Exam 10: Externalities and Property Rights

As preferences for a clean environment increases,the socially optimal quantity of pollution will:

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.When Erie Textiles operates with a filter,the total daily gain (in thousands of dollars)by all three parties is _______.

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.The Coase Theorem suggests that:

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:

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.Each resident of Dry Gulch has a private incentive to ____ water 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.Left to private incentives,the villagers earn _____ than when goat grazing is determined collectively.

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 acts independently,Taylor's lawn will be __________,and total economic surplus to the rest of the neighborhood will be __________.

The following payoff matrix shows the outcomes for the US and the USSR from relying on conventional weapons or atomic weapons.The percentages refer to the fraction of the population that would die if a war occurred under the two weapons strategies.Assume the payoff matrix is for 1945,shortly after the US had demonstrated the effectiveness of the atomic bomb in World War II,i.e. ,the example begins in the upper right cell where USA has atomic weapons and the USSR has only conventional weapons. USSR USA Atomic Weapona Conventional Atomis In the USA, 60\% would die, In the USA S\% would die, Wespons In the USSR, 60\% would die In the USSR, 90\% would die Conventional In the USA, 90\% would die; In the USA 10\% would dies In the USSR, 5\% would die In the USSR, 10\% would die. Refer to the information given above.Suppose that a diplomat representing the USSR made the following statement to a diplomat representing the United States: "We will disarm all of our atomic weapons and not develop any new ones." That statement is:

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.If commuters view the highway as having a zero price,one can predict that __________ drivers will leave for downtown at 8:00 am:

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.The town council has proposed putting a meter on each household's pump,and charging residents for each gallon of water used.This would:

Lunch in Jamie's dorm is an all-you-can-eat buffet,served from 11 a.m.until 1 p.m.By noon,the buffet is picked over,and by 12:30,there are very few popular items left.The garbage bins,though,are full of food. Refer to the information given above.The buffet in Jamie's dorm is an example of:

The town of Pleasantville has two local TV stations.If one of them invests in the newest weather forecasting technology,one can predict that:

The following payoff matrix shows the outcomes for the US and the USSR from relying on conventional weapons or atomic weapons.The percentages refer to the fraction of the population that would die if a war occurred under the two weapons strategies.Assume the payoff matrix is for 1945,shortly after the US had demonstrated the effectiveness of the atomic bomb in World War II,i.e. ,the example begins in the upper right cell where USA has atomic weapons and the USSR has only conventional weapons. USSR USA Atomic Weapona Conventional Atomis In the USA, 60\% would die, In the USA S\% would die, Wespons In the USSR, 60\% would die In the USSR, 90\% would die Conventional In the USA, 90\% would die; In the USA 10\% would dies In the USSR, 5\% would die In the USSR, 10\% would die. Refer to the information given above.The Nash equilibrium in this situation is for:

In order to achieve a socially optimal level of output,activities that generate negative externalities should be:

Generally,the Coase Theorem implies that the initial allocation of a property right:

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:

The following payoff matrix shows the outcomes for the US and the USSR from relying on conventional weapons or atomic weapons.The percentages refer to the fraction of the population that would die if a war occurred under the two weapons strategies.Assume the payoff matrix is for 1945,shortly after the US had demonstrated the effectiveness of the atomic bomb in World War II,i.e. ,the example begins in the upper right cell where USA has atomic weapons and the USSR has only conventional weapons. USSR USA Atomic Weapona Conventional Atomis In the USA, 60\% would die, In the USA S\% would die, Wespons In the USSR, 60\% would die In the USSR, 90\% would die Conventional In the USA, 90\% would die; In the USA 10\% would dies In the USSR, 5\% would die In the USSR, 10\% would die. Refer to the information given above.As a result of the positional externality in this game:

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.Compared to a town in which all residents collectively decide on how much water to use,Dry Gulch will experience:

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 above.Individuals have a private incentive to:

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.This externality could most effectively be corrected by: