Deck 17: Externalities and Public Goods

Question 1

(Table: Marginal Cost) According to the table, what is the socially optimal output level?

A) 0
B) 3
C) 4
D) 7

Answer 1

B

Question 2

Recreation centers offer a place for young people to play sports and engage in other activities at a marginal cost of MC = 0.25Q. The inverse demand curve for recreation centers is given by P = 10 - 0.25Q, where P is the price of entry and Q measures hundreds of entrants. Recreation centers generate positive externalities because they help get young people off the street and engaged in productive activities. In this case, an action that the government could take to move toward the socially optimal outcome is to implement ____.

A) a per unit tax
B) a quantity restriction
C) an effective price floor
D) a consumption subsidy

Answer 2

D

Question 3

Mr. Leghorn lives next door to Mr. Fudd. During hunting season, Mr. Fudd likes to shoot rabbits in his backyard, an activity which he values at $900. The noise from the shooting disturbs Mr. Leghorn and prevents him from taking afternoon naps, which he values at $500. If Mr. Leghorn has the legal right to stop Mr. Fudd from hunting, the socially optimal outcome is for:

A) Mr. Fudd to stop hunting.
B) Mr. Fudd to pay Mr. Leghorn between $500 and $900 to continue hunting.
C) Mr. Leghorn to pay $500 or less to get Mr. Fudd to stop hunting.
D) Mr. Fudd to pay Mr. Leghorn less than $500 to continue hunting.

Answer 3

B

Question 4

Assume the social marginal benefit of remote-control drone flights is given by SMB = 200 - 2Q and the marginal cost is given by MC = 3Q + 50. Assuming there are no external benefits and in a perfectly competitive environment, the equilibrium price per flight would be $_____ and the equilibrium number of flights would be _____.

A) 140; 30
B) 130; 40
C) 110; 20
D) 160; 20

Question 5

The market for toilet paper is characterized by the following inverse demand and supply equations:
P = 100 - Q
P = MC = 2Q - 197.3
Where P is the price per roll of toilet paper and Q measures millions of rolls of toilet paper. The external marginal cost is 30 cents for each roll of toilet paper produced. The socially optimal price of toilet paper is _____ cents higher than the price under perfect competition.

A) 40
B) 30
C) 20
D) 10

Question 6

The marginal cost of pollution is MC = 2Q, while the marginal abatement cost is MAC = 12 - Q. Government regulators incorrectly estimate the marginal abatement cost at MAC_E = 9 - Q. The level of pollution, measured in tons of glop, is Q. Based on the government's incorrect estimate of marginal abatement costs, the government thinks the socially optimal level of pollution is ____.

A) 2
B) 3
C) 4
D) 5

Question 7

The following companies all manufacture widgets and dump tons of glop into the air. The government wants to halve total pollution but does not know how much it will cost each company. If the government employs a tradable permit scheme in which it gives the same number of permits to each manufacturer at no cost, the number of permits traded would be ____.

A) 50
B) 100
C) 150
D) 200

Question 8

(Table: Marginal Benefit) In an unregulated market, the quantity produced is _____, and a subsidy of _____ per unit will achieve the socially optimal quantity of _____.

A) 1; $150; 5
B) 3; $75; 6
C) 3; $150; 5
D) 2; $100; 3

Question 9

(Table: Benefits and Costs of Lawn Mowing) Answer the following question. According to the figure above, a self-interested person will mow her lawn ____ times during the month and that ____ the socially optimal outcome.

A) 4; is
B) 4; is not
C) 5; is
D) 5; is not

Question 10

Recreation centers offer a place for young people to play sports and engage in other activities at a marginal cost of MC = 0.25Q. The inverse demand curve for recreation centers is given by P = 10 - 0.25Q, where P is the price of entry and Q measures hundreds of entrants. Recreation centers generate positive externalities because they help get young people off the street and engaged in productive activities. The external marginal benefits are EMB = 1 + 0.06Q. The social demand curve for recreation centers can be expressed as ____.

A) P = 12 - 0.25Q
B) P = 11 - 0.25Q
C) P = 10 - 0.19Q
D) P = 11 - 0.19Q

Question 11

The production of toilet paper in a perfectly competitive market is characterized by the inverse supply curve (marginal cost curve) P = 4Q, where Q is measured in millions of 4-roll packs per month. The inverse demand for toilet paper is P = 10 - 6Q.
The market equilibrium price of toilet paper is ____ and the market equilibrium quantity is ____ million packs.

A) 4; 1
B) 1; 4
C) 2; 2
D) 3; 2

Question 12

A small neighborhood is considering hiring a security firm to patrol the neighborhood. Ten families in the neighborhood would each get a marginal benefit of MB = 10 - h, where h is daily hours of patrol. The marginal cost of patrol is constant at $20 per hour. What is the socially optimal number of patrol hours?

A) 12
B) 16
C) 8
D) 20

Question 13

Which of the following factors could mitigate the tragedy of the commons?
I) Pigouvian taxes
II) government quotas
III) the elimination of private property rights in a common resource

A) II
B) I and II
C) III
D) I, II, and III

Question 14

(Figure: Output Levels I) The output level under perfect competition is _____, while the socially optimal output level is _____.

A) 4; 3
B) 4; 5
C) 5; 4
D) 4; 6

Question 15

The following companies all manufacture widgets and dump tons of glop into the air. The government wants to halve total pollution but does not know how much it will cost each company. If the government employs a tradable permit scheme in which it gives the same number of permits to each manufacturer at no cost, the total cost of cleanup, after the exchange of permits, is $____.

A) 0
B) 6,000
C) 7,000
D) 13,000

Question 16

A good is rival if:

A) it is produced by more than one firm.
B) consuming an item means that no one else can consume that same exact item.
C) consumption of it causes negative externalities.
D) consumers can be restricted from buying it.

Question 17

The tragedy of the commons stems from a common resource that people can _____ acquire, the value of which _____ as more people use it.

A) freely; decreases
B) pay to; increases
C) freely; increases
D) pay to; decreases

Question 18

Sweet Steel and Molten Metal produce sulfur dioxide emissions during production. The total abatement cost (TAC) and marginal abatement cost (MAC) for each company:
Sweet Steel: TAC_S = 100,000 + 1e_S²; MAC_S = 2e_S
Molten Metal: TAC_M = 100,000 + 1.5e_M²; MAC_M = 3e_M
Where e_S and e_M represent tons of sulfur dioxide emissions eliminated by each company. Suppose the government wants to eliminate 1,000 tons of sulfur dioxide emissions, so it mandates that each firm cut its emissions by 500 tons. What is the total cost (TAC_S + TAC_M) of reducing emissions by 1,000 tons?

A) $304,000
B) $670,550
C) $233,333
D) $825,000

Question 19

Suppose that, at the current level of pollution, the marginal abatement cost is $30,000 and the marginal cost of pollution is $80,000. This economy is producing:

A) an efficient level of pollution if the total cost of pollution is $50,000.
B) too little pollution and should increase its pollution level.
C) too much pollution and should reduce its pollution level.
D) an efficient level of pollution if the marginal cost of pollution is $110,000.

Question 20

(Table: Pollution from Firms) Suppose that each firm is emitting 10 units of pollution, for a total of 20 units. The government would like to decrease total pollution to 10 units by giving each firm five tradable pollution permits. Under the tradable permit system, Firm B will emit ____ units of pollution.

A) 3
B) 4
C) 5
D) 7

Question 21

A tradable permit system:

A) requires that each firm reduce its pollution by the same amount.
B) is difficult to implement because regulators do not know the marginal abatement costs of every company.
C) achieves a given amount of pollution reduction at the least cost because firms with lowest marginal abatement costs do most of the reduction.
D) increases pollution because the government gives firms permits that grant them the right to pollute.

Question 22

There are no externalities in the market for brim hats; therefore, the:

A) external marginal cost equals the marginal cost.
B) social marginal cost equals the private marginal cost.
C) social benefit equals the external marginal benefit.
D) equilibrium level of output will be too low.

Question 23

The following companies all manufacture widgets and dump tons of glop into the air. The government wants to halve total pollution but does not know how much it will cost each company. If the government employs a tradable permit scheme in which it gives the same number of permits to each manufacturer, the maximum amount that any of the firms would be willing to pay would be up to $_____.

A) 100
B) 70
C) 30
D) 0

Question 24

Suppose that dry cleaning 100 blouses carries a social marginal cost of $900 and an external marginal cost of $300. What is the private marginal cost of dry cleaning 100 blouses?

A) $1,200
B) $600
C) $3,000
D) $30

Question 25

Sweet Steel and Molten Metal produce sulfur dioxide emissions during production. The total abatement cost (TAC) and marginal abatement cost (MAC) for each company:
Sweet Steel: TAC_S = 100,000 + 1e_S²; MAC_S = 2e_S
Molten Metal: TAC_M = 100,000 + 1.5e_M²; MAC_M = 3e_M
Where e_S and e_M represent tons of sulfur dioxide emissions eliminated by each company. Suppose the government wants to eliminate 1,000 tons of sulfur dioxide emissions by issuing tradable pollution permits to each firm. What is the total cost (TAC_S + TAC_M) of reducing emissions by 1,000 tons?

A) $800,000
B) $430,000
C) $280,000
D) $625,500

Question 26

Which of the following statements is (are) TRUE?
I) An inefficiency occurs if there is too much pollution.
II) An inefficiency occurs if there is too little pollution.
III) It can be efficient for there to be a positive level of pollution.

A) I and III
B) I, II, and III
C) III
D) II

Question 27

Bumper-to-bumper traffic on free public roads, a(n) _____ good, is an example of the _____.

A) nonexcludable; free-rider problem
B) excludable; free-rider problem
C) excludable; tragedy of the commons
D) nonexcludable; tragedy of the commons

Question 28

(Table: Pollution from Firms) Suppose that each firm is emitting 10 units of pollution, for a total of 20 units. The government would like to decrease total pollution to 10 units by giving each firm five tradable pollution permits. The pollution permits will sell at a price of $____.

A) 70
B) 75
C) 80
D) 85

Question 29

Which of the following statements is (are) TRUE?
I) A club good, such as golf, is nonexcludable and rival.
II) A private good is excludable and rival.
III) School is a public good.
IV) Common resources are excludable and nonrival.

A) I and II
B) II, III, and IV
C) II
D) II and IV

Question 30

(Table: Benefits and Costs of Lawn Mowing) Answer the following question. Besides carrying external marginal costs, suppose that lawn cutting also generates an external marginal benefit of $10. Given this, the socially optimal number of times that a lawn should be mowed in a month is ____.

A) 1
B) 3
C) 4
D) 5

Question 31

Recreation centers offer a place for young people to play sports and engage in other activities at a marginal cost of MC = 0.25Q. The inverse demand curve for recreation centers is given by P = 10 - 0.25Q, where P is the price of entry and Q measures hundreds of entrants. Recreation centers generate positive externalities because they help get young people off the street and engaged in productive activities. The external marginal benefits are EMB = 1 + 0.06Q. The socially optimal number of entrants is ____ entrants.

A) 2,000
B) 2,500
C) 3,000
D) 3,500

Question 32

In the case of producing a good with a negative externality, a firm will likely consider only the _____ marginal costs of production, leading to production of _____.

A) external; more output than is socially optimal
B) private; more output than is socially optimal
C) private; less output than is socially optimal
D) external; less output than is socially optimal

Question 33

Minnesota has two oil refineries that emit methane gas. The Bend refinery emits 300 units of methane, and the Park refinery emits 900 units. Government regulators would like to reduce total methane emissions from 1,200 to 900 units. Bend's total abatement and marginal abatement costs are TC_B = 400Q_B + 4Q_B² and MAC_B = 400 + 8Q_B, where Q is units of methane. Park's total abatement cost and marginal abatement costs are TC_P = 40Q_P + 2Q_P² and MAC_P = 40 + 4Q_P.
Suppose that government regulators require each refinery to remove 150 units of methane. The total cost of removing these 150 units for the Park refinery is $____.

A) 201,000
B) 172,200
C) 150,000
D) 51,000

Question 34

The _____ problem occurs when consumers want to freely consume a public good that others have provided.

A) pull-your-own
B) rival-good
C) Coase
D) free-rider

Question 35

(Figure: External Marginal Cost III) Which of the following statements is (are) TRUE? I. The socially optimal quantity is 3.
II) The deadweight loss associated with the perfectly competitive output level is $4.50.
III) The external marginal cost is $6.

A) I, II, and III
B) I
C) I and II
D) II and III

Question 36

Government regulators want to limit pesticide runoff to its efficient level. Unfortunately, government regulators are uncertain how marginal abatement costs behave with changes in runoff; fortunately, they do know that marginal abatement costs are less sensitive to changes in runoff than marginal costs of pollution. In this situation, the use of a _____ leads to a smaller deadweight loss than a _____.

A) quota; Pigouvian tax
B) quota; quantity restriction
C) Pigouvian tax; quantity restriction
D) Pigouvian subsidy; Pigouvian tax

Question 37

The marginal cost of pollution is MC = 2Q, while the marginal abatement cost is MAC = 12 - Q. Government regulators incorrectly estimate the marginal abatement cost at MAC_E = 9 - Q. The level of pollution, measured in tons of glop, is Q. The socially optimal level of pollution using the actual MAC is ____.

A) 3
B) 4
C) 5
D) 6

Question 38

(Figure: Market Efficiency) If the socially optimal quantity of the good is 200 pounds, there is a _____ externality, so the government should enact a _____ per pound to increase market efficiency.

A) negative; $6 tax
B) negative; $1 tax
C) positive; $6 subsidy
D) positive; $1 subsidy

Question 39

Manny Metal produces 300 tons of sulfur dioxide emissions, and Silk Steel produces 550 tons. The marginal abatement cost (MAC) of reducing sulfur dioxide:
Manny Metal: MAC_M = 10 + 3e_M
Silk Steel: MAC_S = 50 + e_S
Government regulators want to reduce total sulfur dioxide emissions to 650 tons, a 200-ton reduction. If the government gives each firm 325 tradable pollution permits, Manny Metal emits _____ tons and Silk Steel emits _____ tons.

A) 240; 410
B) 280; 370
C) 200; 450
D) 320; 330

Question 40

The notion that market participants can negotiate an efficient market outcome, assuming negotiating is costless, is known as the:

A) Coase theorem.
B) blanket theorem.
C) acceptance principle.
D) Dranove principle.

Question 41

(Table: Public Goods I) What is the efficient quantity of the public good?

A) 8 units
B) 3 units
C) 4 units
D) 5 units

Question 42

Minnesota has two oil refineries that emit methane gas. The Bend refinery emits 300 units of methane, and the Park refinery emits 900 units. Government regulators would like to reduce total methane emissions from 1,200 to 900 units. Bend's total abatement and marginal abatement costs are TC_B = 400Q_B + 4Q_B² and MAC_B = 400 + 8Q_B, where Q is units of methane. Park's total abatement cost and marginal abatement costs are TC_P = 40Q_P + 2Q_P² and MAC_P = 40 + 4Q_P.
Suppose that the government regulators evenly split 900 methane pollution permits between the two refineries. The total cost of removing 300 units of methane, using a tradable permit system is $____.

A) 201,000
B) 172,200
C) 150,000
D) 187,000

Question 43

The inverse demand for energy-efficient refrigerators is P = 2,000 - 10Q, where Q measures refrigerators per month. The inverse supply of energy-efficient refrigerators is P = 10Q. Suppose the use of an energy-efficient refrigerator reduces carbon dioxide emissions, generating an external marginal benefit of $100. The socially optimal quantity of energy-efficient refrigerators is ____.

A) 130
B) 115
C) 105
D) 95

Question 44

If consuming a good with a positive externality, a person will likely consider only the _____ marginal benefits of consumption, which causes _____ consumption than is socially optimal.

A) external, not the private; more
B) private, not the external; more
C) private, not the external; less
D) external, not the private; less

Question 45

The demand curve and supply curve for a good are given by Q^D = 100 - 5P and Q^S = 1.25P - 2.5. Suppose the production of this good creates a negative externality, where the external marginal cost is constant at $2. Assuming the government implements the appropriate per-unit tax to achieve the socially optimal outcome, sellers receive a price of $_____ net of the tax.

A) 16.80
B) 14.80
C) 16.00
D) 14.00

Question 46

Which of the following statements is (are) TRUE?
I) In the face of a positive externality, a perfectly competitive market produces less than the socially optimal quantity of output.
II) If vaccinations generate an external marginal benefit, their marginal social benefit will always exceed their private marginal benefit.
III) In unregulated markets, the presence of negative externalities-but not positive externalities-causes deadweight losses.

A) I and II
B) I, II, and III
C) III
D) I and III

Question 47

Hamid and Lee are neighbors. Hamid has a barking dog that he keeps in his backyard for property protection; he values the dog at $600. Lee despises the constant barking, because it costs him $800 in lost sleep. Assume Hamid has a legal right to own a barking dog. Because Hamid speaks Farsi and Lee speaks Korean, they need an interpreter to handle negotiations regarding the dog. There ____ a Coase solution to this problem if the interpreter costs $250 and ____.

A) is; Hamid pays Lee
B) is; Lee pays Hamid
C) is not; neither person pays the other
D) is; neither person pays the other

Question 48

Recreation centers offer a place for young people to play sports and engage in other activities at a marginal cost of MC = 0.25Q. The inverse demand curve for recreation centers is given by P = 10 - 0.25Q, where P is the price of entry and Q measures hundreds of entrants. Recreation centers generate positive externalities because they help get young people off the street and engaged in productive activities. The external marginal benefits are EMB = 1 + 0.06Q. Without government intervention, ____ people will use the recreation centers.

A) 2,000
B) 2,400
C) 2,800
D) 3,200

Question 49

(Figure: Benefits of Asparagus) Suppose that eating asparagus reduces the incidence of contagious disease. The external marginal benefit of asparagus is $3. To achieve the socially optimal quantity of asparagus, the government should:

A) subsidize the production of asparagus by $6 per pound, increasing output to 6,000 pounds.
B) tax the production of asparagus by $6 per pound, decreasing output to 6,000 pounds.
C) subsidize the production of asparagus by $3 per pound, increasing output to 4,000 pounds.
D) tax the production of asparagus by $3 per pound, decreasing output to 4,000 pounds.

Question 50

The market for flu shots is given by the following inverse demand and supply equations:
P = 40 - 0.40Q
P = 0.40Q
Where P is the price per flu shot and Q measures the daily quantity of flu shots. The external marginal benefit of a flu shot is $8. The socially optimal number of daily flu shots is:

A) 60.
B) 50.
C) 140.
D) 35.

Question 51

The production of toilet paper in a perfectly competitive market is characterized by the inverse supply curve (marginal cost curve) P = 4Q, where Q is measured in millions of 4-roll packs per month. The inverse demand for toilet paper is P = 10 - 6Q. If the production of toilet paper causes an external marginal cost of 50 cents per 4-pack, the socially optimal price of toilet paper is $____ and the socially optimal quantity of toilet paper is ____ million.

A) 4; 1
B) 4.30; 0.95
C) 4.20; 1.05
D) 3; 2

Question 52

The island nation of Maldives has 70,000 households. Each household receives a marginal benefit from Coast Guard security of MB = 60 - 0.30Q, where Q measures the number of patrolling Coast Guard ships. What is the total marginal benefit of the tenth patrolling ship?

A) $3.99 million
B) $1.5 million
C) $2.81 million
D) $775,000

Question 53

The marginal cost of pollution is MC = 2Q, while the marginal abatement cost is MAC = 12 - Q. Government regulators incorrectly estimate the marginal abatement cost at MAC_E = 9 - Q. The level of pollution, measured in tons of glop, is Q. If the government taxes each ton of glop based on the incorrect estimate of the marginal abatement cost, ____ units of pollution will be omitted.

A) 3
B) 4
C) 5
D) 6

Question 54

Competitive markets _____ goods with negative externalities and _____ provide goods with positive externalities.

A) overprovide; underprovide
B) underprovide; overprovide
C) overprovide; overprovide
D) underprovide; underprovide

Question 55

(Figure: Perfect Competition I) Under perfect competition, the deadweight loss is given by area:

A) A + B.
B) C + E.
C) A + B + C.
D) E.

Question 56

What is the nature of the positive externality associated with research and development (R&D)?

A) Firms that engage in R&D may develop more profitable products.
B) Firms that engage in R&D may be able to lower their production costs.
C) R&D may lead to discoveries that make other firms more innovative.
D) Firms that engage in R&D tend to pay higher stock dividends.

Question 57

The marginal abatement costs (MAC) for Stark and York Paper are MAC_s = 0.2e_s and MAC_Y = 0.25e_Y, where e_s and e_Y represent the amount of emissions cut by each company. The lowest cost approach to reducing 90 units of emission is for Stark to reduce its emissions by _____ units and York to reduce its emissions by _____ units.

A) 45; 45
B) 50; 40
C) 30; 60
D) 60; 30

Question 58

The demand curve and supply curve for a good are given by Q^D = 100 - 5P and Q^S = 1.25P - 2.5. Suppose the production of this good creates a negative externality, where the external marginal cost is constant at $2. Assuming the government implements the appropriate per-unit tax to achieve the socially optimal outcome, buyers pay a price of $_____.

A) 16.80
B) 14.80
C) 16.00
D) 14.00

Question 59

Which of the following statements is (are) TRUE?
I) A quota can be used to address negative externalities only, not positive externalities.
II) Implementing pollution quotas is difficult because quotas must be implemented on a firm-by-firm basis.
III) The government could produce the good itself as a method of increasing the quantity of a good with a positive externality.

A) II
B) I and III
C) I, II, and III
D) II and III

Question 60

The demand curve and supply curve for a good are given by Q^D = 100 - 5P and Q^S = 1.25P - 2.5. Suppose the production of this good creates a negative externality, where the external marginal cost is constant at $2. To achieve the socially optimal output level, the government can implement a tax in the amount of $____.

A) 3.00
B) 2.50
C) 2.00
D) 1.50

Question 61

Suppose that Billy McGee owns the Internet domain www.ironmaiden.com. Iron Maiden, the legendary British heavy metal band, was given the rights to the name by the World Intellectual Property Organization. Iron Maiden values the domain name at $250,000 and Billy McGee values the domain name at $330,000. The Coase theorem suggests that:

A) Billy McGee will pay Iron Maiden between $250,000 and $330,000 to keep the domain name.
B) Billy McGee will pay Iron Maiden more than $330,000 to keep the domain name.
C) Iron Maiden will take the domain name.
D) Iron Maiden will buy the domain name from Billy McGee for less than $330,000.

Question 62

(Figure: Cost of Pollution) Which of the following statements is TRUE?

A) The efficient quantity of pollution occurs below 6,000 units.
B) At 2,000 units of pollution, the marginal benefit is less than the marginal cost, so there should be less pollution.
C) At 2,000 units of pollution, the marginal benefit exceeds the marginal cost, so there should be more pollution.
D) At 2,000 units of pollution, the marginal benefit exceeds the marginal cost, so there should be less pollution.

Question 63

The following companies all manufacture widgets and dump tons of glop into the air. The government wants to halve total pollution but does not know how much it will cost each company. If the government employs a tradable permit scheme in which it gives the same number of permits to each manufacturer at no cost, the total cost of cleanup for Really Dirty Industries, after the exchange of permits, is $____.

A) 0
B) 6,000
C) 7,000
D) 13,000

Question 64

Suppose the demand curve for steel is Q = 100 - P, where P is the price per unit of steel and Q measures millions of units of steel. The private marginal cost of producing steel is MC = 5Q + 40, while the external marginal cost of producing steel is $12. In a perfectly competitive steel industry, the deadweight loss is:

A) $12 million.
B) $2 million.
C) $750,000.
D) $200,000.

Question 65

(Figure: Marginal Benefit I) Which of the following statements is (are) TRUE? I. The external marginal benefit is $7.
II) The socially optimal price is $5.
III) At an output level of 5 units, the deadweight loss is $6.
IV) At 8 units of output, there is no private marginal benefit and social marginal benefit is $4.

A) III
B) II, III, and IV
C) I, II, and III
D) IV

Question 66

The demand curve and supply curve for a good are given by Q^D = 100 - 5P and Q^S = 1.25P - 2.5. Suppose the production of this good generates a negative externality, where the external marginal cost is constant at $2. To achieve the socially optimal output level, the government wants to implement a quota. The size of the quota should be ____ units of the good.

A) 24
B) 20
C) 16
D) 14

Question 67

(Figure: Output Levels II) The socially optimal output level could be achieved by a government quota of:

A) approximately 212 units of electricity.
B) 175 units of electricity.
C) 100 units of electricity.
D) 250 units of electricity.

Question 68

Hamid and Lee are neighbors. Hamid has a barking dog that he keeps in his backyard for property protection; he values the dog at $600. Lee despises the constant barking, because it costs him $800 in lost sleep. Assume Hamid has a legal right to own a barking dog. Because Hamid speaks Farsi and Lee speaks Korean, they need an interpreter to handle negotiations regarding the dog. There ____ a Coase solution to this problem if the interpreter costs $70 and ____.

A) is; Hamid pays Lee
B) is; Lee pays Hamid
C) is not; neither person pays the other
D) is; neither person pays the other

Question 69

Which of the following statements is (are) TRUE?
I) Public goods tend to be underprovided.
II) One person's consumption of a public good diminishes its use to another person.
III) The marginal cost of providing a public good to another consumer is infinite.

A) I and III
B) II and III
C) I
D) I, II, and III

Question 70

(Figure: External Marginal Cost I) The external marginal cost is:

A) $4.
B) $3.
C) $6.
D) $1.

Question 71

There are three consumers of a public good; their marginal benefits are given by:
Consumer 1: MB = 400 - Q
Consumer 2: MB = 200 - 2Q
Consumer 3: MB = 600 - Q
Where Q is the quantity of the public good. The marginal cost of the public good is MC = 600 + 296Q. What is the socially optimal quantity?

A) 6
B) 2
C) 3
D) 1

Question 72

Assume the social marginal benefit of remote-control drone flights is given by SMB = 200 - 2Q and the marginal cost is given by MC = 3Q + 50. The government wants to correct the negative externality associated with remote-control drone flights by taxing operators $20 per flight. If the proposed tax accurately reflects their marginal external costs, the deadweight loss associated with unrestricted remote-control drone flights is _____.

A) 30
B) 35
C) 40
D) 45

Question 73

Suppose the market for dry cleaning has an inverse demand of P = 12 - 0.10Q and an inverse supply curve (MC) of P = 0.10Q, where P is the price per article of clothing and Q is the quantity of clothing laundered. Suppose the external marginal cost of dry cleaning is 80 cents. To correct the market inefficiency, the government could set a quota on the number of laundered pieces of clothing equal to ____ articles of clothing.

A) 102
B) 88
C) 56
D) 22

Question 74

The following companies all manufacture widgets and dump tons of glop into the air. The government wants to halve total pollution but does not know how much it will cost each company. If the government employs a tradable permit scheme in which it gives the same number of permits to each manufacturer at no cost, the total cost of cleanup for Smog Brothers, Inc., after the exchange of permits, is $____.

A) 0
B) 6,000
C) 7,000
D) 13,000

Question 75

In the age before free agency, the labor of Major League Baseball (MLB) players was the property of their team owners. The owners had complete control of whether to trade their players away or keep them on the roster. In the period of free agency, players had the right to sell their services to the highest-bidding team. The Coase theorem predicted that:

A) free agency would reduce the salaries of talented players.
B) free agency would allow a select group of teams to purchase all the talented players.
C) the distribution of players' talent in MLB would not be affected by free agency because talent would flow to where it was most valued.
D) the salaries of players would not be affected by free agency.

Question 76

(Table: Benefits and Costs of Lawn Mowing) Answer the following question. According to the figure above, the socially optimal outcome is _____ mowing(s) per month.

A) 1
B) 3
C) 4
D) 5

Question 77

(Table: Pollution from Firms) Suppose that each firm is emitting 10 units of pollution, for a total of 20 units. The government would like to decrease total pollution to 10 units by giving each firm five tradable pollution permits. Under the tradable permit system, Firm A will emit ____ units of pollution.

A) 3
B) 4
C) 5
D) 7

Question 78

The following companies all manufacture widgets and dump tons of glop into the air. The government wants to halve total pollution but does not know how much it will cost each company. If the government employs a tradable permit scheme in which it gives the same number of permits to each manufacturer at no cost, the total cost of cleanup for Polluters-R-Us after the exchange of permits is $____.

A) 0
B) 6,000
C) 7,000
D) 13,000

Question 79

Minnesota has two oil refineries that emit methane gas. The Bend refinery emits 300 units of methane, and the Park refinery emits 900 units. Government regulators would like to reduce total methane emissions from 1,200 to 900 units. Bend's total abatement and marginal abatement costs are TC_B = 400Q_B + 4Q_B² and MAC_B = 400 + 8Q_B, where Q is units of methane. Park's total abatement cost and marginal abatement costs are TC_P = 40Q_P + 2Q_P² and MAC_P = 40 + 4Q_P.
Suppose that government regulators require each refinery to remove 150 units of methane. The total cost of removing these 150 units for the Bend refinery is $____.

A) 201,000
B) 172,200
C) 150,000
D) 51,000

Question 80

(Figure: External Marginal Cost II) Suppose the external marginal cost is constant at $5 per unit. Price (demand) equals social marginal cost at _____ units of output.

A) 3
B) 7
C) 6
D) 4