Exam 10: Externalities and Property Rights

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.When the United States demonstrated its nuclear capability in the 1940's,the predictable result was:

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.Suppose that Erie Textiles can only negotiate with one of the affected groups.Will Erie operate with a filter?

When some fraction of the benefit of an activity is received by people not participating in the activity,it is called a(n):

In order to achieve a socially optimal level of output,production that generates positive externalities should be:

Which of the following is most likely to be used efficiently?

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.The villagers will buy a year-old goat if that goat can be sold for a price of at least _____ when it is a 2-year-old.

A property-rights solution to the problem of the poaching of elephants for their ivory would be 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.Private benefits are measured by ______,and social benefits are measured by _____.

If the equilibrium quantity is equal to the socially optimal quantity,one can infer that:

If the market equilibrium quantity is greater than the socially optimal quantity,one can infer that:

Which of the following is an example of an activity with an external cost?

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.If the flu vaccine is provided by private markets,deadweight loss will be _______.

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 __________.

The existence of a negative externality will result in:

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.Declaring the card room a non-smoking area with no opportunity to negotiate would:

Brady owns a beachfront lot with a small house.During hurricanes,he refuses to leave.Afterward he applies for federal assistance to rebuild and files insurance claims for damages.By doing so,Brady is:

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.If the cigar smoker paid each other occupant fifty cents for the right to smoke,the cigar smoker would be ______ and the other occupants would be _______.

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.

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.Picking up the 20^th bag of litter would:

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 actual monthly gain in surplus to Curly and Moe from living together after addressing the snoring problems in the least costly way is: