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

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.

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