ECON7100-M50 Spring 2015


  1. If you live next to the heavy polluter, you would prefer
    1. a greater reduction of global pollution but with no pollution reduction from your neighbor.
    2. greater percentage reduction for large polluters.
    3. no pollution from your neighbor even though a far-away polluter could reduce the same amount of pollution at much lower cost.
    4. uniform percentage reduction for all polluters.
  2. If the global cap on carbon emission is allocated on a uniform per capita basis,
    1. rich countries with large population would have to buy pollution quotas from poor countries with small population and help them reduce low-hanging-fruit pollution.
    2. global income redistribution would go hand in hand with carbon reduction.
    3. small poor countries would get a larger share of the pollution quotas.
    4. Both A and C.
  3. Use quotas on commons resources amount to
    1. a subsidy that lowers the marginal cost of the targeted activity.
    2. free market entry.
    3. a full recognition of the de facto rights of previously existing activity.
    4. a tax that would raise the marginal cost of the targeted activity.
  4. Exit of uncompetitive steel firms in the U.S. is delayed because
    1. U.S. bankruptcy law favors takeover suitors.
    2. they are located in states with little political power.
    3. They have huge legacy liabilities that scare off potential suitors.
    4. They belong to an industry that is vital to other strategic domestic industries.
  5. Milk in the U.S. is unnecessarily expensive because
    1. milk farmers do not produce enough milk.
    2. there is an excess demand for milk.
    3. government-supported price encourages vertical integration of the milk industry.
    4. milk farmers are guaranteed minimum purchase price for all they could produce.
  6. Price-fixing
    1. increases consumer surplus.
    2. is a way to ration goods under excess demand.
    3. is a desperate alternative to achieving profitability through capacity reduction.
    4. is not against the U.S. antitrust law.
  7. Louisiana Light Sweet would not be much cheaper than the comparable Brent if
    1. Brent could be freely sold in the same market.
    2. there were no Jones Act.
    3. Louisiana Light Sweet could be freely sold in the same market.
    4. gasoline export from US refiners were banned.
  8. In what ways is occupational licensing similar to single pricing?
    1. It excludes all those who cannot meet that minimum skill or price level.
    2. It confers too much benefit to those who have no difficulty in meeting the minimum skill or price level.
    3. There is no similarity between the two.
    4. Both A and B.
  9. A taxi medallion confers full property right if
    1. its value is protected against market force beyond the control of its issuing agency.
    2. must be renewed periodically at current market price.
    3. it is fully transferable to new owners.
    4. Both A and B.
  10. Special-interest legislation is popular because
    1. the public suffers from anti-market bias.
    2. the average person underestimates the social benefits of the free market, especially for international and labor markets.
    3. the benefits conferred on special interests greatly exceed the costs imposed on the general public.
    4. Both A and B.
  11. What are the advantages of auctioning off new rights?
    1. The winning bidders are likely to be the least efficient users.
    2. Special interests will be favored.
    3. The government can use the proceeds to fund worthwhile projects.
    4. The winning bidders can easily flip the rights for instant profits.
  12. Trade protection
    1. Is consistent with the principle of comparative advantage.
    2. Benefits the few at the expense of the many.
    3. Has made domestic industries stronger.
    4. Is likely to be temporary.
  13. Farm consolidation in the Great Plains was delayed before the Dust Bowl years because
    1. the farms were already big enough for viable operation in the semi-arid region.
    2. politicians were reluctant to lose voting constituents through farm consolidation.
    3. the transaction costs of consolidating small farms were reduced by government subsidies.
    4. there were plenty of alternative jobs for farmers who sold off their small farms.
  14. Collusion among producers to raise price and restrict output is likely to be successful if
    1. the product is heterogeneous.
    2. anti-trust laws are strictly enforced.
    3. the number of producers is small.
    4. there is excess supply.
  15. Narrow special interests are politically powerful if
    1. they are favored only by the minority political party.
    2. they are not organized.
    3. members of the special interests are less motivated to go to the polls.
    4. the benefits are concentrated while the costs are spread out through society.
  16. What are the advantages of tradable pollution quotas?
    1. Old firms and new firms are treated equally.
    2. The quotas could be easily increased over time.
    3. The pollution from your neighborhood source will be reduced.
    4. The quotas are used only by those whose pollution reduction cost is higher than the cost of the quotas.
  17. The Jones Act
    1. encourages US coastal shippers to build ships in lower-cost foreign shipyards.
    2. opens the door to competition from lower-cost foreign-flagged shippers in US coastal trade.
    3. could result in cheaper US crude exported to Canada East Coast than that shipped to the US East Coast from the Gulf Coast.
    4. lowers the shipping cost of US coastal trade.
  18. Government regulation
    1. is generally welcome by industries.
    2. is never needed in a free market.
    3. does not confer any legal immunity to the regulated industries.
    4. may benefit larger firms who are better able to shoulder the burden of regulation.
  19. Government relief for competitive pressure would
    1. favor efficient competitors.
    2. prevent the re-deployment of scarce resources stuck in the distressed industries.
    3. hasten benefits for consumers from more efficient competitors.
    4. protect operational efficiency.
  20. Auctioning quotas to the highest bidders ensures that the economic rent
    1. goes mostly to the winning bidders.
    2. goes mostly to the quota issuing agency.
    3. is not dissipated by rent-seeking activities (Rent is dissipated if it does not go to the winning bidders or the issuing agency).
    4. Both A and B.
    5. Both B and C.