Deck 7: The Nature of Pollution Problems

Question 1

A negative externality is

A) a cost realized by the producer of a good or service.
B) anything that is external or not relevant to the production of a good or service.
C) a cost paid for by the consumer of a good or service.
D) a by-product of an activity that hurts someone who is not involved in that activity.

Answer 1

a by-product of an activity that hurts someone who is not involved in that activity.

Question 2

Which of the following activities creates a negative externality?

A) cleaning up a public garden in your neighborhood
B) graduating from college
C) keeping an old refrigerator on your front porch
D) using a pooper-scooper every time you walk your dog

Answer 2

keeping an old refrigerator on your front porch

Question 3

Economists Leigh Linden and Jonah Rockoff researched the effect of the proximity of the residences of registered sex offenders to the values of other homes in the same area and found that the effects of having a sex offender in the neighborhood

A) are widespread and tend to remain unchanged with distance.
B) are virtually nonexistent.
C) reduce the average home value in the area by 50 percent.
D) are highly localized and diminish rapidly with distance.

Answer 3

are highly localized and diminish rapidly with distance.

Question 4

Which of the following is an example of a positive externality?

A) banning the sale of junk food on Sundays
B) living next door to a dairy farm
C) purchasing a pinball machine for your game room
D) planting trees along a sidewalk which add beauty and create shade

Question 5

Which of the following would result in a positive externality?

A) A local government sets a maximum price on gasoline.
B) Taco Bell adds 15 new items to its dollar menu.
C) Medical research results in a cure for Ebola.
D) A solar panel manufacturer raises its prices due to increased demand.

Question 6

A negative externality imposes a burden or cost on others.

Question 7

Education creates positive externalities.

Question 8

What is an externality? How are positive externalities different from negative externalities?

Question 9

Of the following activities, specify which ones would typically generate positive externalities, negative externalities, or no externalities:
a. You decide to trade in your 1997 Cadillac for a 100% electric Nissan Leaf.
b. Every morning while in the shower, you sing at the top of your lungs and very much off-key as long as no one else is at home.
c. You choose to not clean up after your German Shepherd when you take him for his midnight walks around the neighborhood.
d. After running out of space in your house, you decide to store your collection of 46 broken lawn mowers in your front yard.
e. As you do every year, this year you get a flu shot at the local Walgreens.

Question 10

Which of the following assertions about pollution is generally agreed with by economists?

A) Pollution is never a problem because those who pollute and the victims of pollution can always bargain with one another and arrive at a suitable outcome.
B) Due to the demand for products made by those who pollute, it is best to not restrict pollution.
C) The problem we face in dealing with pollution is determining the optimal amount of pollution.
D) The ideal amount of pollution is no pollution.

Question 11

Pollution problems generally represent

A) cases of good versus evil.
B) cases of villain versus victim.
C) morally neutral disagreements over competing uses of a scarce resource.
D) Both a and b are correct.

Question 12

Tomas wants the city to convert a portion of an existing public park to a covered bus stop so it is more convenient to catch a bus to work each day. Michelle wants the city to expand the park so the neighborhood kids have an even larger place to play outside. In this situation,

A) Tomas is the villain and Michelle is the victim.
B) Michelle should get her way because a larger park is more important than a covered bus stop.
C) Tomas should get his way because more people would take public transportation to work if the bus stop were to be built.
D) the best solution is the one that makes the best use of the space that society has available.

Question 13

Tomas wants the city to convert a portion of an existing public park to a covered bus stop so it is more convenient to catch a bus to work each day. Michelle wants the city to expand the park so her kids have an even larger place to play outside. In this situation, Tomas's and Michelle's actions

A) reflect natural and morally neutral preferences.
B) are easy to separate into right and wrong.
C) are all about greed and take no one else into consideration.
D) have no possible way of resulting in compromise.

Question 14

Pollution problems are usually cases of good versus evil.

Question 15

Economists generally advocate for the complete elimination of pollution.

Question 16

Due to ongoing drought conditions, many cities in Texas have implemented water conservation measures which prevent homeowners from watering their lawns more than two times per month. Prior to the drought conditions, no restrictions were in place. Discuss this measure from the villain/victim standpoint. Explain who the villains and victims are, and if they really are villains and victims?

Question 17

Figure 7.1: Angus and Dudley are neighbors. Angus loves to play the bagpipes and earns a living recording his bagpipe music for use as background music in the movies. If Angus does not earn a living playing bagpipes, his only other talent is mopping floors. Dudley is a linguist whose clients are actors wishing to perfect accents for upcoming roles. When Angus plays his bagpipes, Dudley and his clients have trouble listening to each other, and this has severely affected Dudley's business. Presently, there is no city ordinance against playing loud music. The payoff matrix showing the daily payoffs to each player is shown above.

-Refer to Figure 7.1. If Angus chooses to earn the most money, he will receive a daily payoff of

A) $100.
B) $350.
C) $550.
D) $700.

Question 18

Figure 7.1: Angus and Dudley are neighbors. Angus loves to play the bagpipes and earns a living recording his bagpipe music for use as background music in the movies. If Angus does not earn a living playing bagpipes, his only other talent is mopping floors. Dudley is a linguist whose clients are actors wishing to perfect accents for upcoming roles. When Angus plays his bagpipes, Dudley and his clients have trouble listening to each other, and this has severely affected Dudley's business. Presently, there is no city ordinance against playing loud music. The payoff matrix showing the daily payoffs to each player is shown above.

-Refer to Figure 7.1. If Angus chooses to earn the most money and Dudley does nothing, Dudley will receive a daily payoff of

A) $100.
B) $350.
C) $550.
D) $700.

Question 19

Figure 7.1: Angus and Dudley are neighbors. Angus loves to play the bagpipes and earns a living recording his bagpipe music for use as background music in the movies. If Angus does not earn a living playing bagpipes, his only other talent is mopping floors. Dudley is a linguist whose clients are actors wishing to perfect accents for upcoming roles. When Angus plays his bagpipes, Dudley and his clients have trouble listening to each other, and this has severely affected Dudley's business. Presently, there is no city ordinance against playing loud music. The payoff matrix showing the daily payoffs to each player is shown above.

-Refer to Figure 7.1. If Angus chooses to earn the most money and Dudley calls the police, Dudley will receive a daily payoff of

A) $350.
B) $550.
C) $700.
D) none of the above

Question 20

Figure 7.1: Angus and Dudley are neighbors. Angus loves to play the bagpipes and earns a living recording his bagpipe music for use as background music in the movies. If Angus does not earn a living playing bagpipes, his only other talent is mopping floors. Dudley is a linguist whose clients are actors wishing to perfect accents for upcoming roles. When Angus plays his bagpipes, Dudley and his clients have trouble listening to each other, and this has severely affected Dudley's business. Presently, there is no city ordinance against playing loud music. The payoff matrix showing the daily payoffs to each player is shown above.

-Refer to Figure 7.1. When both players act in their best interests, financially, the size of the economic pie is

A) $350.
B) $650.
C) $700.
D) $900.

Question 21

Figure 7.1: Angus and Dudley are neighbors. Angus loves to play the bagpipes and earns a living recording his bagpipe music for use as background music in the movies. If Angus does not earn a living playing bagpipes, his only other talent is mopping floors. Dudley is a linguist whose clients are actors wishing to perfect accents for upcoming roles. When Angus plays his bagpipes, Dudley and his clients have trouble listening to each other, and this has severely affected Dudley's business. Presently, there is no city ordinance against playing loud music. The payoff matrix showing the daily payoffs to each player is shown above.

-Refer to Figure 7.1. The benevolent social planner would want the outcome represented in the ________ box.

A) upper left
B) upper right
C) lower left
D) either A or C

Question 22

Figure 7.1: Angus and Dudley are neighbors. Angus loves to play the bagpipes and earns a living recording his bagpipe music for use as background music in the movies. If Angus does not earn a living playing bagpipes, his only other talent is mopping floors. Dudley is a linguist whose clients are actors wishing to perfect accents for upcoming roles. When Angus plays his bagpipes, Dudley and his clients have trouble listening to each other, and this has severely affected Dudley's business. Presently, there is no city ordinance against playing loud music. The payoff matrix showing the daily payoffs to each player is shown above.

-Refer to Figure 7.1. Suppose the city passes an ordinance banning loud music, and this directly impacts Angus's legal ability to play his bagpipes. If Angus continues to play the bagpipes and Dudley calls the police, the payoffs in the appropriate cell in the payoff matrix would change to

A) N/A.
B) 550, 100.
C) 100, 550.
D) The payoffs would not change.

Question 23

Figure 7.1: Angus and Dudley are neighbors. Angus loves to play the bagpipes and earns a living recording his bagpipe music for use as background music in the movies. If Angus does not earn a living playing bagpipes, his only other talent is mopping floors. Dudley is a linguist whose clients are actors wishing to perfect accents for upcoming roles. When Angus plays his bagpipes, Dudley and his clients have trouble listening to each other, and this has severely affected Dudley's business. Presently, there is no city ordinance against playing loud music. The payoff matrix showing the daily payoffs to each player is shown above.

-Refer to Figure 7.1. Suppose the city passes an ordinance banning loud music, and this directly impacts Angus's legal ability to play his bagpipes. The payoffs in the lower-right cell of the payoff matrix would change to

A) 0, 0.
B) 550, 100.
C) 100, 550.
D) The payoffs would not change.

Question 24

Figure 7.1: Angus and Dudley are neighbors. Angus loves to play the bagpipes and earns a living recording his bagpipe music for use as background music in the movies. If Angus does not earn a living playing bagpipes, his only other talent is mopping floors. Dudley is a linguist whose clients are actors wishing to perfect accents for upcoming roles. When Angus plays his bagpipes, Dudley and his clients have trouble listening to each other, and this has severely affected Dudley's business. Presently, there is no city ordinance against playing loud music. The payoff matrix showing the daily payoffs to each player is shown above.

-Refer to Figure 7.1. Suppose the city passes an ordinance banning loud music, and this directly impacts Angus's legal ability to play his bagpipes. The equilibrium outcome of this game will be for Angus to ________ and for Dudley to ________.

A) play the bagpipes; do nothing
B) play the bagpipes; call the police
C) mop floors; do nothing
D) Both B and C are correct.

Question 25

Figure 7.1: Angus and Dudley are neighbors. Angus loves to play the bagpipes and earns a living recording his bagpipe music for use as background music in the movies. If Angus does not earn a living playing bagpipes, his only other talent is mopping floors. Dudley is a linguist whose clients are actors wishing to perfect accents for upcoming roles. When Angus plays his bagpipes, Dudley and his clients have trouble listening to each other, and this has severely affected Dudley's business. Presently, there is no city ordinance against playing loud music. The payoff matrix showing the daily payoffs to each player is shown above.

-Refer to Figure 7.1. Suppose the city passes an ordinance banning loud music, and this directly impacts Angus's legal ability to play his bagpipes. At the equilibrium outcome, the size of the economic pie will be

A) $350.
B) $550.
C) $650.
D) $700.

Question 26

Figure 7.1: Angus and Dudley are neighbors. Angus loves to play the bagpipes and earns a living recording his bagpipe music for use as background music in the movies. If Angus does not earn a living playing bagpipes, his only other talent is mopping floors. Dudley is a linguist whose clients are actors wishing to perfect accents for upcoming roles. When Angus plays his bagpipes, Dudley and his clients have trouble listening to each other, and this has severely affected Dudley's business. Presently, there is no city ordinance against playing loud music. The payoff matrix showing the daily payoffs to each player is shown above.

-Refer to Figure 7.1. Suppose the city passes an ordinance banning loud music, and this directly impacts Angus's legal ability to play his bagpipes. The benevolent social planner would choose an outcome where Angus ________ and Dudley ________.

A) plays the bagpipes; does nothing
B) plays the bagpipes; calls the police
C) mops floors; does nothing
D) mops floors; calls the police

Question 27

Figure 7.1: Angus and Dudley are neighbors. Angus loves to play the bagpipes and earns a living recording his bagpipe music for use as background music in the movies. If Angus does not earn a living playing bagpipes, his only other talent is mopping floors. Dudley is a linguist whose clients are actors wishing to perfect accents for upcoming roles. When Angus plays his bagpipes, Dudley and his clients have trouble listening to each other, and this has severely affected Dudley's business. Presently, there is no city ordinance against playing loud music. The payoff matrix showing the daily payoffs to each player is shown above.

-Refer to Figure 7.1. Suppose the city passes an ordinance banning loud music, and this directly impacts Angus's legal ability to play his bagpipes. In response to this ordinance, Angus agrees to pay Dudley to not call the police. What is the minimum amount that Angus would have to pay Dudley each day for Dudley to be indifferent about doing nothing or calling the police?

A) $100
B) $200
C) $350
D) $550

Question 28

Figure 7.1: Angus and Dudley are neighbors. Angus loves to play the bagpipes and earns a living recording his bagpipe music for use as background music in the movies. If Angus does not earn a living playing bagpipes, his only other talent is mopping floors. Dudley is a linguist whose clients are actors wishing to perfect accents for upcoming roles. When Angus plays his bagpipes, Dudley and his clients have trouble listening to each other, and this has severely affected Dudley's business. Presently, there is no city ordinance against playing loud music. The payoff matrix showing the daily payoffs to each player is shown above.

-Refer to Figure 7.1. Suppose the city passes an ordinance banning loud music, and this directly impacts Angus's legal ability to play his bagpipes. In response to this ordinance, Angus agrees to pay Dudley $225 each day to not call the police. The payoffs in the appropriate cell in the payoff matrix would change to

A) 575, 125.
B) 575, 575.
C) 325, 325.
D) 125, 575.

Question 29

Figure 7.1: Angus and Dudley are neighbors. Angus loves to play the bagpipes and earns a living recording his bagpipe music for use as background music in the movies. If Angus does not earn a living playing bagpipes, his only other talent is mopping floors. Dudley is a linguist whose clients are actors wishing to perfect accents for upcoming roles. When Angus plays his bagpipes, Dudley and his clients have trouble listening to each other, and this has severely affected Dudley's business. Presently, there is no city ordinance against playing loud music. The payoff matrix showing the daily payoffs to each player is shown above.

-Refer to Figure 7.1. Suppose the city passes an ordinance banning loud music, and this directly impacts Angus's legal ability to play his bagpipes. In response to this ordinance, Angus agrees to pay Dudley $225 each day to not call the police. At the equilibrium outcome, the size of the economic pie will be

A) $575.
B) $650.
C) $700.
D) $1,150.

Question 30

Figure 7.1: Angus and Dudley are neighbors. Angus loves to play the bagpipes and earns a living recording his bagpipe music for use as background music in the movies. If Angus does not earn a living playing bagpipes, his only other talent is mopping floors. Dudley is a linguist whose clients are actors wishing to perfect accents for upcoming roles. When Angus plays his bagpipes, Dudley and his clients have trouble listening to each other, and this has severely affected Dudley's business. Presently, there is no city ordinance against playing loud music. The payoff matrix showing the daily payoffs to each player is shown above.

-Refer to Figure 7.1. Suppose the city passes an ordinance banning loud music, and this directly impacts Angus's legal ability to play his bagpipes. In response to this ordinance, Angus agrees to pay Dudley $225 each day to not call the police. In this case, the benevolent social planner would choose an outcome where Angus ________ and Dudley ________.

A) plays the bagpipes; does nothing
B) plays the bagpipes; calls the police
C) mops floors; does nothing
D) mops floors; calls the police

Question 31

You choose to get a flu shot each fall and your roommate chooses not to get a flu shot. For your roommate, you getting a flu shot is a

A) positive externality.
B) negative externality.
C) transactions cost.
D) property right.

Question 32

When considering the socially optimal amount of pollution, the benevolent social planner takes into account any laws regarding pollution.

Question 33

Laws regulating pollution emissions can change the size of the economic pie.

Question 34

When it comes to pollution problems, the polluter and the victim can bargain to arrive at an outcome that benefits both parties.

Question 35

When it comes to pollution problems, the polluter and the victim can bargain to arrive at the outcome desired by the benevolent social planner.

Question 36

Suppose a chemical plant regularly dumps chemicals into a river that must be cleaned up before farmers located downstream can use the water on their crops. Dumping the chemicals into the river saves the chemical plant $750,000 in yearly disposal costs and cleaning the water costs farmers $825,000 each year. Explain what the benevolent social planner would like to see happen in this case.

Question 37

Sarah makes giant wind chime sculptures for a living. When she makes 4 sculptures, she earns $10,000. When the makes 5 sculptures, she earns $12,500. Next door, Gilbert runs a meditation clinic. When Sarah makes 4 giant wind chime sculptures, the noise from the sculptures does not disrupt his patients, and he earns $7,500. When Sarah makes 5 sculptures, the noise is disruptive and Gilbert's profits fall to $6,000. The city has an ordinance which prohibits noise that disrupts the community.
a. If you were the benevolent social planner, would you like to see Sarah make 4 sculptures or 5? Why?
b. If bargaining between Sarah and Gilbert is easy, how many sculptures will Sarah make? Describe the bargain that results, if any, including the amount of money that changes hands.
c. Is the outcome in part b an outcome that the benevolent social planner would endorse? Why or why not?

Question 38

Explain how one person getting a pneumonia vaccination creates an externality.

Question 39

If an environmental group wanted to prevent the habitat destruction of the Wyoming pocket gopher, the Coase theorem would direct the group to

A) try to get laws enacted to protect the species.
B) bargain in order to obtain the property rights of the gopher habitat.
C) physically block any efforts to destroy the habitat.
D) protest the destruction while gaining media attention for their cause.

Question 40

Figure 7.1: Angus and Dudley are neighbors. Angus loves to play the bagpipes and earns a living recording his bagpipe music for use as background music in the movies. If Angus does not earn a living playing bagpipes, his only other talent is mopping floors. Dudley is a linguist whose clients are actors wishing to perfect accents for upcoming roles. When Angus plays his bagpipes, Dudley and his clients have trouble listening to each other, and this has severely affected Dudley's business. Presently, there is no city ordinance against playing loud music. The payoff matrix showing the daily payoffs to each player is shown above.

-Refer to Figure 7.1. Angus values playing the bagpipes at

A) $100.
B) $250.
C) $350.
D) $700.

Question 41

Figure 7.1: Angus and Dudley are neighbors. Angus loves to play the bagpipes and earns a living recording his bagpipe music for use as background music in the movies. If Angus does not earn a living playing bagpipes, his only other talent is mopping floors. Dudley is a linguist whose clients are actors wishing to perfect accents for upcoming roles. When Angus plays his bagpipes, Dudley and his clients have trouble listening to each other, and this has severely affected Dudley's business. Presently, there is no city ordinance against playing loud music. The payoff matrix showing the daily payoffs to each player is shown above.

-Refer to Figure 7.1. Dudley values silence at

A) $100.
B) $200.
C) $350.
D) $550.

Question 42

Figure 7.1: Angus and Dudley are neighbors. Angus loves to play the bagpipes and earns a living recording his bagpipe music for use as background music in the movies. If Angus does not earn a living playing bagpipes, his only other talent is mopping floors. Dudley is a linguist whose clients are actors wishing to perfect accents for upcoming roles. When Angus plays his bagpipes, Dudley and his clients have trouble listening to each other, and this has severely affected Dudley's business. Presently, there is no city ordinance against playing loud music. The payoff matrix showing the daily payoffs to each player is shown above.

-Refer to Figure 7.1. In this case, the property rights belong to

A) Angus.
B) Dudley.
C) no one.
D) both Angus and Dudley.

Question 43

Figure 7.1: Angus and Dudley are neighbors. Angus loves to play the bagpipes and earns a living recording his bagpipe music for use as background music in the movies. If Angus does not earn a living playing bagpipes, his only other talent is mopping floors. Dudley is a linguist whose clients are actors wishing to perfect accents for upcoming roles. When Angus plays his bagpipes, Dudley and his clients have trouble listening to each other, and this has severely affected Dudley's business. Presently, there is no city ordinance against playing loud music. The payoff matrix showing the daily payoffs to each player is shown above.

-Refer to Figure 7.1. Suppose the city passes an ordinance banning loud music, and this directly impacts Angus's legal ability to play his bagpipes. In this case, the property rights belong to

A) Angus.
B) Dudley.
C) no one.
D) both Angus and Dudley.

Question 44

Figure 7.1: Angus and Dudley are neighbors. Angus loves to play the bagpipes and earns a living recording his bagpipe music for use as background music in the movies. If Angus does not earn a living playing bagpipes, his only other talent is mopping floors. Dudley is a linguist whose clients are actors wishing to perfect accents for upcoming roles. When Angus plays his bagpipes, Dudley and his clients have trouble listening to each other, and this has severely affected Dudley's business. Presently, there is no city ordinance against playing loud music. The payoff matrix showing the daily payoffs to each player is shown above.

-Refer to Figure 7.1. Suppose the city passes an ordinance banning loud music, and this directly impacts Angus's legal ability to play his bagpipes. In response to this ordinance, Angus agrees to pay Dudley $225 each day to not call the police. Compared to the original scenario where there was no ordinance banning loud music, in this situation the size of the economic pie will

A) shrink.
B) not change.
C) grow.
D) More information is needed to determine the size of the economic pie.

Question 45

Figure 7.1: Angus and Dudley are neighbors. Angus loves to play the bagpipes and earns a living recording his bagpipe music for use as background music in the movies. If Angus does not earn a living playing bagpipes, his only other talent is mopping floors. Dudley is a linguist whose clients are actors wishing to perfect accents for upcoming roles. When Angus plays his bagpipes, Dudley and his clients have trouble listening to each other, and this has severely affected Dudley's business. Presently, there is no city ordinance against playing loud music. The payoff matrix showing the daily payoffs to each player is shown above.

-Refer to Figure 7.1. Suppose the city passes an ordinance banning loud music, and this directly impacts Angus's legal ability to play his bagpipes. In response to this ordinance, Angus agrees to pay Dudley $225 each day to not call the police. In this case, Angus will end up with ________ per day and Dudley will end up with ________ per day.

A) $0; $700
B) $350; $350
C) $125; $575
D) $225; $125

Question 46

Figure 7.1: Angus and Dudley are neighbors. Angus loves to play the bagpipes and earns a living recording his bagpipe music for use as background music in the movies. If Angus does not earn a living playing bagpipes, his only other talent is mopping floors. Dudley is a linguist whose clients are actors wishing to perfect accents for upcoming roles. When Angus plays his bagpipes, Dudley and his clients have trouble listening to each other, and this has severely affected Dudley's business. Presently, there is no city ordinance against playing loud music. The payoff matrix showing the daily payoffs to each player is shown above.

-Refer to Figure 7.1. Suppose that instead of $350, Angus earns only $250 by playing the bagpipes, but all other earnings remain the same. If there is no ordinance against loud music, property rights belong to

A) Angus.
B) Dudley.
C) no one.
D) both Angus and Dudley.

Question 47

Figure 7.1: Angus and Dudley are neighbors. Angus loves to play the bagpipes and earns a living recording his bagpipe music for use as background music in the movies. If Angus does not earn a living playing bagpipes, his only other talent is mopping floors. Dudley is a linguist whose clients are actors wishing to perfect accents for upcoming roles. When Angus plays his bagpipes, Dudley and his clients have trouble listening to each other, and this has severely affected Dudley's business. Presently, there is no city ordinance against playing loud music. The payoff matrix showing the daily payoffs to each player is shown above.

-Refer to Figure 7.1. Suppose that instead of $350, Angus earns only $250 by playing the bagpipes, but all other earnings remain the same. Angus values playing the bagpipes at

A) $100.
B) $150.
C) $250.
D) $600.

Question 48

Figure 7.1: Angus and Dudley are neighbors. Angus loves to play the bagpipes and earns a living recording his bagpipe music for use as background music in the movies. If Angus does not earn a living playing bagpipes, his only other talent is mopping floors. Dudley is a linguist whose clients are actors wishing to perfect accents for upcoming roles. When Angus plays his bagpipes, Dudley and his clients have trouble listening to each other, and this has severely affected Dudley's business. Presently, there is no city ordinance against playing loud music. The payoff matrix showing the daily payoffs to each player is shown above.

-Refer to Figure 7.1. Suppose that instead of $350, Angus earns only $250 by playing the bagpipes, but all other earnings remain the same. Who values the property rights to the air more?

A) Angus
B) Dudley
C) They value the property rights equally.
D) Neither value the property rights.

Question 49

Figure 7.1: Angus and Dudley are neighbors. Angus loves to play the bagpipes and earns a living recording his bagpipe music for use as background music in the movies. If Angus does not earn a living playing bagpipes, his only other talent is mopping floors. Dudley is a linguist whose clients are actors wishing to perfect accents for upcoming roles. When Angus plays his bagpipes, Dudley and his clients have trouble listening to each other, and this has severely affected Dudley's business. Presently, there is no city ordinance against playing loud music. The payoff matrix showing the daily payoffs to each player is shown above.

-Refer to Figure 7.1. Suppose that instead of $350, Angus earns only $250 by playing the bagpipes, but all other earnings remain the same. If there is no ordinance against loud music, the Coase theorem predicts that

A) Dudley will pay Angus to not play the bagpipes.
B) Angus will pay Dudley so Angus can play the bagpipes.
C) Dudley will do nothing and Angus will mop floors.
D) no bargain can be reached between Angus and Dudley.

Question 50

Figure 7.1: Angus and Dudley are neighbors. Angus loves to play the bagpipes and earns a living recording his bagpipe music for use as background music in the movies. If Angus does not earn a living playing bagpipes, his only other talent is mopping floors. Dudley is a linguist whose clients are actors wishing to perfect accents for upcoming roles. When Angus plays his bagpipes, Dudley and his clients have trouble listening to each other, and this has severely affected Dudley's business. Presently, there is no city ordinance against playing loud music. The payoff matrix showing the daily payoffs to each player is shown above.

-Refer to Figure 7.1. Suppose that instead of $350, Angus earns only $250 by playing the bagpipes, but all other earnings remain the same. If there is no ordinance against loud music, the Coase theorem predicts that the value of the economic pie will be

A) $250.
B) $600.
C) $650.
D) $700.

Question 51

Figure 7.1: Angus and Dudley are neighbors. Angus loves to play the bagpipes and earns a living recording his bagpipe music for use as background music in the movies. If Angus does not earn a living playing bagpipes, his only other talent is mopping floors. Dudley is a linguist whose clients are actors wishing to perfect accents for upcoming roles. When Angus plays his bagpipes, Dudley and his clients have trouble listening to each other, and this has severely affected Dudley's business. Presently, there is no city ordinance against playing loud music. The payoff matrix showing the daily payoffs to each player is shown above.

-Refer to Figure 7.1. Suppose that instead of $350, Angus earns only $250 by playing the bagpipes, but all other earnings remain the same. Also, suppose the city passes an ordinance banning loud music, and this directly impacts Angus's legal ability to play his bagpipes. Property rights belong to

A) Angus.
B) Dudley.
C) no one.
D) both Angus and Dudley.

Question 52

Figure 7.1: Angus and Dudley are neighbors. Angus loves to play the bagpipes and earns a living recording his bagpipe music for use as background music in the movies. If Angus does not earn a living playing bagpipes, his only other talent is mopping floors. Dudley is a linguist whose clients are actors wishing to perfect accents for upcoming roles. When Angus plays his bagpipes, Dudley and his clients have trouble listening to each other, and this has severely affected Dudley's business. Presently, there is no city ordinance against playing loud music. The payoff matrix showing the daily payoffs to each player is shown above.

-Refer to Figure 7.1. Suppose that instead of $350, Angus earns only $250 by playing the bagpipes, but all other earnings remain the same. Also, suppose the city passes an ordinance banning loud music, and this directly impacts Angus's legal ability to play his bagpipes. In this case, the Coase theorem predicts that

A) Dudley will pay Angus to not play the bagpipes.
B) Angus will pay Dudley so Angus can play the bagpipes.
C) Dudley will do nothing and Angus will mop floors.
D) no bargain can be reached between Angus and Dudley.

Question 53

Figure 7.1: Angus and Dudley are neighbors. Angus loves to play the bagpipes and earns a living recording his bagpipe music for use as background music in the movies. If Angus does not earn a living playing bagpipes, his only other talent is mopping floors. Dudley is a linguist whose clients are actors wishing to perfect accents for upcoming roles. When Angus plays his bagpipes, Dudley and his clients have trouble listening to each other, and this has severely affected Dudley's business. Presently, there is no city ordinance against playing loud music. The payoff matrix showing the daily payoffs to each player is shown above.

-Refer to Figure 7.1. Suppose that instead of $350, Angus earns only $250 by playing the bagpipes, but all other earnings remain the same. Also, suppose the city passes an ordinance banning loud music, and this directly impacts Angus's legal ability to play his bagpipes. In this case, the value of the economic pie will be

A) $250.
B) $600.
C) $650.
D) $700.

Question 54

Figure 7.1: Angus and Dudley are neighbors. Angus loves to play the bagpipes and earns a living recording his bagpipe music for use as background music in the movies. If Angus does not earn a living playing bagpipes, his only other talent is mopping floors. Dudley is a linguist whose clients are actors wishing to perfect accents for upcoming roles. When Angus plays his bagpipes, Dudley and his clients have trouble listening to each other, and this has severely affected Dudley's business. Presently, there is no city ordinance against playing loud music. The payoff matrix showing the daily payoffs to each player is shown above.

-Refer to Figure 7.1. Suppose that instead of $350, Angus earns only $250 by playing the bagpipes, but all other earnings remain the same. The Coase theorem predicts that Angus ________ play the bagpipes with no city ordinance banning loud music, and Angus ________ play the bagpipes if the city passes an ordinance banning loud music.

A) will; will
B) will; will not
C) will not; will
D) will not; will not

Question 55

When the law grants someone control of a resource, that control is referred to as a property right.

Question 56

Legal constraints will always reduce the size of the economic pie.

Question 57

Which of the following are assumptions behind the Coase theorem?

A) low transactions costs
B) low levels of pollution
C) high levels of pollution
D) the necessity of government intervention

Question 58

According to ________, the law's assignment of property rights would have no effect on the way resources would end up being used.

A) Milton Friedman
B) Ronald Coase
C) Aaron Director
D) George Stigler

Question 59

The higher the transactions costs, the easier it is to negotiate an agreement involving negative externalities.

Question 60

If transactions costs are high, the economic pie may not be maximized.

Question 61

Sarah makes giant wind chime sculptures for a living. When she makes 4 sculptures, she earns $10,000. When the makes 5 sculptures, she earns $12,500. Next door, Gilbert runs a meditation clinic. When Sarah makes 4 giant wind chime sculptures, the noise from the sculptures does not disrupt his patients, and he earns $7,500. When Sarah makes 5 sculptures, the noise is disruptive and Gilbert's profits fall to $6,000. The city has an ordinance which prohibits noise that disrupts the community.
a. If bargaining between Sarah and Gilbert requires an enforceable contract to be drawn up at a cost of $1,500, how many sculptures will Sarah make? Explain how you arrived at your answer.
b. Is the outcome in part a an outcome that the benevolent social planner would endorse? Why or why not?