ECON7100-M50 Spring 2015

Self-Study08

1. If the external benefit is added to the private benefit,
   1. The benefit curve would stay put.
   2. The benefit curve would shift down and to the left.
   3. The benefit curve would shift up and to the right.
   4. The cost curve would shift down and to the right.
2. Houses near the airport are usually cheaper because
   1. residents must sue the airport to collect damages.
   2. the lower housing cost is a compensation for the unwelcome airport noise.
   3. Both A and B.
   4. airport noise is an uncompensated external cost.
3. When an external benefit exists, the price is _______ and quantity demanded of the goods in question is ________.
   1. too high; too high
   2. too high; too low
   3. too low; too high
   4. too low; too low
4. 
   A commons resource tends to be over-exploited because
   1. users would use it as long as MP (marginal benefit) is not zero.
   2. users would use it as long as the MP (marginal benefit) is at least equal to W (marginal cost).
   3. users would use it as long as AP (average benefit) is at least equal to W (marginal cost).
   4. users would use it as long as (AP) average benefit is positive.
5. What are the advantages of transferability in property rights?
   1. The rights will end up with the most efficient users.
   2. The government must identify who are the most efficient users.
   3. The less efficient users would have an incentive to transfer the rights to the highest bidder.
   4. All of the above.
   5. Both A and C.
6. An external cost occurs
   1. when one party's action adversely impacts other parties and the property rights of the receptors have not been defined.
   2. when one party's action adversely impacts other parties and the victims have been adequately compensated.
   3. when one party intentionally causes harm to other parties even though the victims have been adequately compensated.
   4. when one party fails to include the cost of harm to other parties even though he has the right to cause harm.
7. When a corrected externality leads to higher price and lower quantity demanded, the externality must have been a (an)
   1. External benefit.
   2. External cost.
   3. Positive externality.
   4. Spillover.
8. Property rights ensure that a scarce resource would be efficiently used because
   1. the rights are always given to the smartest people.
   2. marginal benefit would be equated to average cost.
   3. owners would have an incentive to maximize their returns over time.
   4. average benefit would be equated to marginal cost.
9. The tragedy of the commons occurs because
   1. Everybody's business is somebody's business.
   2. the social marginal benefit is less than the private marginal cost.
   3. the property rights of some resources have not been defined and enforced.
   4. Cattle tend to eat too much.
10. Economic inefficiency can be entrenched by some initial allocation of property rights if
    1. the transaction cost in property transfer is very low.
    2. the property rights are held by many small holders.
    3. the property rights are held by only a few holders.
    4. property rights can be freely and costlessly transferred.
11. Why might de facto rights not be worth as much as its use value?
    1. The legal status of de facto rights is secure only when they are transferred.
    2. The legal status of de facto rights is uncertain.
    3. The exchange value of de facto rights is higher than their use value.
    4. De facto rights are useful only when they are transferred.
12. If new anti-pollution regulations are imposed on new cars, we would expect the price of new cars to
    1. remain unchanged.
    2. go up because the benefit curve will shift up and to the right.
    3. go up because the cost curve will shift up and to the left.
    4. go down.
13. Unsecure (or ambiguous) property rights
    1. are worth more than secure property rights.
    2. reduces the exchange value of property rights.
    3. increases the exchange value of property rights.
    4. Both B and C.
14. Why are property rights necessary for internalizing negative externalities?
    1. Only those who have property rights are supposed to suffer from negative externalities.
    2. Externalities exist only when all property rights are clearly defined and enforced.
    3. Only those who have no property rights are entitled to demand internalization of negative externalities.
    4. Without property rights, we don't know who is supposed to pay whom to resolve externalities.
15. In the case of external cost, assigning property rights where none existed before amounts to
    1. externalizing an internality.
    2. internalizing an external benefits.
    3. a private resource into a commons resource.
    4. turning a commons resource into a private resource.
16. High transaction cost to transfer or to enforce property rights
    1. means that externality might exist even though property rights have been clearly defined.
    2. promotes efficient use of resources.
    3. makes the original assignment of property rights unimportant for their eventual assignment.
    4. helps to reduce externality.
17. When will secure property rights serve the goal of conservation?
    1. The discounted long-term gain of conservation is higher than the short-term gain of total liquidation.
    2. When the enforcement cost is prohibitively high.
    3. The discounted long-term gain of conservation is lower than the short-term gain of total liquidation.
    4. The unsecured resources cannot be tapped without heavy capital investment.
18. Barbed wires were instrumental in developing the American West because
    1. they made it possible to steal cattle from neighboring ranches.
    2. they provide a low-cost way to enforce the property rights of ranch owners.
    3. cattle could go anywhere they wanted.
    4. barbed wires scared off intruding cattle.
19. An external benefit occurs
    1. When one party's action inadvertently benefits other parties and the party does not have the right to demand compensation.
    2. When one party fails to demand compensation for spillover benefits even though he has a right to compensation.
    3. When one party's action intentionally benefits other parties in return for compensation.
    4. When one party's action inadvertently benefits other parties but has been adequately compensated.
20. Suppose one residential community is located upwind from a polluting factory and another otherwise identical residential community is located downwind from the factory. In the absence of anti-pollution regulations,
    1. the property value of the upwind community would be higher than that of the downwind community because the market demand for upwind property is not adversely affected by the presence of external cost.
    2. the property value of the downwind community would be lower than that of the upwind community because the market demand for downwind property is adversely affected by the presence of external cost.
    3. the factory will voluntarily reduce its pollution to make the downwind community happy.
    4. Both A and B.