Assignment 7 econ

If Quick Burger has the legal right to operate a drive-through window, then the Sunshine Café would have to pay Quick Burger at least ______ per month to NOT operate a drive-through window. a) $9,000 b) $11,000 c) $15,000 d) $24,000

a) $9,000

Kate and Ali can live together a two-bedroom apartment for $600 per month, or they can each rent a one-bedroom apartment for $400 per month. Apart from the rent, they are indifferent between living together and living apart, except for one problem: Kate hates Ali's taste in music. Kate would be willing to pay up to $100 a month to avoid hearing Ali's music. Ali would give up listening to her music for no less than $300 per month. If Kate and Ali decide to live together, is it socially optimal for Ali play her music in the apartment? a) Yes, because the benefit to Ali of listening to her music is greater than the cost to Kate. b) No, because the benefit to Ali of listening to her music is less than the cost to Kate. c) Yes, because the benefit to Ali of listening to her music is less than the cost to Kate. d) No, because the benefit to Ali of listening to her music is greater than the cost to Kate.

a) Yes, because the benefit to Ali of listening to her music is greater than the cost to Kate.

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: a) a negative externality. b) a positive externality. c) neither a positive nor a negative externality. d) both a positive and a negative externality.

a) a negative externality.

Given that most people like the smell of baking cinnamon rolls and dislike the smell of burning tires, baking cinnamon rolls generates ______ externality, and burning tires generates ______ externality. a) a positive; a negative b) a negative; a positive c) a positive, no d) no; a negative

a) a positive; a negative

The Coase theorem states that if private parties can negotiate the purchase and sale of the right to perform activities that cause externalities, then they: a) can always arrive at efficient solutions to the problems caused by externalities. b) will never arrive at efficient solutions to the problems caused by externalities. c) will never perform activities that generate negative externalities. d) will always perform activities that generate positive externalities.

a) can always arrive at efficient solutions to the problems caused by externalities.

Numerous studies have shown that breathing second-hand cigarette smoke is harmful to your health. This suggests that a tax on cigarettes will: a) increase total economic surplus. b) decrease total economic surplus. c) have no effect on total economic surplus. d) lead to a decrease in the price of cigarettes.

a) increase total economic surplus.

The tragedy of the commons refers to the: a) overuse of resources that have no price. b) overuse of resources that have no cost. c) under production of goods that have external benefits. d) failure of the Coase theorem when negotiation is costly.

a) overuse of resources that have no price.

Kate and Ali can live together a two-bedroom apartment for $600 per month, or they can each rent a one-bedroom apartment for $400 per month. Apart from the rent, they are indifferent between living together and living apart, except for one problem: Kate hates Ali's taste in music. Kate would be willing to pay up to $100 a month to avoid hearing Ali's music. Ali would give up listening to her music for no less than $300 per month. Which, if any, of the following ways of splitting the total monthly rent would induce them to live together? a) Kate pays $150 per month and Ali pays $450 per month b) Kate pays $250 per month and Ali pays $350 per month c) Kate pays $375 per month and Ali pays $125 per month d) There is no way to split the rent to induce them to live together

b) Kate pays $250 per month and Ali pays $350 per month

Is it socially optimal for Quick Burger to operate a drive-through window? a) No, because The Sunshine Café's payoff is lower when Quick Burger operates a drive-through window. b) No, because total payoffs are higher when Quick Burger does not operate a drive-through window. c) Yes, because Quick Burger's payoff is higher when Quick Burger operates a drive-though window. d) Yes, because total payoffs are higher when Quick Burger operates a drive-through window.

b) No, because total payoffs are higher when Quick Burger does not operate a drive-through window.

If Quick Burger has the legal right to operate a drive-through, and Quick Burger and The Sunshine Café CANNOT negotiate with each other, then will Quick Burger operate a drive-though window? a) No, because it is not socially efficient to operate a drive-through. b) Yes, because Quick Burger's payoff is higher when it operates a drive-through. c) No, because it would lower the payoff for The Sunshine Café. d) It cannot be determined.

b) Yes, because Quick Burger's payoff is higher when it operates a drive-through.

The essential cause of the tragedy of the commons is the fact that: a) marginal costs are increasing. b) one person's use of a commonly held resource imposes an external cost on others. c) people do not always specialize according to their comparative advantage. d) governments may choose not to tax activities that generate negative externalities.

b) one person's use of a commonly held resource imposes an external cost on others.

Lunch in Jamie's dorm is an all-you-can-eat buffet, served from 11 a.m. until 1 p.m. By noon, the buffet is picked over, and by 12:30, there are very few popular items left. The garbage bins, though, are full of food. The buffet in Jamie's dorm is an example of: a) an efficient subsidy. b) the tragedy of the commons. c) excess supply in the market. d) a good with positive externalities.

b) the tragedy of the commons.

A cost of an activity that falls on people not engaged in the activity is call a(n): a) external benefit. b) prisoner's dilemma. c) negative externality. d) positive externality.

c) negative externality.

If an activity generates a positive externality, the government can increase total economic surplus by ______ the activity, and if an activity generates a negative externality, the government can increase total economic surplus by ______ the activity. a) taxing; banning b) subsidizing; banning c) subsidizing; taxing d) publicizing; taxing

c) subsidizing; taxing

Suppose Quick Burger has the legal right to operate a drive-through window, and Quick Burger and the Sunshine Café can negotiate with each other at no cost. Which of the following arrangements would lead to the socially optimal outcome? a) Quick Burger pays The Sunshine Café $12,500 per month to operate the drive-through window. b) Quick Burger pays The Sunshine Café $10,500 per month to operate the drive-through window. c) The Sunshine Café pays Quick Burger $12,500 per month not to operate the drive-through window. d) The Sunshine Café pays Quick Burger $10,500 per month not to operate the drive-though window.

d) The Sunshine Café pays Quick Burger $10,500 per month not to operate the drive-though window.

If coal mining produces a negative externality because it leads to environmental damage, then the a) socially optimal quantity of coal is zero. b) quantity of coal produced at the market equilibrium will be less than the socially optimal quantity. c) quantity of coal produced at the market equilibrium will be greater than the socially optimal quantity. d) cost to society of producing an additional ton of coal will be less than the cost to coal mining companies of producing an additional ton of coal.

d) cost to society of producing an additional ton of coal will be less than the cost to coal mining companies of producing an additional ton of coal.

An external benefit implies that private markets will provide ______ than the socially optimal quantity, and an external cost implies that private markets will provide ______ than the socially optimal quantity. a) more; more b) less; less c) more; less d) less; more

d) less; more

If the marginal cost of reducing pollution is positive, then: a) pollution should be reduced as much as technically feasible. b) the marginal benefit of reducing pollution is zero. c) the optimal amount of pollution is zero. d) the optimal amount of pollution is greater than zero.

d) the optimal amount of pollution is greater than zero.

If the market equilibrium quantity is greater than the socially optimal quantity, one can infer that: a) firms are earning an economic loss. b) firms are earning a positive economic profit. c) there is a positive externality associated with this good. d) there is a negative externality associated with this good.

d) there is a negative externality associated with this good.