Exam 10: Externalities and Property Rights

Suppose that in most car collisions between cars of unequal size,the smaller car sustains the most damage and its occupants suffer the most injury.In answering the following question,assume that,on average,smaller cars generate less air pollution and that every person in the economy drives at least one car. Refer to the information given above.Relative to driving an average car,driving a larger-than-average car generates:

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:

The optimal quantity of a negative externality is zero if:

The following data show the relationship between the number of drivers who leave for work at 8:00 am,their average commute times,and their marginal benefit associated with the commute times. Number of drivers Average commute Marginal 100 30 minutes \ 10 200 65 minutes \ 8 300 110 minutes \ 4 400 170 minutes \ 3 500 260 minutes \ 1 Refer to the information given above.The reason drivers would prefer building new roads to a $5 toll to reduce commute times is because:

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.

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.Curly would be willing to pay _____ per month to eliminate Moe's snoring.

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 _____.

The following data show the relationship between the number of drivers who leave for work at 8:00 am,their average commute times,and their marginal benefit associated with the commute times. Number of drivers Average commute Marginal 100 30 minutes \ 10 200 65 minutes \ 8 300 110 minutes \ 4 400 170 minutes \ 3 500 260 minutes \ 1 Refer to the information given above.Suppose a toll is imposed in the following way: leaving between 8 a.m.and 9 a.m.costs $5 per driver,after 9 a.m. ,the toll is zero.One can predict that __________ drivers would be on the road between 8:00 and 9:00 a.m.

If coal mining produces a negative externality in the form of polluted streams then,at the market equilibrium,the:

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.If Erie Textiles does not install the filter,there will be a net social _____ of _____ (in thousands of dollars).

In the United States,private property rights are:

From the perspective of an externality,most communities have zoning laws to:

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.The daily cost (in thousands of dollars)of the filter to Erie Textiles is _______,and the daily net benefit (in thousands of dollars)of the filter to the fishermen and bird watchers is _______.

If an activity generates a positive externality,the government can make provision of that activity more efficient by _____,and if an activity generates a negative externality,the government can make provision of that activity more efficient by _____.

For most people,baking cinnamon rolls generates _____ externality,and burning tires generates _______ externality.

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.If all three parties can communicate and negotiate with each other at no cost,will Erie Textiles use a filter?

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

If the external benefit of an activity is added to the private benefits,then the:

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.What will be the total village income,if every individual makes the decision that gives him or her the most private benefit?

An external benefit implies that private markets will provide ____ of the good (relative to the social optimum),and an external cost implies that private markets will provide _____ of the good.