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1.Is the backward bending supply curve for labor realistic or just a theory? Explain. (2+ sentences)

2.Cable TV is nonrival and excludable. Contact lenses are rival and excludable. Public goods are nonrival and nonexcludable. Nonrival private goods are excludable.

True

False

3.In an efficient market, the supply curve will decrease by the amount of the external cost.

True

False

4.If the private benefit of getting a flu shot for a person is less than the social benefit, the market quantity will be greater than the efficient quantity.

True

False

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Paramjeet Chawla
Paramjeet ChawlaLv8
28 Sep 2019
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Related questions

When a government provides a good with an external benefit, to attain efficiency the price paid by consumers is set equal to the ________.

A. market demand price

B. amount paid by taxpayers

C. marginal private benefit at the efficient level of output

D. marginal private cost at the efficient level of output

Which of the following actions is appropriate in a market with an external benefit?

A. taxes

B. vouchers

C. marketable permits

D. price ceiling

When a person receives a flu vaccination, the ________ is the additional benefit the person receives from getting the shot.

A. marginal private benefit

B. marginal external benefit

C. marginal social benefit

D. marginal social cost

Pell grants given to students attending college are most closely similar to ________.

A. public provision of a good

B. private subsidies are given to producers of a good

C. property rights assigned to consumers of a good

D. vouchers are given to a consumer of a good

Technology that prevents Paul in California from using an email account of Sarah's in Maryland means that email is an example of ________.

A. an excludable good

B. a good that is non-excludable

C. a public good

D. the tragedy of the commons

PART A

1. In which of the following situations is the Coase theorem likely to apply? Explain.

a. The neighbor who lives below you in the apartment building loves to play old John Denver records at loud volume early in the morning. In fact, his favorite song seems to be Ć¢Ā€ĀœThank God IĆ¢Ā€Ā™m a Country Boy.Ć¢Ā€Ā You hate old John Denver songs and this one in particular.

b. You have just moved to Beijing and quickly discover that you are allergic to smog. It causes you great pain in breathing and limits your ability to work. Furthermore, you have medical expenses related to treatment for its health effects on you.

c. Medical research in the 1990s has revealed a specific cause of birth defects related to a certain drug prescribed for pregnant women in the 1960s (thalidomide).

d. The water in the huge underground Ogalalla aquifer in the Great Plains region of the United States is being nitrate contaminated due to agricultural fertilizer use throughout the region. As a homeowner in this region, you find that your water must be treated in order to be safe for drinking.

2. One of the most striking aspects of cities in the former Soviet Union is the poor condition of public places. Streets, parks, libraries, museums, concert halls, and public gathering places of every description are all in very poor condition, revealing years of neglect and lack of maintenance.

Explain this phenomenon in light of the definition of property rights and the transition from socialism to a market economy.

3. Suppose that the marginal benefit associated with corn production is MB = 2.5. The marginal private cost of production is MPC = 2 + 0.1Q, where Q measures bushels of corn produced in thousands. The marginal damages caused by pollution in corn production are given by MD = 0.05Q.

a. Compute the privately optimal output and the socially optimal output.

b. Compute new solutions for an increase in MB to MB = 3. Explain what has happened and why. c. Demonstrate the effects of an increase in MD to MD = 0.075 compared to the solutions in part a.

4. Policy analysts in the Department of Natural Resources have estimated that the marginal benefits from water pollution abatement are given by the function MB ƂĀ¼ 0.90 ƃĀ€ 0.03A, where A is a measure of the abatement intensity. Industry experts have estimated that the marginal cost of abatement activity is MC = 0.30 + 0.09A.

a. Determine the optimal level of abatement activity.

b. Explain what happens when new technology reduces the marginal cost of abatement to MC = 0.25 + 0.06A. 5. Consider the pollution reduction mechanism known as emissions trading. a. What is the economic rationale for permitting emissions trading?

b. If the objective is to minimize the cost of emissions reductions, explain what economic principle should be followed in allocating emissions reductions between two countries.

c. Suppose the marginal cost curves for emissions reductions in countries A and B are MCA = 10 + 0.04qA and MCB = 5 + 0.02qB. What is the most efficient allocation of an emission reduction of q0 between the two countries? (Assume that the emissions reductions of the two countries must add up to the total emissions reduction: q0 = qA = qB.)

PART B

1. Which of the following do you consider pure public goods? Private goods? Why?

a. Wilderness areas

b. Satellite television

c. Medical school education

d. Public television programs

e. Automated teller machine (ATM)

2. Indicate whether each of the following statements is true, false, or uncertain, and justify your answer.

a. Efficient provision of a public good occurs at the level at which each member of society places the same value on the last unit.

b. If a good is nonrival and excludable, it will never be produced by the private sector.

c. A road is nonrival because one personĆ¢Ā€Ā™s use of it does not reduce another personĆ¢Ā€Ā™s use of it.

d. Larger communities tend to consume greater quantities of a nonrival good than smaller communities.

3. Tarzan and Jane live alone in the jungle and have trained Cheetah both to patrol the perimeter of their clearing and to harvest tropical fruits. Cheetah can collect 3 pounds of fruit an hour and currently spends 6 hours patrolling, 8 hours picking, and 10 hours sleeping.

a. What are the public and private goods in this example?

b. If Tarzan and Jane are each currently willing to give up one hour of patrol for 2 pounds of fruit, is the current allocation of CheetahĆ¢Ā€Ā™s time Pareto efficient? Should he patrol more or less?

4. The aircraft company Airbus receives much of its funding from European governments. Airbus recently decided to build a new 550-seat mega-jetliner, with duty-free shopping courts and restaurants on board. The project has experienced production delays as well as cost overruns, and it now appears that there will be very few buyers. An industry expert says the idea from the start was Ć¢Ā€ĀœnonsenseĆ¢Ā€Ā

Is public sector production of aircrafts ever justified?

Explain why it could lead to the apparently ill-advised decision to build the mega-jetliner.

5. Suppose that there are only two fishermen, Zach and Jacob, who fish along a certain coast. They would each benefit if lighthouses were built along the coast where they fish. The marginal cost of building each additional lighthouse is $100. The marginal benefit to Zach of each additional lighthouse is 90 Ć¢ĀˆĀ’ Q, and the marginal benefit to Jacob is 40 Ć¢ĀˆĀ’ Q, where Q equals the number of lighthouses.

a. Explain why we might not expect to find the efficient number of lighthouses along this coast.

b. What is the efficient number of lighthouses? What would be the net benefits to Zach and Jacob if the efficient number were provided?

Question 1

An externality

Ā  Ā 

enhances market efficiency.
Ā  Ā 

is a private cost or benefit that results from the production or consumption of a good or service that is external to a market.
Ā  Ā 

is a benefit or cost that affects someone who is not directly involved in the production or consumption of a good or service.
Ā  Ā 

refers to production or consumption that occurs outdoors.

5 points

Question 2

Externalities can be produced by:

Ā  Ā 

the high price of goods and services
Ā  Ā 

individuals; firms
Ā  Ā 

market prices; market incomes
Ā  Ā 

oceans; streams

5 points

Question 3

When an external cost exists that is NOT taken into account in the production of a product,

Ā  Ā 

the level of output is too high, and the supply curve should shift to the left to account for the externality.
Ā  Ā 

the price of the product is too high, and production should be expanded to lower the price.
Ā  Ā 

the level of output is optimal, and there should be no change in the supply curve.
Ā  Ā 

the level of output is too low, and the supply curve should shift to the right to account for the externality.

5 points

Question 4

Which of the following is correct?

Ā  Ā 

MSC = MPC - MD
Ā  Ā 

MPC = MSC + MD
Ā  Ā 

MSC = MPC + MD
Ā  Ā 

MD = MSC + MPC

5 points

Question 5

If external costs (costs of cleaning up) are included and added to a firm's private costs, then

Ā  Ā 

the demand curve will shift to the left.
Ā  Ā 

the supply curve will shift to the right.
Ā  Ā 

the demand curve will shift to the right
Ā  Ā 

the supply curve will shift to the left.

5 points

Question 6

The Coase Theorem states that

Ā  Ā 

government intervention is always needed if externalities are present.
Ā  Ā 

assigning property rights is the only thing the government should do in a market economy.
Ā  Ā 

if transaction costs are low, private bargaining will result in an efficient solution to the problem of externalities.
Ā  Ā 

a free-market equilibrium is the best solution to address externalities.

5 points

Question 7

Buffalo in the United States almost became extinct while cattle, an animal that provides similar products, never have been close to extinction. The difference is due to

Ā  Ā 

the use of private property rights on cattle and common property rights on buffalo.
Ā  Ā 

the greater marginal value of a head of cattle relative to buffalo, leading to over-hunting of buffalo.
Ā  Ā 

cattle existing in Europe also while buffalo were specific to North America.
Ā  Ā 

the greater marginal value of a buffalo relative to a steer, leading to the overharvesting of buffalo.

5 points

Question 8

In theory, the Emissions Fee would

Ā  Ā 

cause firms to generate less pollution than their allowed limits.
Ā  Ā 

raise the production costs of all firms.
Ā  Ā 

cause firms to generate more pollution than their allowed limits.
Ā  Ā 

lower the production costs of all firms.

5 points

Question 9

A cap-and-trade policy

Ā  Ā 

has a set number of permits.
Ā  Ā 

allows polluters to trade permits.
Ā  Ā 

caps the total level of pollution allowed.
Ā  Ā 

all of the above.

Question 10

A Pigouvian tax corrects for

Ā  Ā 

market congestion.
Ā  Ā 

market losses.
Ā  Ā 

inefficient sales.
Ā  Ā 

low market prices.

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