ECO 201 unit 8

Which of the following quotations illustrates the Tragedy of the Commons?

"What is common to many is taken least care of, for all men have greater regard for what is their own than for what they possess in common with others."

Cameron lives in an apartment building and gets a $700 benefit from playing his stereo. Renee, who lives next door to Cameron and often loses sleep due to the music coming from Cameron's stereo, bears a $1,000 cost from the noise. At which of the following offers from Renee could both Renee and Cameron benefit from the silencing of Cameron's stereo?

$750

Which of the following statements is correct about a market in which pollution is emitted?

Both corrective taxes and pollution permits move the market toward the social optimum.

Many species of animals are common resources, and many must be protected by law to keep them from extinction. Why is the cow not one of these endangered species even though there is such a high demand for beef?

Cows are privately owned, whereas many endangered species are owned by no one.

Two firms, A and B, each currently dump 20 tons of chemicals into the local river. The government has decided to reduce the pollution and from now on will require a pollution permit for each ton of pollution dumped into the river. The government gives each firm 10 pollution permits, which it can either use or sell to the other firm. It costs Firm A $100 for each ton of pollution that it eliminates before it reaches the river, and it costs Firm B $50 for each ton of pollution that it eliminates before it reaches the river. After the two firms buy or sell pollution permits from each other, we would expect that

Firm B will no longer pollute, and Firm A will not reduce its pollution at all.

Wally owns a dog whose barking annoys Wally's neighbor, Corrine. Suppose that the benefit of owning the dog is worth $700 to Wally and that Corrine bears a cost of $500 from the barking. Assuming Wally has the legal right to keep the dog, a possible private solution to this problem is that

The current situation is efficient.

Under which of the following scenarios would a park be considered a common resource?

Visitors can enter the park free of charge, but frequently all of the picnic tables are in use.

A positive externality arises when a person engages in an activity that has

a beneficial effect on a bystander who does not pay the person who causes the effect.

Which of the following is NOT an example of a negative externality?

a decrease in your property value from neglecting your lawn and garden.

Assuming transaction costs are small, the Coase theorem would predict that private parties could arrive at an efficient solution for which of the following problems?

a. One neighbor doesn't mow his lawn. b. One neighbor doesn't paint her house. c. One neighbor comes home on his noisy motorcycle late at night. d. All of the above are correct. ANSWER d.all of the above are correct

All externalities

cause markets to fail to allocate resources efficiently.

Goods that are rival in consumption include both

common resources and private goods.

Private markets fail to account for externalities because

decisionmakers in the market fail to include the costs of their behavior to third parties.

One economically efficient way to eliminate the Tragedy of the Commons is to

establish private ownership of the resource.

Private goods are both

excludable and rival in consumption.

Market failure can be caused by

externalities.

Negative externalities lead markets to produce

greater than efficient output levels and positive externalities lead markets to produce smaller than efficient output levels.

The Coase theorem states that

in the absence of transaction costs, private parties can solve the problem of externalities on their own.

Both public goods and common resources are

nonexcludable.

When a good is rival in consumption,

one person's use of the good diminishes another person's ability to use it.

A cheeseburger is a

private good, because it is excludable and rival in consumption.

The U.S. government protects fish, a common resource, by

selling fishing licenses and regulating fish lengths.

Suppose that elementary education creates a positive externality. If the government does not subsidize education, then

the equilibrium quantity of education will be less than the socially optimal quantity of education.

The Coase theorem suggests that private markets may not be able to solve the problem of externalities

when the number of interested parties is large and bargaining costs are high.