Tuesday, August 23rd, 2011 at
7:34 am
a) An example of economic inefficiency is
negative externalities only
negative economic surplus
both positive externalities and negative externalities
positive economic surplus
positive externalities only
b) Dustin owns a very powerful stereo system. Dustin’s private property rights allow him to do all of the following except to
choose not to play it
give it to a friend
play whatever type of music he likes
sell it for a price he finds reasonable
open his windows at 3:00 am and turn the volume to its maximum
c) The view that firms emit pollution because they like to, or because they do not value the environment, is held by
everyone
those that reject proposals for a pollution tax or pollution permits
those who favour proposals for a pollution tax or pollution permits
businessmen
economists
d) Cigarettes are known to cause negative externalities. Which one of the following will help to reduce the consumption of cigarettes?
A special tax allowance for cigarette consumers
Compensation paid to the smokers who end up with lung cancer
A subsidy paid to cigarette producers
Compensation paid to cigarette producers for the articles written about their product
A special tax imposed on the production of cigarettes
e) It is always the case that
the optimal amount of any negative externality is greater than zero
negative externalities always require a legislative solution
pollution should be reduced as much as is technically feasible
the optimal amount of any negative externality is equal to zero
the marginal benefit of reduced pollution is nearly zero
f) Susan and Bonnie are considering living alone or being roommates for the next twelve months. A one bedroom, one bath apartment is 0 per month while a two bedroom, one bath apartment is 0. The one difficulty they have is that Bonnie snores very loudly. Susan estimates the cost of poor sleep due to Bonnie’s snoring is 0 per month. Bonnie estimates that the cost of eliminating her snoring is per month.
The least costly solution to the external cost is for
Bonnie to find a fellow snorer to live with
both to live alone
Bonnie to pay Susan for her discomfort
Susan to endure Bonnie’s snoring
Bonnie to fix her snoring
g) Paul owns a home on the top of a hill and enjoys an unobstructed view of a large wooded area. The view was a large factor in his decision to buy the house and Paul values his view at 00 per month. Sid purchases the undeveloped wooded area with plans to build a retail shopping centre. Sid expects to earn ,000 a month from the shopping centre, which is 00 more than his next best alternative.
The most effective way for Paul to ensure his view would be preserved would have been to
purchase the land and acquire the private property rights to the view
repeatedly testify before the city council about future traffic congestion from the shopping centre
offer to pay Sid not to develop the land
plead with Sid not to develop the land
lobby for environmental restrictions
h) All of the following are examples of externalities EXCEPT
heat from a factory that makes the neighbouring tomato patches more productive
acidic smoke that produces acid rain
a chemical plant that pollutes the air in your community
a defective part that causes an automobile to break down three months after purchase
carbon dioxide from energy generation that adds to the worldwide, long-term greenhouse effect
i) Environment Canada has proposed strict controls on the amount of sulphur contained in diesel fuel. The effect of the regulation is estimated to increase the equilibrium price of a litre of diesel fuel by 10 cents. Assuming the supply curve of diesel fuel has a positive slope and the demand curve has a negative slope, one can infer that
the external cost of diesel fuel is greater than 10 cents
the external cost of diesel is less than 10 cents
the external benefit of diesel is equal to 10 cents
the external benefit of diesel fuel is less than 10 cents
the external cost of diesel is equal to 10 cents
j) The inefficiency induced by all positional arms races is that
the increase in performance is negative
the rankings do not change
the increase in performance is small
spending on performance enhancements escalates without end
the rankings change too much
THANKS!!!!!!!!!!!!!!!!!