Question_Doc14_15Dec_6th

Question_Doc14_15Dec_6th

Question

53) Suppose people value clean air more as their incomes
increase. What would happen to the

optimal amount of clean air as a country develops
economically? Is there an economic prediction

we can make from this?

54) Why do economists believe that it is socially optimal to
have some amount of pollution?

1) When negative externalities exist, a voluntary agreement
can be negotiated. Which of the

following statements is true?

A) Voluntary agreements usually do not work since the owner
has no incentive to negotiate.

B) Transactions costs must be low relative to the expected
benefits of reaching an agreement.

C) Voluntary agreements are difficult to negotiate because
they usually involve government

intervention.

D) Voluntary agreements always leave the owner worse off.

.

2) Which of the following would be viewed as a common
property problem?

A) Your property is burglarized.

B) Vandals damage your property.

C) People pick all of the flowers in a public park.

D) To be safe you must lock your door at night.

3) All the costs associated with making, reaching, and
enforcing agreements are called

A) private costs.

B) internal costs.

C) transaction costs.

D) social costs.

4) The exclusive rights of ownership that allow the use,
transfer, and exchange of property are

called

A) common property rights.

B) private property rights.

C) externalities.

D) social benefits.

5) Economic theory suggests that if natural resources can be
held as private property, then

A) conservation will be nonexistent.

B) owners will have an incentive not to abuse them.

C) natural resources will be sold off for immediate use.

D) people will simply hold them and refuse to make them
available.

.

6) Common property ownership is most apt to lead to

A) an efficient allocation of resources.

B) production at a rate at which price is less than social
cost.

C) a decrease of externalities.

D) an increase in pollution.

7) When no property rights exist,

A) no one has an economic incentive to care for common
property, and an externality may well

occur.

B) there will be no production.

C) externalities will be internalized by voluntary
arrangements among a small group of parties.

D) society will produce beyond the production possibilities
frontier, but the allocation of

resources is not apt to be optimal.

8) Private property rights involve

A) exclusive rights to use, transfer, and exchange the property.

B) exclusive rights to use property, but not to exchange the
property.

C) rights to enjoy the property in any way desired but not
to transfer or exchange the property.

D) rights granted by the government for renewable terms of
100 years or more.

9) Common property is

A) property that has mineral or oil deposits.

B) a resource that everyone is free to use as much as they
want.

C) property owned by a group such as a club.

D) property that has little economic value.

10) Buffalo in the United States almost became extinct while
cattle have never been close to

extinction. The difference is due to

A) the greater marginal value of a buffalo relative to a
head of cattle, leading to greater

“harvesting” of buffalo.

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

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

buffalo.

D) the differences in size between the two animals, and the
effect of size differences on the costs

of hunting them.

11) Government intervention will not be necessary when
voluntary contracting internalizes an

externality. Which of the following is NOT a necessary
condition for this to occur?

A) Well-defined private property rights

B) Low transaction costs

C) Large numbers of individuals involved in the transactions

D) Low contract enforcement costs

12) The costs associated with reaching and enforcing
agreements are called

A) private property costs.

B) common property costs.

C) transaction costs.

D) public costs.

13) With defined property rights, an externality

A) can only be corrected with government intervention.

B) will not lead to a misallocation of resources.

C) may be internalized with voluntary contracting, under
certain circumstances.

D) must lead to society producing inside its production
possibilities frontier.

.

14) A farmer notices that a neighboring rancher’s cattle are
wandering and destroying some of

his crops. The farmer decides to offer a payment to the
rancher if the rancher will reduce the size

of his herd. By doing so, the farmer

A) can be sure that the size of the herd will be reduced and
the size of his own harvest will be

increased.

B) indicates to the rancher that there is an opportunity
cost to the wandering of the cattle, and

thereby internalizes the externality.

C) inadvertently bears the costs of the externality when the
rancher should be liable for the costs.

D) informs the rancher that the cattle have destroyed crops,
which should induce the farmer to

build a fence in order to maintain good relations.

15) One difficulty in using voluntary transactions to
internalize externalities is that

A) people are motivated by self-interest and are often
unwilling to engage in a transaction that

might make another person better off.

B) the government usually will not enforce contracts of this
type.

C) transaction costs of coming to an agreement can be very
large when numerous people are

involved.

D) people usually don’t understand what the real opportunity
costs are that they face.

16) Transaction costs are

A) the costs, such as sales taxes, that are imposed by the
government.

B) equal to the hourly cost of a lawyer used to write a
contract.

C) the costs associated with making, reaching, and enforcing
agreements.

D) not true costs because they relate to time rather than
real resources.

17) In general, pollution exists if

A) people are unconcerned about the hazards associated with
pollution.

B) there are poorly defined private property rights.

C) there are poorly defined common property rights.

D) profit-making activity is taken to an extreme.

18) The crux of the problem of pollution is

A) a poorly run Environmental Protection Agency.

B) greed on the part of consumers.

C) greed on the part of producers.

D) poorly defined property rights are expensive to enforce.

19) Changing the ownership of the ocean from common property
to private property would

A) ensure that this resource would be allocated in a more
efficient manner.

B) ensure that this resource would be allocated in a less
efficient manner than under common

property rights.

C) not be economically desirable.

D) result in no appreciable change in efficiency of
utilization of this resource.

20) Exclusive rights of ownership that allow the use,
transfer, and exchange of property are

called

A) common property rights.

B) nonexclusive property rights.

C) private property rights.

D) public property rights.

21) When no one owns a particular resource,

A) property rights are clearly defined.

B) individuals have legal recourse for any damages caused to
their resource.

C) no one has any incentive to consider externality
spillovers associated with that resource.

D) positive externalities will arise.

22) Private property rights are

A) an externality.

B) a social cost.

C) property that is owned by everyone and therefore by no
one.

D) exclusive rights of ownership.

23) Common property is

A) an externality.

B) a social cost.

C) property that is owned by everyone and therefore by no
one.

D) exclusive rights of ownership.

24) Common property often results in

A) a negative externality.

B) a social benefit.

C) a private cost.

D) exclusive rights of ownership.

.

25) Common property is

A) a resource that everyone is free to use as much as they
want.

B) property that belongs to both spouses in a marriage.

C) property owned by a group such as a club or a church.

D) generic property as opposed to specific property.

26) In general, pollution exists in situations in which

A) people are selfish.

B) people refuse to take social responsibility seriously.

C) there are poorly defined private property rights.

D) there exists public property.

27) Joe has broken the mirror of my car. I have legal
recourse to sue for damages because of

A) social costs.

B) transactions costs.

C) common property rights.

D) private property rights.

28) Buffalo in the United States almost became extinct while
cattle, an animal that provides

similar products, never has been close to extinction. The
difference is due to

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

buffalo.

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

buffalo.

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

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

29) Transaction costs are

A) the costs associated with making a transaction that is
required by the government.

B) not true costs since they are often not paid.

C) the costs associated with exchanges in the service area.

D) the costs associated with making, reaching and enforcing
agreements.

30) Which of the following is a true statement?

A) Externalities cannot be solved by market solutions and
always require government action.

B) Externalities would never be a problem if people were
willing to comply with government

regulations.

C) Voluntary agreements can solve externality situations by
making the party incurring the costs

bear the costs of his or her actions.

D) Externalities can only be handled by government
regulation and emission taxes cannot work

effectively.

31) Your neighbor in an apartment complex plays his music
very loudly late at night, which

makes it difficult for you to get to sleep. You offer the
neighbor $50, the monetary value you put

on your sleep, to never play his music between midnight and
7 AM. By doing so,

A) you have failed to bring about an efficient solution
since you should have complained to the

police.

B) you have indicated the cost of the externality. The
externality is not internalized even if he

accepts your offer.

C) you have indicated the cost of the externality, which
internalizes the externality.

D) you have indicated a willingness to make the external
cost a social cost.

32) Which of the following is a true statement?

A) Any property right system will yield a situation in which
all externalities are internalized.

B) Voluntary agreements can always yield a situation in
which all externalities are internalized.

C) Opportunity costs always exist with whoever has property
rights.

D) Opportunity costs turn external costs into social costs.

33) Voluntary agreements may not be a feasible method to
internalize an externality when

A) the dollar value of the externality is large.

B) the externality is negative rather than positive.

C) there are significant transaction costs.

D) there are high taxes on the firms that cause the
externalities.

34) In which of the following externality situations would
it be most likely that voluntary

agreements could be used to internalize an externality?

A) Littering on highways

B) Overharvesting of alligators in Louisiana

C) Poaching of elephants in Africa

D) Trees of one neighbor blocking a view of another

35) Which of the following is NOT a possible solution to the
problem of pollution?

A) Converting a resource that is communally owned into a
privately owned resource.

B) Imposing a tax on polluters that is related to the amount
of pollution.

C) Regulating the amount of pollution that a firm can
produce.

D) Subsidizing the costs of production of activities that
generate pollution.

36) The best method to reduce pollution is

A) to never start polluting.

B) to establish private property rights.

C) dependent upon the characteristics of the resources and
the transaction costs.

D) dependent upon the quality of government bureaucrats and
the level of greed in the society.

37) When there is a resource for which property rights are
not well defined and there is a

difference between private costs and social costs, then all
but which of the following is a way to

close the difference?

A) The free market system

B) Taxation

C) Subsidization

D) Regulation

38) Common property

A) is owned by everyone.

B) is owned by no one.

C) Neither A nor B are correct.

D) Both A and B are correct.

Question_Doc14_15Dec_6th


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Preview: a xxxxxxxx of xxxxxxxxxxxxx D) an xxxxxxxx in pollution xxxxxxx D7) xxxx xx property xxxxxx exist,A) no xxx has an xxxxxxxx incentive xx xxxx for xxxxxx property, and xx externality may xxxx occur xx xxxxx will xx no production xx externalities will xx internalized xx xxxxxxxxx arrangements xxxxx a small xxxxx of parties xx society xxxx xxxxxxx beyond xxx production possibilities xxxxxxxxx but the xxxxxxxxxx of xxxxxxxxx xx not xxx to be xxxxxxx Answer: A8) xxxxxxx property xxxxxx xxxxxxxxx exclusive xxxxxx to use, xxxxxxxxx and exchange xxx property xx xxxxxxxxx rights xx use property, xxx not to xxxxxxxx the xxxxxxxx xx rights xx enjoy the xxxxxxxx in any xxx desired xxx xxx to xxxxxxxx or exchange xxx property D) xxxxxx granted xx xxx government xxx renewable terms xx 100 years xx more xxxxxxx xxx Common xxxxxxxx isA) property xxxx has mineral xx oil xxxxxxxx xx a xxxxxxxx that everyone xx free to xxx as xxxx xx they xxxx C) property xxxxx by a xxxxx such xx x club xx property that xxx little economic xxxxx Answer: xxxx xxxxxxx in xxx United States xxxxxx became extinct xxxxx cattle xxxx xxxxx been xxxxx to extinction xxx difference is xxx toA) xxx xxxxxxx marginal xxxxx of a xxxxxxx relative to x head xx xxxxxxx leading xx greater “harvesting” xx buffalo B) xxx use xx xxxxxxx property xxxxxx on cattle xxx common property xxxxxx on xxxxxxx xx the xxxxxxx marginal value xx a head xx cattle xxxxxxxx xx buffalo, xxxxxxx to over-hunting xx buffalo D) xxx differences xx xxxx between xxx two animals, xxx the effect xx size xxxxxxxxxxx xx the xxxxx of hunting xxxx Answer: B11) xxxxxxxxxx intervention xxxx xxx be xxxxxxxxx when voluntary xxxxxxxxxxx internalizes an xxxxxxxxxxx Which xx xxx following xx NOT a xxxxxxxxx condition for xxxx to xxxxxxxx xxxxxxxxxxxx private xxxxxxxx rightsB) Low xxxxxxxxxxx costsC) Large xxxxxxx of xxxxxxxxxxx xxxxxxxx in xxx transactionsD) Low xxxxxxxx enforcement costsAnswer: xxxx The xxxxx xxxxxxxxxx with xxxxxxxx and enforcing xxxxxxxxxx are calledA) xxxxxxx property xxxxx xx common xxxxxxxx costs C) xxxxxxxxxxx costs D) xxxxxx costs xxxxxxx xxxx With xxxxxxx property rights, xx externalityA) can xxxx be xxxxxxxxx xxxx government xxxxxxxxxxxx B) will xxx lead to x misallocation xx xxxxxxxxx C) xxx be internalized xxxx voluntary contracting, xxxxx certain xxxxxxxxxxxxx xx must xxxx to society xxxxxxxxx inside its xxxxxxxxxx possibilities xxxxxxxx xxx A xxxxxx notices that x neighboring rancher’s xxxxxx are xxxxxxxxx xxx destroying xxxx of his xxxxx The farmer xxxxxxx to xxxxx x payment xx the rancher xx the rancher xxxx reduce xxx xxxx of xxx herd By xxxxx so,