Question 1

A homeowner, frustrated with his next-door-neighbor's refusal to mow his lawn, decides he wants to purchase the house from his neighbor and rent it to a more conscientious person, but his neighbor refuses to sell. In this case,

Accepted Answer

A)   eminent domain would likely be used to reduce transactions costs.
B)   eminent domain would likely be used to reduce the holdout problem.
C)   eminent domain would not likely be used.
D)   eminent domain would likely be used because this transaction would increase cooperative surplus. C

Question 2

Lolita wants to purchase a beautiful art deco office building built in the 1920s, tear it down, and construct a rather bland, glass-and-steel office building that will confer $2 million of benefits to society. In its current state, the art deco office building is worth $1.7 million. Lolita goes to the city council with her proposal and tells the council members that the new office building will hold more tenants and therefore increase employment and tax revenues. If the city council agrees to use eminent domain to allow Lolita to proceed with her project, the benevolent social planner will

Accepted Answer

A)   be unhappy since the area will become less interesting, aesthetically.
B)   rejoice since the size of the economic pie will increase.
C)   remain indifferent since the reduced beauty will be offset by the change in the size of the economic pie.
D)   be unhappy since the size of the economic pie will decrease. B

Question 3

A homeowner wants to purchase the property on both sides of his house so he can expand the size of his home and increase property values throughout his neighborhood. In this case,

Accepted Answer

A)   eminent domain would likely be used to reduce transactions costs.
B)   eminent domain would likely be used to reduce the holdout problem.
C)   eminent domain would not likely be used.
D)   eminent domain would likely be used because this transaction would increase cooperative surplus. C

Question 4

Government gets its takings power from

Accepted Answer

A)   the International Court of Justice.
B)   the Ten Commandments.
C)   the U.S. Constitution.
D)   the Declaration of Independence.

Question 5

Scenario 11.1: Mariana has decided that she would like to build a private electric railway that would directly connect her small town to her favorite casino 75 miles away. She discovers that to build her railway, she will need to purchase an equal amount of land from 5 ranchers: Abe, Ben, Cat, Don, and Eve. Mariana believes that the revenue she would receive from running the railroad would be enough to cover all of her construction costs and leave her $3 million to buy the land. Mariana calculates the land she needs to build the railway will cost her $2 million.
-Refer to Scenario 11.1. Suppose Mariana purchases the needed land from Abe, Ben, Cat, and Don for the value she calculated the land to be worth, but Eva refuses to sell the land for the same price as the other 4 ranchers. What is the maximum amount Mariana would be willing to pay Eva for her land and still be willing to build the railway?

Accepted Answer

A)   $400,000
B)   $1 million
C)   $1.4 million
D)   $3 million

Question 6

Scenario 11.1: Mariana has decided that she would like to build a private electric railway that would directly connect her small town to her favorite casino 75 miles away. She discovers that to build her railway, she will need to purchase an equal amount of land from 5 ranchers: Abe, Ben, Cat, Don, and Eve. Mariana believes that the revenue she would receive from running the railroad would be enough to cover all of her construction costs and leave her $3 million to buy the land. Mariana calculates the land she needs to build the railway will cost her $2 million.
-Refer to Scenario 11.1. Suppose all five ranchers know that Mariana has $3 million to spend on their land and they also know that their land that Mariana needs is worth a total of $2 million. If all five ranchers got together and decided to sell the land to Mariana, what is the maximum amount that each rancher should ask to be paid for his or her land?

Accepted Answer

A)   $400,000
B)   $600,000
C)   $750,000
D)   $1 million

Question 7

For which of the following projects would it likely be most difficult to acquire 1,000 acres of land?

Accepted Answer

A)   growing wheat
B)   building an amusement park
C)   building storage sheds
D)   digging wells

Question 8

With eminent domain, landowners ________ in the gains that result from the taking of their property, and with private bargaining, landowners ________ in the gains that result from the taking of their property.

Accepted Answer

A)   share; share
B)   share; do not share
C)   do not share; share
D)   do not share; do not share

Question 9

Scenario 11.1: Mariana has decided that she would like to build a private electric railway that would directly connect her small town to her favorite casino 75 miles away. She discovers that to build her railway, she will need to purchase an equal amount of land from 5 ranchers: Abe, Ben, Cat, Don, and Eve. Mariana believes that the revenue she would receive from running the railroad would be enough to cover all of her construction costs and leave her $3 million to buy the land. Mariana calculates the land she needs to build the railway will cost her $2 million.
-Refer to Scenario 11.1. Suppose all five ranchers know that their land that Mariana needs is worth a total of $2 million. If each rancher agrees to sell his or her parcel of land to Mariana for $600,000, Mariana will purchase

Accepted Answer

A)   all five parcels of land and the railway will be built.
B)   all five parcels of land but the railway will not be built.
C)   only four parcels of land and the railway will be built.
D)   no parcels of land and the railway will not be built.

Question 10

Las Vegas Sands Corporation is trying to acquire 50 acres of land to build a casino resort in Pennsylvania. There are 60 houses on the land the company needs. Explain how eminent domain could be beneficial in the process of acquiring this land in terms of transactions costs and the holdout problem.

Accepted Answer

The answer of Las Vegas Sands Corporation is trying to...

Question 11

Geraldo wants to purchase Marlena's 1914 prairie-style house so he can tear it down to build a 10,000 square foot home with space to operate his hypnotherapy practice. Marlena's great-grandfather built the 1914 house and she has no intention of selling it, especially to someone who wants to tear it down. The mayor, who is a friend and client of Geraldo, talks to Marlena and tells her that since Geraldo's proposed house would generate 20 times as much property tax for the city as Marlena's current house does, Marlena will need to either tear down the house herself and build a house comparable to the one Geraldo wants to build, or eminent domain will be used to force the sale of her house. In this case, the threat of eminent domain

Accepted Answer

A)   is in the best interest of society in general.
B)   would move a resource from someone who values it less to someone who values it more.
C)   gives people incentives to make second-best choices.
D)   would increase the size of the economic pie since property-tax revenues would increase.

Question 12

The standard method of determining fair market value is called the comparable sales method.

Accepted Answer

A) True 
 B)False

Question 13

Scenario 11.1: Mariana has decided that she would like to build a private electric railway that would directly connect her small town to her favorite casino 75 miles away. She discovers that to build her railway, she will need to purchase an equal amount of land from 5 ranchers: Abe, Ben, Cat, Don, and Eve. Mariana believes that the revenue she would receive from running the railroad would be enough to cover all of her construction costs and leave her $3 million to buy the land. Mariana calculates the land she needs to build the railway will cost her $2 million.
-Refer to Scenario 11.1. Suppose all five ranchers know that their land that Mariana needs is worth a total of $2 million. If each rancher agrees to sell his or her parcel of land to Mariana for $500,000, the logical outcome in this situation is for the railway ________ , and the benevolent social planner is ________.

Accepted Answer

A)   to be built; pleased
B)   to be built; indifferent
C)   not to be built; unhappy
D)   not to be built; indifferent

Question 14

The authority of the government to take private property for public use, given just compensation to the owner, is known as

Accepted Answer

A)   search and seizure.
B)   eminent domain.
C)   authoritarian capitalism.
D)   internalizing an externality.

Question 15

Compared to private bargaining, using eminent domain to acquire land generally

Accepted Answer

A)   keeps negotiation costs low.
B)   is more time consuming and less successful.
C)   reduces cooperative surplus.
D)   is frowned upon by the government.

Question 16

Since property seized through eminent domain must be taken for public use, the government cannot legally sell this seized property to private investors.

Accepted Answer

A) True 
 B)False

Question 17

Holdouts who set a price for land above their opportunity cost and refuse to budge on selling their land for a lower price can reduce the size of the economic pie.

Accepted Answer

A) True 
 B)False

Question 18

Emma hopes to get $5 million for her land by refusing to come to terms with the company that wants to buy the land to build apartments. The apartment builders have offered Emma $1.5 million for her land, which is what they paid other land owners in her area for similar-size parcels. Economists would refer to Emma as a ________.

Accepted Answer

The answer of Emma hopes to get $5 million for...

Question 19

Scenario 11.1: Mariana has decided that she would like to build a private electric railway that would directly connect her small town to her favorite casino 75 miles away. She discovers that to build her railway, she will need to purchase an equal amount of land from 5 ranchers: Abe, Ben, Cat, Don, and Eve. Mariana believes that the revenue she would receive from running the railroad would be enough to cover all of her construction costs and leave her $3 million to buy the land. Mariana calculates the land she needs to build the railway will cost her $2 million.
-Refer to Scenario 11.1. Suppose all five ranchers know that their land that Mariana needs is worth a total of $2 million. If each rancher agrees to sell his or her parcel of land to Mariana for $500,000, Mariana will purchase

Accepted Answer

A)   all five parcels of land and the railway will be built.
B)   all five parcels of land but the railway will not be built.
C)   only four parcels of land and the railway will be built.
D)   no parcels of land and the railway will not be built.

Question 20

For which of the following projects would it likely be least difficult to acquire 1,000 acres of land?

Accepted Answer

A)   growing radishes
B)   constructing a baseball stadium
C)   building a private airport
D)   digging a lake

Exam 11: Public Goods: Tackling Large Projects and Eminent Domain

A homeowner, frustrated with his next-door-neighbor's refusal to mow his lawn, decides he wants to purchase the house from his neighbor and rent it to a more conscientious person, but his neighbor refuses to sell. In this case,

A homeowner wants to purchase the property on both sides of his house so he can expand the size of his home and increase property values throughout his neighborhood. In this case,

Government gets its takings power from

For which of the following projects would it likely be most difficult to acquire 1,000 acres of land?

With eminent domain, landowners in the gains that result from the taking of their property, and with private bargaining, landowners in the gains that result from the taking of their property.

Las Vegas Sands Corporation is trying to acquire 50 acres of land to build a casino resort in Pennsylvania. There are 60 houses on the land the company needs. Explain how eminent domain could be beneficial in the process of acquiring this land in terms of transactions costs and the holdout problem.

The standard method of determining fair market value is called the comparable sales method.

The authority of the government to take private property for public use, given just compensation to the owner, is known as

Compared to private bargaining, using eminent domain to acquire land generally

Since property seized through eminent domain must be taken for public use, the government cannot legally sell this seized property to private investors.

Holdouts who set a price for land above their opportunity cost and refuse to budge on selling their land for a lower price can reduce the size of the economic pie.

For which of the following projects would it likely be least difficult to acquire 1,000 acres of land?