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Exam 10: Externalities and Property Rights

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Question 61

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When one's performance is judged relative to others' performance and not by an absolute standard:

A) players will over invest in performance enhancements.
B) players will under invest in performance enhancements.
C) the incentive to sabotage the other players is lessened.
D) a positional externality is not possible.

E) C) and D)
F) A) and D)

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Question 62

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Which of the following investments is an example of a positional arms race?

A) Watching your friend training for a Big East football game
B) Renting movies for the weekend
C) Studying hard for the economics test because the professor grades on a curve
D) Playing golf for fun

E) A) and B)
F) A) and C)

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Question 63

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In the case of either a positive or negative externality,it will always be true that,relative to the social optimum:

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. $\begin{array} { l r c } & \text { With Filter } & \text { Without } \\\text { Gains to Erie } & \$ 200 & \$ 400 \\\text { Fishermen } & \$ 180 & \$ 50 \\\text { Bird Watchers } & \$ 130 & \$ 25\end{array}$ Refer to the information given above.Suppose you observe that Erie has not added a filter.You could conclude that the Coase Theorem failed to solve the externality problem because:

The reason buffalo were driven to extinction while at the same time cattle were thriving is that:

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.Suppose the state highway department has picked up 15 bags of litter.Protesters have staged a demonstration demanding that the highway department return to pick up the remaining litter.From an economic efficiency perspective,the protesters have a ________ claim because ________.

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.The marginal cost of removing litter _______ due to the principle of ____________.

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. $\begin{array} { l c c } & \text { Unkempt } & \text { Well-groomed } \\\text { Net Value to Taylor } & 0 & - 1 \\\text { Net Value to Taylor's neighbors } & 0 & + 10\end{array}$ Refer to the information given above.Taylor would be willing to keep a well-groomed lawn if the neighbors paid him:

A resource that has common property rights is one that:

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.As the average size of cars increases,the incentive to buy a smaller car:

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.If each villager is purely self-interested,how many goats will be sent onto the commons?

Shel and Fran are neighbors.They work at the same firm and hold the same title.Shel finds that when Fran's consumption rises,Shel feels worse off.Fran feels the same way towards Shel's consumption. Refer to the information given above.Suppose that the firm that employs both Fran and Shel began offering an hour of overtime at 1.5 times their base hourly wage and that both Fran and Shel worked the additional hour.Now suppose that the firm that employs Fran and Shel offers a second hour of overtime also at 1.5 times their base hourly wage.One can predict that:

A policy maker has argued for higher taxes on gasoline to reduce the negative externalities associated with driving.This policy will lead to a relatively ______ reduction in driving if demand is _______.

According to the textbook,if all linemen in the NFL took anabolic steroids,the rank ordering of linemen (1^st,2^nd,3^rd,etc. ) would be unchanged.This assumes that:

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.According to this graph,the marginal benefit of litter removal is maximized when the ___ bag is removed.

Which one of the following government actions is intended to generate positive externalities?

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. $\begin{array} { c c c } \begin{array} { c } \text { Number of drivers } \\ \underline {\text { that leave at 8:00am }}\end{array} & \begin{array} { c } \text { Average commute } \\ \underline {\text { time to downtown }}\end{array} & \begin{array} { c } \text { Marginal } \\ \underline {\text { Benefit }}\end{array} \\ 100 & 30 \text { minutes } & \$ 10 \\200 & 65 \text { minutes } & \$ 8 \\300 & 110 \text { minutes } & \$ 4 \\400 & 170 \text { minutes } & \$ 3 \\500 & 260 \text { minutes } & \$ 1\end{array}$ Refer to the information given above.An argument for imposition of a toll rather than using a negotiated solution of the type suggested by the Coase Theorem is that:

Which of the following is an example of a positional arms control agreement?

Suppose that the EPA has proposed strict controls on the amount of sulfur that diesel fuel contains.These controls were designed to fully offset the cost of pollution generated by diesel fuel vehicles.The effect of the regulation is estimated to increase the equilibrium price of a gallon of diesel fuel by 10 cents. Refer to the information given above.Assuming that the supply of diesel fuel has a positive slope and demand has a negative slope,the quantity of diesel fuel sold after imposition of the regulation will:

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