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Exam 11: Externalities, Property Rights, and the Environment

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Question 21

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Suppose there are ten people playing cards in a room. One of them wants to smoke a cigar, nine of them dislike the smell of cigar smoke. The smoker values the privilege of smoking at $5, and each of the other nine people of the room would be willing to pay fifty cents for clean air in the room. The rules governing use of the room state that smoking is not allowed unless everyone agrees to allow smoking. If all ten people can negotiate with each other at no cost, then which of the following outcomes is consistent with the Coase theorem?

A) The cigar smoker will not be able to smoke because the majority of people in the room dislike the smell of cigar smoke.
B) The cigar smoker will pay each of the other nine people fifty-five cents, and they will agree to allow smoking.
C) The cigar smoker will smoke because the external cost of smoking does not need to be taken into consideration.
D) The nine non-smokers will each pay the cigar smoker fifty cents and the cigar smoker will not smoke.

E) None of the above
F) C) and D)

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Question 22

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Suppose there are three power-generating plants, each of which has access to 5 different production processes. The table below summarizes the cost of each production process and the corresponding number of tons of smoke emitted each.   It would cost Firm X ________ to reduce emissions by one ton if it currently emits 3 tons, and ________ to reduce emissions by one ton if it currently emits 2 tons.

A) $14; $25
B) $14; $16
C) $16; $25
D) $30; $55

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

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Question 23

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Two companies, Dirty Inc. and Filthy Inc., each of which has access to 5 different production processes, each of which has a different cost and produces a different amount of pollution. The daily costs of the processes and the number of tons of smoke emitted are shown in the table below.   Suppose pollution is initially unregulated. If the City Council imposes a tax of $91 per day on each ton of smoke emitted, then what will be the total cost to society of the resulting reduction in pollution?

Curly and Moe are considering living alone or being roommates and splitting the rent for the next twelve months. If they live alone, they each rent a one bedroom, one bath apartment for $500 per month, while if they are roommates, they can split a two bedroom, one bath apartment for $800 per month. The one difficulty they have is that Moe snores very loudly. Curly estimates the cost of poor sleep due to Moe's snoring at $150 per month. Moe could obtain a snore-eliminating device for $50 per month. The least costly solution to the externality present in this situation is for:

The essential cause of the tragedy of the commons is the fact that:

Suppose Oscar and Felix share an apartment. Oscar likes to leave his dirty dishes in the sink, and this really bothers Felix. When Oscar leaves his dirty dishes in the sink, Oscar's surplus from their living arrangement is $400 per month, and Felix's surplus is $300 per month. On the other hand, when Oscar does not leave his dirty dishes in the sink, Oscar's surplus from their living arrangement is $350 per month, and Felix's surplus is $325 per month. There are no rules or regulations that prevent Oscar from leaving his dishes in the sink. In this case, the socially optimal outcome can be achieved:

A cost of an activity that falls on people not engaged in the activity is called a(n) :

Numerous studies have shown that breathing second-hand cigarette smoke is harmful to your health. This suggests that a tax on cigarettes will:

If the marginal cost of pollution abatement is smaller for large firms than it is for small firms, then it is efficient for:

If the marginal cost of pollution abatement differs across firms, then regulations that require all polluters to reduce pollution by a fixed proportion will be:

The following payoff matrix shows the outcomes for the United States and Russia from relying on conventional weapons versus atomic weapons in a military conflict. The percentages refer to the fraction of the population that would die. This situation above illustrates a positional externality because:

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 ________.

Carmen listens to opera music every evening when she gets home from work. Carmen loves listening to opera, but her neighbor Paul, who can also hear the music, hates it. If Paul is the only person besides Carmen who can hear the music, then Carmen's music generates:

Refer to the figure below. At the private market equilibrium quantity, the social marginal cost of the last unit produced is ________ the marginal benefit of the last unit produced.  

Two firms, Acme and FirmCo, have access to five production processes, each of which has a different cost and gives off a different amount of pollution. The daily costs of the processes and the corresponding number of tons of smoke emitted are shown in the table below.   Suppose the firms are both currently using process A. If the government imposes a tax of $110 per ton of smoke emitted, a total of ________ tons of smoke will be emitted each day, and the total cost to society of this policy will be ________ per day.

According to the textbook, social norms:

The following data show the relationship between the number of drivers who leave for work at 8 a.m., their average commute time, and their marginal benefit of commuting. $\begin{array} { | c | c | c | } \hline \begin{array} { c } \text { Number of Drivers } \\\text { Who Leave at 8 a.m. }\end{array} & \begin{array} { c } \text { Average } \\\text { Camunute Time }\end{array} & \begin{array} { c } \text { Murginal } \\\text { Bemefit }\end{array} \\\hline 100 & 30 \text { minutes } & \$ 10 \\\hline 200 & 65 \text { mirutes } & \$ 8 \\\hline 300 & 110 \text { minutes } & \$ 4 \\\hline 400 & 170 \text { mirutes } & \$ 3 \\\hline 500 & 260 \text { rinutes } & \$ 1 \\\hline\end{array}$   If there is no charge to use the highway, then one would expect that ________ than the socially optimal number of drivers will leave at 8 a.m. because ________.

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

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

The Coase theorem implies that the initial allocation of property rights: