Q&A Hero

Q: Figure 5-13 Figure 5-13 illustrates the market for gasoline before and after the government imposes a tax to bring about the efficient level of gasoline production. Refer to Figure 5-13. The market equilibrium price of gasoline is ________ per gallon. A) $3.00 B) $3.75 C) $4.25 D) $5.00

Q: Figure 5-13 Figure 5-13 illustrates the market for gasoline before and after the government imposes a tax to bring about the efficient level of gasoline production. Refer to Figure 5-13. The efficient equilibrium price of gasoline is ________ per gallon. A) $3.00 B) $3.75 C) $4.25 D) $5.00

Q: Figure 5-13 Figure 5-13 illustrates the market for gasoline before and after the government imposes a tax to bring about the efficient level of gasoline production. Refer to Figure 5-13. The market equilibrium quantity of gasoline is ________ million gallons per month. A) 20 B) 32 C) 48 D) 56

Q: Figure 5-13 Figure 5-13 illustrates the market for gasoline before and after the government imposes a tax to bring about the efficient level of gasoline production. Refer to Figure 5-13. The efficient equilibrium quantity of gasoline is ________ million gallons per month. A) 20 B) 32 C) 48 D) 56

Q: Economists generally favor the use of tradable emissions allowances to reduce pollution. However, the use of these allowances has been criticized by some environmentalists. Which of the following describes this criticism? A) Some environmentalists believe the allowances give firms a license to pollute. B) Some environmentalists believe that the price of allowances is often too high for consumers to afford. C) Some environmentalists believe that Pigovian taxes are a more efficient way to reduce pollution. D) Some environmentalists oppose allowances on legal grounds; they believe the use of allowances is unconstitutional.

Q: Which of the following is an example of the U.S. government's use of a "command and control" approach to reducing pollution? A) In 1990 Congress approved measures designed to reduce sulfur dioxide emissions to 8.5 million tons annually by 2010. B) The U.S. government imposed a tax on electric utilities to reduce damages from acid rain. C) The government issued electric utilities tradable emissions allowances in other to reduce emissions of nitrogen oxide. D) In the 1980s the U.S. government required the installation of catalytic converters to reduce emissions from all new automobiles.

Q: The U.S. government has frequently used a "command and control" approach in dealing with pollution. Which of the following describes this approach? A) The government uses taxes in order to internalize the externalities caused by pollution. B) The government uses subsidies to encourage firms to use new technology that reduces pollution. C) The government imposes quantitative limits on the amount of pollution firms are allowed to generate. D) The government distributes information to consumers and producers on how to reduce pollution.

Q: Which of the following describes a positive externality? A) John Henry paints the outside of his house in order to increase its market value just before he puts the house up for sale. B) People who do not attend college still benefit from others who receive a college education. C) The government imposes a tax on cigarettes in order to discourage smoking among teenagers. D) Mary volunteers to drive her neighbor's children to soccer practice.

Q: The efficient level of paper production will occur where the A) marginal private benefit from consuming paper is equal to the marginal social cost of production. B) marginal social benefit from consuming paper is equal to the marginal social cost of production. C) the economically efficient level of the output of paper is equal to the economically efficient level of inputs. D) production of paper no longer produces negative externalities.

Q: Which of the following is an example of a Pigovian tax? A) payments by utilities to obtain tradable emissions allowances B) a payroll tax C) payments for licenses to pollute D) a tax imposed on a utility that internalizes the cost of externalities caused by the utility

Q: State and local governments subsidize college students with grants and low-interest loans. The loans and subsidies are examples of A) positive externalities. B) Coase subsidies. C) Pigovian subsidies. D) emission allowances.

Q: Figure 5-12 College education benefits society by producing a more employable workforce, reducing crime and creating a better informed citizenry. Thus, the social benefits of college education exceed the private benefits for any level of college education. This is illustrated in Figure 5-12. Refer to Figure 5-12. One way to obtain the economically efficient amount of college education is for governments to subsidize college education. What is the size of the per-student Pigovian subsidy that the government must provide to internalize the external benefits? (Note that the subsidy can be granted to the education institutions or to the students directly or indirectly; for example, through low-interest student loans.) A) P2-P0 B) P2-P1 C) P0-P1 D) P1

Q: Economic incentives are designed to make individual self-interest coincide with social interest. According to economists, which of the following methods of pollution control best uses economic incentives to reduce pollution? A) Rewarding environmental groups for monitoring the activities of private firms that produce products which generate pollution. B) Imposing quantitative limits on the amount of pollution and imposing a penalty for non-compliance with these limits. C) Requiring the installation of specific pollution control devices. D) Instituting a system of tradable emissions allowances.

Q: Policies that mandate the installation of specific pollution control devices are called A) command and control policies. B) benefit policies. C) welfare policies. D) incentive policies.

Q: Figure 5-11 Coal burning utilities release sulfur dioxide and nitric acid which react with water to produce acid rain. Acid rain damages trees and crops and kills fish. Because the utilities do not bear the cost of the acid rain they overproduce the quantity of electricity. This is illustrated in Figure 5-11. Refer to Figure 5-11. S1 represents the supply curve that reflects the private cost of production and S2 represents the supply curve that reflects the social cost of production. One way to internalize the external cost generated by utilities is to impose a Pigovian tax on the production of electricity. What is the size of the Pigovian tax that will internalize the cost of the externality? A) P0 B) P2-P0 C) P1-P0 D) P2-P1

Q: Assume that production from an electric utility caused acid rain and that the government imposed a tax on the utility equal to the cost of the acid rain. This is an example of A) a transaction cost. B) a Pigovian tax. C) a Pigovian subsidy. D) the Coase Theorem.

Q: Assume that production from an electric utility caused acid rain. If the government imposed a tax on the utility equal to the cost of the acid rain, the government's action would A) externalize the externality. B) result in a marginal social benefit greater than the marginal cost of the electricity. C) be an example of supply side economic policy. D) internalize the externality.

Q: The first economist to systematically analyze market failure was A) Adam Smith. B) Ronald Coase. C) A. C. Pigou. D) J. E. Meade.

Q: Economists working at federal government agencies have estimated that the marginal social cost of carbon is about A) $2 per ton. B) $9 per ton. C) $21 per ton. D) $47 per ton.

Q: The 2005, 24 European Union nations established a cap-and-trade system which was designed to A) eliminate air pollution and greenhouse gases by the year 2020. B) reduce carbon dioxide emissions. C) provide fast growing developing countries with the technology to reduce their carbon emissions. D) remove all taxes from polluting industries.

Q: Some policymakers have argue that products like cigarettes, alcohol, and sweetened soda generate negative externalities in consumption. All else equal, if the government decided to impose a tax on soda, the equilibrium quantity of soda would ________ and the equilibrium price of soda would ________. A) increase; increase B) increase; decrease C) decrease; increase D) decrease; decrease

Q: Some policymakers have argue that products like cigarettes, alcohol, and sweetened soda generate negative externalities in consumption. If the government decided to impose a tax on soda, the government will cause A) consumers to internalize the externality. B) producers to internalize the externality. C) the external cost to drinking soda to become a private cost paid by the government. D) the external cost to drinking soda to become a private cost paid by producers.

Q: Anyone can purchase sulfur dioxide emissions allowances on the Chicago Mercantile Exchange. Several environmental groups have raised money to buy allowances (which they subsequently destroy). As part of their fund-raising, these groups have urged contributors to buy the allowances as gifts. As one newspaper story put it, "For the environmentalist in your life, here's a gift that is sold by the ton, fits in an envelope and will last forever." Source for quote: Randall Edwards, "Dear Santa: Please Bring Me Sulfur Dioxide for Christmas," Columbus Dispatch, December 19, 1999. What would be the impact on the price of the emission allowances in the market? A) The price rises. B) The price falls to zero. C) The price falls but not to zero. D) The price remains unchanged because the allowances purchased by the environmental groups are destroyed.

Q: A major problem with using tradable emissions allowance system to control pollution is A) that it grants firms a license to pollute. B) the difficulty in determining the emissions target. C) it discourages firms from implementing cost-effective pollution control technology. D) that it does not eliminate pollution completely.

Q: What is the rationale behind a marketable emission allowance scheme? A) to create of a market for externalities: the scheme brings together buyers and sellers of marketable permits B) to discipline polluting firms by specifying the maximum amount of emissions allowed and giving them permits to pollute up to their allowance C) to raise revenue for the government through the sale of emission permits and at the same time set an emissions target D) to provide firms with the incentive to consider less costly alternatives to pollution reduction by making firms pay for the right to pollute beyond their specified allowance

Q: Government imposed quantitative limits on the amount of pollution firms are allowed to produce is an example of A) the Pigovian method of pollution control. B) command and control approach to pollution reduction. C) Coasian solution to pollution reduction. D) a tradable emission allowance system of pollution control.

Q: Consider the following methods of pollution reduction: a. the government sets a target for maximum emissions b. the government mandates the installation of specific pollution abatement equipment c. the government imposes a per unit tax on the good that creates pollution d. the government gives firms a tax rebate for every unit of pollution abated Which of the above is an example of a command and control approach to reducing pollution? A) a only B) b only C) a and b only D) a, b, and d only E) a, b, c, and d

Q: Figure 5-10 Chicken pox vaccinations for toddlers benefit society by protecting young children and by preventing an epidemic of the disease. Thus, the social benefits of chicken pox vaccinations exceed the private benefit for any quantity of vaccinations as illustrated in Figure 5-10. Refer to Figure 5-10. What is the value of the net gain to society as a result of subsidizing chicken pox vaccinations? A) (PE QE) B) (PF QF) C) value equal to the area of FEG D) value equal to the area of QFFGQE

Q: Figure 5-10 Chicken pox vaccinations for toddlers benefit society by protecting young children and by preventing an epidemic of the disease. Thus, the social benefits of chicken pox vaccinations exceed the private benefit for any quantity of vaccinations as illustrated in Figure 5-10. Refer to Figure 5-10. One way to obtain the economically efficient amount of chicken pox vaccinations is for governments to subsidize these vaccinations. What is the size of the per-vaccination Pigovian subsidy that the government must provide to internalize the external benefits? A) PE B) (PE- PG) C) (PE- PF) D) (PF- PG)

Q: Governments can increase the consumption of a product that creates positive externalities by A) subsidizing the production of the product so that the supply is increased and market price is reduced. B) taxing the production and consumption of the product. C) convincing everyone to consume the good. D) assigning property rights to the producers of the product.

Q: Suppose a tax equal to the value of the marginal external cost at the optimal output is imposed on a pollution generating good. All of the following will result from the tax except A) an increase in the equilibrium market price. B) a decrease in the equilibrium quantity produced and consumed. C) a decrease in market supply of the good. D) an increase in the demand for the good.

Q: Figure 5-9 Companies producing toilet paper bleach the paper to make it white. The bleach is discharged into rivers and lakes and causes substantial environmental damage. Figure 5-9 illustrates the situation in the toilet paper market. Refer to Figure 5-9. Let's suppose the government imposes a tax of $50 per ton of toilet paper to bring about the efficient level of production. What happens to the market price of toilet paper? A) It rises by $50. B) It rises by more than $50. C) It rises by less than $50. D) It remains the same because the tax is imposed on producers who create the externality.

Q: Figure 5-9 Companies producing toilet paper bleach the paper to make it white. The bleach is discharged into rivers and lakes and causes substantial environmental damage. Figure 5-9 illustrates the situation in the toilet paper market. Refer to Figure 5-9. Suppose the government wants to use a Pigovian tax to bring about the efficient level of production. What should the value of the tax be? A) (P2-P1) per ton of output B) (P2-P0) per ton of output C) (P1-P0) per ton of output D) P1 per ton of output

Q: Figure 5-9 Companies producing toilet paper bleach the paper to make it white. The bleach is discharged into rivers and lakes and causes substantial environmental damage. Figure 5-9 illustrates the situation in the toilet paper market. Refer to Figure 5-9. An efficient way to get the firm to produce the socially optimal output level is A) for government to set a quota on the quantity of toilet paper that the toilet paper industry can produce. B) to impose a tax to make the industry bear the external costs it creates. C) to grant a subsidy to enable the industry to internalize the external costs of production. D) to assign property rights to the firms in the industry.

Q: Figure 5-9 Companies producing toilet paper bleach the paper to make it white. The bleach is discharged into rivers and lakes and causes substantial environmental damage. Figure 5-9 illustrates the situation in the toilet paper market. Refer to Figure 5-9. The private profit-maximizing output level is A) Q1. B) Q2. C) Q3. D) Q4.

Q: Figure 5-9 Companies producing toilet paper bleach the paper to make it white. The bleach is discharged into rivers and lakes and causes substantial environmental damage. Figure 5-9 illustrates the situation in the toilet paper market. Refer to Figure 5-9. The efficient output is A) Q1. B) Q2. C) Q3. D) Q4.

Q: An advantage of imposing a tax on the producer that generates pollution is that A) it forces the polluting producer to internalize the external cost of the pollution. B) the government can keep tabs on exactly what is produced in an industry. C) it will eliminate pollution. D) a producer can pass the cost of the pollution to consumers.

Q: If policymakers use a pollution tax to control pollution, the tax per unit of pollution should be set A) equal to the marginal external cost at the economically efficient level of pollution. B) equal to the marginal private cost of production at the economically efficient level of pollution. C) equal to the amount of the deadweight loss created in the absence of a pollution tax. D) at a level low enough so that producers can pass along a portion of the additional cost onto consumers without significantly reducing demand for the product.

Q: Which of the following criteria should be used to evaluate if government intervention in a market for the purpose of environmental protection is justified? A) Does the intervention program reduce pollution to zero using the least costly method? B) Is the intervention program economically efficient? C) Does the intervention program make the amount of economic surplus as large as possible? D) Is the damage to the environment from government intervention as small as possible?

Q: What does the phrase "internalizing an external cost" mean? A) limiting the extent to which domestic firms can outsource production B) prohibiting economic activities that create externalities C) forcing producers to factor into their production costs the cost of the externalities created in the production of their output D) finding a way to address cross-border pollution

Q: Who was the economist who first proposed that governments use taxes and subsidies to correct for externalities? A) Ronald Coase B) A. C. Pigou C) Adam Smith D) David Hume

Q: Ronald Coase is famous for the Coase Theorem, which is based on the premise that there is an economically efficient level of pollution reduction. Many economists believe that the tradable emissions allowance program that has been used to deal with the problem of acid rain has been successful in reducing emissions of sulfur dioxide in an economically efficient manner. Why isn't this program an example of the Coase Theorem?

Q: What are some of the limitations of the Coase theorem in practice?

Q: What are transactions costs? Why do transactions costs create difficulties in finding a private solution to the problem of pollution?

Q: The Wilfer Resort Hotel has a spectacular view of a pine forest along a river bank. Suppose a commercial logger has purchased the pine forest and is planning to clear-cut the forest in a way that has a negative impact on the resort. Can the two parties arrive at a Coasian solution and if so what is it?

Q: Should the level of pollution be reduced to zero and if not, then to what level?

Q: State the Coase theorem.

Q: If transactions costs are low, private bargaining will always result in an efficient solution to the problem of externalities.

Q: The Coase Theorem asserts that government intervention is a prerequisite for addressing externality problems.

Q: For the Coase theorem to work there must be clear assignment of property rights.

Q: If there is pollution in producing a product, then the market equilibrium price is too high and equilibrium quantity is too low.

Q: In economics, the optimal level of pollution is the level for which the net benefit from reducing the pollution is the greatest.

Q: Congressman Murphy made the following proposal: "We should establish policies that completely eliminate air pollution. This is the only way to ensure that none of our citizens suffers the negative effects of air pollution." If Congressman Murphy's proposal was adopted and all forms of air pollution were eliminated, which of the following would be true? A) The total cost of pollution reductions would equal the total benefit to society. B) Economic efficiency would be maximized C) The total benefit to society from reductions in air pollution would be maximized. D) The marginal cost from pollution reductions would exceed the marginal benefit.

Q: Suppose a negative externality exists in a market. If transactions costs are low and parties are willing to bargain then, according to the Coase theorem A) an efficient solution can be reached only if property rights are assigned to the victims of the pollution. B) an efficient solution can be reached only if property rights are assigned to the polluters. C) an efficient solution can be reached regardless of the initial assignment of property rights. D) government intervention is critical to reach an efficient solution.

Q: Figure 5-8 Consider a chemical plant that discharges toxic fumes over a nearby community. To reduce the emissions of toxic fumes the firm can install pollution abatement devices. Figure 5-8 shows the marginal benefit and the marginal cost from reducing the toxic fumes emissions. Refer to Figure 5-8. Suppose the emissions reduction target is currently established at 8 million tons. Should society undertake to reduce an additional 1 million tons so that the total reduction is 9 million tons? A) No, because there is a net cost represented by the area B + C. B) Yes, because the marginal benefit exceeds the marginal costs. C) Yes, because toxic fumes are dangerous and must be eliminated at any cost. D) No, because the firms will pass the additional cost on to consumers.

Q: Figure 5-8 Consider a chemical plant that discharges toxic fumes over a nearby community. To reduce the emissions of toxic fumes the firm can install pollution abatement devices. Figure 5-8 shows the marginal benefit and the marginal cost from reducing the toxic fumes emissions. Refer to Figure 5-8. Suppose the emissions reduction target is currently established at 8 million tons. What is the area that represents the cost of eliminating an additional 1 million tons? A) A B) B + C C) A + B D) A + B + C

Q: Figure 5-8 Consider a chemical plant that discharges toxic fumes over a nearby community. To reduce the emissions of toxic fumes the firm can install pollution abatement devices. Figure 5-8 shows the marginal benefit and the marginal cost from reducing the toxic fumes emissions. Refer to Figure 5-8. What is the economically efficient level of pollution reduction? A) 12.5 million tons B) 9 million tons C) 8 million tons D) 0 tons

Q: Compare two situations. (A) A firm is not legally responsible for damages that result from air pollution caused by its production of steel. (B) A firm is legally responsible for damages that result from its production of steel. Ronald Coase argued that A) bargaining between the firm and the victims of the air pollution caused by the firm will result in little reduction of pollution in either situation (A) or (B) because the firm has greater economic and political power than the victims. B) bargaining between the firm and the victims of the air pollution caused by the firm would lead to a greater reduction in pollution in situation (A) than situation (B). C) bargaining between the firm and the victims of the air pollution caused by the firm would lead to a smaller reduction in pollution in situation (A) than situation (B). D) bargaining between the firm and the victims of the air pollution caused by the firm would lead to an equal reduction in pollution in situation (A) and situation (B).

Q: Assume that air pollution from a copper smelter imposes external costs on people who live near the smelter. If the victims of the pollution could not legally enforce the right of their property not to be damaged, the amount of pollution reduction A) would be significantly less than if the owners of the smelter were legally liable for damages. B) would be less than the amount at which the marginal benefit of pollution reduction equaled the marginal cost. C) would be the same as if it would be if the owners of the smelter were legally liable. D) would be too small; the government would have to intervene to bring about an efficient outcome.

Q: Private solutions to the problem of externalities are most likely when A) government actively encourages these solutions. B) transaction costs are low and the number of bargaining parties is small. C) transaction costs are low and the number of bargaining parties is large. D) transaction costs are low and the monetary damages to third parties is high.

Q: The costs in time and other resources that parties incur in the process of facilitating an exchange of goods and services are called A) enforcement costs. B) implicit costs. C) explicit costs. D) transaction costs.

Q: Which of the following statements about the economically efficient level of air pollution is correct? A) The economically efficient level of pollution is zero. B) The economically efficient level of pollution occurs where all social costs equal all social benefits. C) The economically efficient level of pollution occurs where the marginal cost of pollution reduction equals the marginal social benefit of reduction. D) The economically efficient level of pollution occurs where total benefits of pollution reduction are maximized.

Q: Steven Cheung examined the relationship between beekeepers and apple growers. Cheung noted that: "Pollination contracts usually include stipulations regarding the number and strength of ... [bee] colonies, the rental fee per hive, the time of delivery...the protection of bees from pesticides, and the strategic placing of hives." Cheung's suggests that the relationship between beekeepers and apple growers is an example of A) the Coase Theorem. B) how excessive legal costs can prevent economic efficiency from being achieved. C) negative externalities. D) government intervention improving economic efficiency.

Q: According to Steven Cheung: "Pollination contracts usually include stipulations regarding the number and strength of ...[bee] colonies, the rental fee per hive, the time of delivery...the protection of bees from pesticides, and the strategic placing of hives." Cheung cites this as evidence that A) the high costs of writing and enforcing complicated written agreements between owners of beehives and apple orchards prevents economic efficiency from being achieved in these markets. B) government intervention is not always necessary to bring about an economically efficient number of apple trees and beehives. C) government regulation of contracts between owners of beehives and apple orchards is necessary to bring about an economically efficient number of apple trees and beehives. D) the beekeeping and apple growing businesses have become more complicated and costly over time due to the legal costs involved.

Q: If the marginal benefit of reducing emissions of some air pollutant is less than the marginal cost A) further reductions will make society better off. B) further reduction will make society worse off. C) pollution taxes should be imposed on producers to pay for further reductions. D) economic efficiency will be increased if further reductions are made.

Q: If the marginal benefit of reducing emissions of some air pollutant is greater than the marginal cost A) further reductions will make society better off. B) the marginal benefit will rise and the marginal cost will fall as further reductions are made. C) economic efficiency will be achieved when emissions are reduced to zero. D) private businesses, rather the consumers, should be made to pay for the cost of further reductions.

Q: If electric utilities continually reduce their emissions of sulfur dioxide A) the utilities will eventually be forced to go out of business. B) the marginal benefit of additional emissions will rise. C) the marginal cost of further emissions will rise. D) the total benefit of sulfur dioxide emissions will fall.

Q: Kenneth Chay and Michael Greenstone examined the impact of reductions in air pollution since the passage of the Clean Air Act of 1970. Which of the following statements summarizes their findings? A) The marginal benefit of reductions in air pollution was less than the marginal cost. B) The marginal cost of reducing emissions of sulfur dioxide has increased over time as the marginal benefit of the reductions has increased. C) The benefits of reducing the six main air pollutants in the two years following the Act greatly exceeded the costs. D) In the two years following passage of the Act, fewer infants died than would have died if the Act had not been passed.

Q: Congress passed the Clean Air Act in 1970. Since this act was passed, emissions of the six main air pollutants A) have fallen by more than one-half. B) have increased significantly due to the growth of the U.S. economy. C) cannot be measured since Congress failed to appropriate money to monitor the level of emissions. D) have remained essentially constant, even though significant economic growth has occurred in the United States since 1970.

Q: Ronald Coase was awarded the 1991 Nobel Prize in Economics primarily for addressing problems related to externalities. Which of the following describes Coase's work? A) Coase argued that government intervention is necessary to achieve economic efficiency in markets that are affected by externalities. B) Coase proved that economic efficiency cannot be achieved in a market that is affected by positive or negative externalities. C) Coase argued that under some circumstances private solutions to the problems of externalities will occur. D) Coase proved that a competitive market achieved a greater degree of economic efficiency than a non-competitive market when externalities occur.

Q: In the United States, many beekeepers travel from state to state, renting out their bee colonies to farmers for pollination services. This is an example of A) a Coasian solution to a positive externality problem. B) a Pigovian solution to a positive externality problem. C) a tradable exchange contract. D) command and control policy.

Q: James Meade, who won the Nobel Prize in Economics in 1977, argued that positive externalities resulted from A) reducing emissions of sulfur dioxide. B) producing automobiles and automobile tires. C) home owners in the Northeast moving to the South and Southwest United States. D) apple growing and beekeeping.

Q: Economists Kenneth Chay and Michael Greenstone find that in the two years following the passage of the Clean Air Act of 1970, the sharp reduction in air pollution also led to a decline in infant deaths. Although this and other studies provide compelling evidence of the link between pollution and infant health, it is not clear that reductions from the much lower levels of ambient pollution today would have the same effect. Which of the following reasons could explain this? A) The cost of pollution abatement today is much higher than it was in the 1970s. Thus, it would be far more costly to achieve the same level of benefit today as the benefit achieved in 1970. B) When levels of pollution are high, the marginal benefit of reducing pollution also is high. It follows therefore that the benefit of reducing air pollution in 1970 would be much higher than the benefit from a proportional reduction in air pollution today when the level of pollution is much lower. C) Today, the level of pollution is much higher. Therefore, it will take a much larger reduction in air pollution to reap similar benefits as it did in 1970. D) When levels of pollution are high, the marginal benefit of reducing pollution is low. Therefore, it was necessary to significantly reduce air pollution in 1970 before benefits can be realized. Today, when the level of pollution is much lower, such drastic measures are unnecessary.

Q: In the city of Alvarez, with the exception of guide dogs for blind people, all dogs are banned from its three public parks, regardless of whether the animals are leashed. Many residents are pushing for a change in policy. Canine lover Sara Northridge observed, "There are 800 or more homes here. There are three parks within 10 minutes, and almost everyone has a dog, but we can't take our dogs there." Others fear that allowing dogs would detract from their enjoyment of the parks. Tim Cortis retorted, "We're not preventing dog lovers from enjoying the park, just come without your dog." Which of the following is a way of dealing with the problem by assigning property rights to a particular group? A) impose a two-tier entry fee system - a lower fee for non dog owners and a higher fee for dog owners B) impose a fee only for dog-owners to use the public parks; non dog owners do not pay a fee C) dedicate some parks, or at least one park, exclusively for the use of visitors bringing dogs to the park D) allow dog owners to bring their dogs to the park but insist that they keep watch over their dogs

Q: Which of the following must be present to reach a private solution to an externality problem? A) A majority of the parties affected by the externality must agree to a solution. B) The transaction costs to negotiate a solution must be relatively low. C) The total number of people, creators of the problem and those affected, must be relatively large to justify negotiating a solution. D) The government must approve the solution for it to be a legal solution.

Q: Consider the following characteristics: a. low transaction costs b. small levels of pollution c. high levels of pollution d. clear assignment of property rights. Which of the above are assumptions behind the Coase Theorem? A) a, b, and d B) a, c, and d C) a and d D) a only

Q: Consider a situation in which a utility company emits high levels of sulfur dioxide and the company is not liable for the damages its pollution causes. According to the Coase theorem, government action is ________ to achieve an ________ amount of pollution. A) necessary; equitable B) necessary; efficient C) not necessary; equitable D) not necessary; efficient

Q: If the paint on your house was eaten away by the fumes from a factory nearby and you hired a lawyer to sue the polluting firm, your legal fees would be considered A) external costs. B) transaction costs. C) marginal benefits. D) social costs of the pollution.

Q: Suppose a negative externality exists in a market. If transactions costs are low and parties are willing to bargain, then, according to the Coase theorem A) an equitable solution can be reached only if property rights are assigned to the victims of pollution and not the polluters. B) an equitable solution can be reached only if property rights are assigned to polluters and not to the victims of pollution. C) an efficient solution can be reached regardless of the initial assignment of property rights. D) government intervention is necessary to reach an efficient and equitable solution.

Q: According to ________, in a market with an externality, private parties would voluntarily negotiate an efficient outcome without government intervention. A) A. C. Pigou B) Adam Smith C) Ronald Coase D) John Maynard Keynes