the percent of that top score.For example,if the highest test score is 50 out of 100,it will be counted as a perfect paper,and exams with a score of 40 out of 100 will be entered as an 80%.The final grade for the course will be determined using these adjusted percentages,with 90% and above an A,80% and above a B,70% and above a C,and below 70%,not passing. Refer to the information given above.This grading scheme:

The positive correlation between economic success and well-defined private property rights is:

Suppose Erie Textiles can dispose of its waste "for free" by dumping it into a nearby river.While the firm benefits from dumping waste into the river,the waste reduces the fish and bird reproduction.This causes damage to local fishermen and bird watchers.At a cost,Erie Textiles can filter out the toxins,in which case local fishermen and bird watchers will not suffer any damage.The relevant gains (in thousands of dollars)and losses for the three parties are listed below. With Filter Without Gains to Erie \ 200 \ 400 Fishermen \ 180 \ 50 Bird Watchers \ 130 \ 25 Refer to the information given above.Local fishermen and bird watchers would be willing to compensate Erie Textiles ______ for operating with a filter.

Suppose that a vaccine is developed for a highly contagious strain of flu.The likelihood that anyone will get this flu decreases as more people receive the vaccine.One of the demand curves in the diagram reflects private benefits and the other reflects social benefits. Refer to the figure above.Private incentives will lead to _____ people receiving the vaccine at a cost of _____.

According to the textbook,limits on private property rights,e.g. ,zoning laws,are:

A village has five residents,each of whom has accumulated savings of $50.Each villager can use the money to buy a government bond that pays 10% interest per year or to buy a year-old goat,send it onto the commons to graze,and sell it after one year.The price of the goat that the villager will get at the end of the year depends on the amount of weight it gains while grazing on the commons,which in turn depends on the number of goats sent onto the commons,as shown in table below. $\begin{array} { c c c } \begin{array} { c } \text { Number of goats } \\\text { on the commons }\end{array} & \begin{array} { c } \text { Price per 2-year-old } \\\text { goat (\$) }\end{array} & \begin{array} { c } \text { Income per goat } \\\text { (\$/year) }\end{array} \\1 & 80 & 30 \\2 & 75 & 25 \\3 & 70 & 20 \\4 & 65 & 15 \\5 & 55 & 5\end{array}$ Refer to the information given above.Suppose a village elder decides the total number of goats and bonds with the goal of maximizing total village income.The elder will buy _____ government bond(s)and send ____ goat(s)onto the commons.

Suppose there are ten people playing cards in a room.One of them wants to smoke a cigar;nine of them dislike the smell of cigar smoke.The smoker values the privilege of smoking at $5,and each of the other nine occupants of the room would be willing to pay fifty cents for clean air in the room.The rules governing use of the room state that smoking is not allowed unless everyone agrees to allow smoking. Refer to the information given above.Which outcome is consistent with the Coase Theorem?

Taylor lives in a residential neighborhood that prides itself on well-groomed lawns.Taylor's neighbors find that the collective marginal benefit of someone else's well-groomed lawn is $10.Taylor,however,dislikes yard work and receives zero net benefit from an unkempt lawn and a net benefit of -$1 for a well-groomed lawn;the cost of maintaining the lawn is a dollar more than the benefit of having a well-groomed lawn. Unkempt Well-groomed Net Value to Taylor 0 -1 Net Value to Taylor's neighbors 0 +10 Refer to the information given above.Taylor's neighbors would be willing to pay Taylor ______ to keep a well groomed lawn.

Taylor lives in a residential neighborhood that prides itself on well-groomed lawns.Taylor's neighbors find that the collective marginal benefit of someone else's well-groomed lawn is $10.Taylor,however,dislikes yard work and receives zero net benefit from an unkempt lawn and a net benefit of -$1 for a well-groomed lawn;the cost of maintaining the lawn is a dollar more than the benefit of having a well-groomed lawn. Unkempt Well-groomed Net Value to Taylor 0 -1 Net Value to Taylor's neighbors 0 +10 Refer to the information given above.If Taylor's neighbors pay Taylor $5 to maintain his lawn,Taylor will have a net benefit of ___ and the neighbors will have a net benefit of _____.

Suppose that a vaccine is developed for a highly contagious strain of flu.The likelihood that anyone will get this flu decreases as more people receive the vaccine.One of the demand curves in the diagram reflects private benefits and the other reflects social benefits. Refer to the figure above.The dollar value of the external ______ is _____ per vaccine.

The tragedy of the commons refers to the:

Early settlers in the town of Dry Gulch drilled wells to pump as much water as they wanted from the single aquifer beneath the town.(An aquifer is an underground body of water. )As more people settled in Dry Gulch,the aquifer level fell and new wells had to be drilled deeper at higher cost. Refer to the information given above.In Dry Gulch,the supply of water is:

This graph shows the marginal costs and marginal benefits associated with roadside litter clean up.Assume that the marginal cost and marginal benefit curves slope in the usual directions. Refer to the information given above.A state initiative requiring towns to spend at least $20 per day on litter removal would be __________ because __________.

Curly and Moe are considering living alone or being roommates and splitting the rent for the next twelve months.If they live alone,they each rent a one bedroom,one bath apartment for $500 per month,while if they are roommates,they can split a two bedroom,one bath apartment for $800 per month.The one difficulty they have is that Moe snores very loudly.Curly estimates the cost of poor sleep due to Moe's snoring at $150 per month.Moe could obtain a snore-eliminating device for $50 per month. Refer to the information given above.The least costly solution to the externality present in this situation is for:

Which of the following investments is an example of a positional arms race?

Suppose that the EPA has proposed strict controls on the amount of sulfur that diesel fuel contains.These controls were designed to fully offset the cost of pollution generated by diesel fuel vehicles.The effect of the regulation is estimated to increase the equilibrium price of a gallon of diesel fuel by 10 cents. Refer to the information given above.Suppose that demand for diesel fuel is perfectly inelastic and supply has a positive slope.The effect of the regulation will _______ than if demand were not perfectly inelastic.

Suppose there are ten people playing cards in a room.One of them wants to smoke a cigar;nine of them dislike the smell of cigar smoke.The smoker values the privilege of smoking at $5,and each of the other nine occupants of the room would be willing to pay fifty cents for clean air in the room.The rules governing use of the room state that smoking is not allowed unless everyone agrees to allow smoking. Refer to the information given above.What is the total economic surplus if the cigar smoker refrains from smoking?

According to the textbook,social norms can be viewed as:

Your economics professor has announced the following grading policy: For each exam,the highest score in the class will be entered as a 100%;all other scores will be entered as the percent of that top score.For example,if the highest test score is 50 out of 100,it will be counted as a perfect paper,and exams with a score of 40 out of 100 will be entered as an 80%.The final grade for the course will be determined using these adjusted percentages,with 90% and above an A,80% and above a B,70% and above a C,and below 70%,not passing. Refer to the information given above.You would expect that,as the semester progressed,students in this class who cared primarily about good grades would:

A policy maker has argued for higher taxes on gasoline to reduce the negative externalities associated with driving.This policy will lead to a relatively ______ reduction in driving if demand is _______.