Question 1

When BC Transit built the rapid transit system in Vancouver we found that high- rise apartments were subsequently built around most of the stations. How might this have been inefficient?

Accepted Answer

The answer of When BC Transit built the rapid transit...

Question 2

When private bargaining is costly, courts tend to assign property rights:
A)to those parties likely to generate the highest social wealth.
B)to those parties able to pay the highest bribes.
C)to those parties likely to generate the highest private wealth.
D)to those parties having the largest political clout.

Accepted Answer

When private bargaining is costly, courts tend to assign property rights to those parties likely to generate the highest social wealth. This means that the courts prioritize the party that can create the most value for society as a whole, rather than simply looking at the parties that can generate the most private wealth or have the most political power. By assigning property rights in a way that leads to the highest social wealth, the court is able to maximize overall welfare and avoid the inefficiencies that can arise from costly private bargaining.

Question 3

Provide an economic explanation for why climate change legislation is difficult to pass and implement in most countries.

Accepted Answer

The answer of Provide an economic explanation for why climate...

Question 4

Build a case supporting the following claim: "The concept of transaction costs has revolutionized economics."

Accepted Answer

The answer of Build a case supporting the following claim:...

Question 5

If the marginal willingness to pay for a good exceeds its marginal cost by $4 per unit and the efficient output of the good exceeds actual output by 1 million units, a deadweight loss of $2 million is imposed on the economy.

Accepted Answer

The deadweight loss can be found by multiplying the difference between efficient output and actual output (1 million units) by the marginal willingness to pay minus marginal cost ($4). This equals $4 million. The deadweight loss is half of this, or $2 million. Therefore, option A is true.

Question 6

There are two necessary conditions for the existence of transactions costs: costly and asymmetric information. Compare and contrast them.

Accepted Answer

The answer of There are two necessary conditions for the...

Question 7

Suppose that the economy is composed of two individuals, A and B. Their respective demand curves for a public good, y, are given by: y_A= 50 - p/2 and y_B= 25 - p. The marginal social value (MSV)function is: A)MSV = 75 - 3p/2. B)MSV = 75 - y. C)MSV = 125 - 3y. D)MSV = 25 + p/2.

Accepted Answer

The answer of Suppose that the economy is composed of...

Question 8

Discuss the following statement: "Asymmetric information is a two- edged sword: it allows for large gains from trade, but it also allows for cheating."

Accepted Answer

The answer of Discuss the following statement: "Asymmetric information is...

Question 9

Suppose 10 people live on a street and that each of them is willing to pay $2 for streetlight, regardless of the number of streetlights provided. If the cost of providing x streetlights is given by c(x)= x², what is the Pareto efficient number of streetlights to provide?

Accepted Answer

The answer of Suppose 10 people live on a street...

Question 10

Suppose that in the market for paper, demand is P = 100 - Q. The private cost of producing paper is 10 + Q. However, pollution generated by the production process creates a per unit external harm (i.e., a negative externality)equal to 0.5 (i.e., the level of the externality increases with the quantity produced).
i)What is the market equilibrium?
ii)What is the socially optimal quantity of paper that should be produced?

Accepted Answer

The answer of Suppose that in the market for paper,...

Question 11

Why are transaction costs fundamental for the analysis of property rights?

Accepted Answer

The answer of Why are transaction costs fundamental for the...

Question 12

Whereas negative externalities cause inefficiency, positive externalities are good for the economy and improve economic efficiency.

Accepted Answer

Positive externalities can also lead to market inefficiency because the social benefits of a good or service exceed the private benefits, leading to underproduction or underconsumption from the perspective of society as a whole.

Question 13

Externalities result because:
A)the rules of the game are not complete.
B)there is unemployment.
C)people are maximizers.
D)there are not enough resources.

Accepted Answer

Externalities occur when the cost or benefit of a transaction is not fully borne by the parties involved in the transaction. This happens because the rules of the game (i.e. the market) are incomplete, meaning that the costs or benefits associated with the transaction are not properly accounted for. For example, pollution from a factory may impose costs on the surrounding community that are not factored into the price of the goods produced by the factory.

Question 14

Which of the following is not a public good?
A)national defense
B)light houses
C)police protection
D)charitable giving

Accepted Answer

Charitable giving is not considered a public good because it is a private action taken by individuals or organizations, rather than a good or service that benefits society as a whole. National defense, lighthouses, and police protection are all examples of public goods because they are provided by the government for the benefit of all citizens.

Question 15

Explain the distinction between legal and economic property rights and illustrate it with an example.

Accepted Answer

The answer of Explain the distinction between legal and economic...

Question 16

If a good has a positive externality, at the market equilibrium the marginal private benefit is greater than the marginal private cost.

Accepted Answer

If a good has a positive externality, the marginal social benefit is greater than the marginal private benefit at the market equilibrium, meaning the marginal private benefit is less than the marginal private cost.

Question 17

The no- fault divorce law was the main factor affecting the increase in the divorce rate in the last forty years.

Accepted Answer

The no-fault divorce law allowed couples to obtain a divorce without having to prove that one spouse was at fault, leading to a significant increase in divorce rates since its introduction in the 1970s.

Question 18

Gisela and Lynn are friends. New clothing is the only good that gives them utility. Each girl spends a certain amount of money per year on clothing. Let x be the amount that Gisela spends on clothing (in thousands of dollars)and let y be the amount of money (in thousands of dollars)that Lynn spends. Gisela's utility expressed as a function of x and y is given by: UG(x, y)= 12x - x2 - xy and Lynn's utility is given by UL(x, y)= 12y - y2 - xy.
i)Calculate x* and y* that Lynn and Gisela spend on clothing when they maximize their utility functions independent of each other.
ii)Calculate the efficient amount of money to be spent on clothing by each of them.
iii)Do they spend too much or too little on clothing? Explain.

Accepted Answer

The answer of Gisela and Lynn are friends. New clothing...

Quiz 18: Assymmetric Information, the Rules of the Game, and Externalities

When BC Transit built the rapid transit system in Vancouver we found that high- rise apartments were subsequently built around most of the stations. How might this have been inefficient?

When private bargaining is costly, courts tend to assign property rights:

Provide an economic explanation for why climate change legislation is difficult to pass and implement in most countries.

Build a case supporting the following claim: "The concept of transaction costs has revolutionized economics."

If the marginal willingness to pay for a good exceeds its marginal cost by $4 per unit and the efficient output of the good exceeds actual output by 1 million units, a deadweight loss of $2 million is imposed on the economy.

There are two necessary conditions for the existence of transactions costs: costly and asymmetric information. Compare and contrast them.

Suppose that the economy is composed of two individuals, A and B. Their respective demand curves for a public good, y, are given by: y_A= 50 - p/2 and y_B= 25 - p. The marginal social value (MSV) function is:

Discuss the following statement: "Asymmetric information is a two- edged sword: it allows for large gains from trade, but it also allows for cheating."

Suppose 10 people live on a street and that each of them is willing to pay $2 for streetlight, regardless of the number of streetlights provided. If the cost of providing x streetlights is given by c(x)= x², what is the Pareto efficient number of streetlights to provide?

Why are transaction costs fundamental for the analysis of property rights?

Whereas negative externalities cause inefficiency, positive externalities are good for the economy and improve economic efficiency.

Externalities result because:

Which of the following is not a public good?

Explain the distinction between legal and economic property rights and illustrate it with an example.

If a good has a positive externality, at the market equilibrium the marginal private benefit is greater than the marginal private cost.

The no- fault divorce law was the main factor affecting the increase in the divorce rate in the last forty years.

Quiz 18: Assymmetric Information, the Rules of the Game, and Externalities

When BC Transit built the rapid transit system in Vancouver we found that high- rise apartments were subsequently built around most of the stations. How might this have been inefficient?

When private bargaining is costly, courts tend to assign property rights:

Provide an economic explanation for why climate change legislation is difficult to pass and implement in most countries.

Build a case supporting the following claim: "The concept of transaction costs has revolutionized economics."

If the marginal willingness to pay for a good exceeds its marginal cost by $4 per unit and the efficient output of the good exceeds actual output by 1 million units, a deadweight loss of $2 million is imposed on the economy.

There are two necessary conditions for the existence of transactions costs: costly and asymmetric information. Compare and contrast them.

Suppose that the economy is composed of two individuals, A and B. Their respective demand curves for a public good, y, are given by: yA = 50 - p/2 and yB = 25 - p. The marginal social value (MSV) function is:

Discuss the following statement: "Asymmetric information is a two- edged sword: it allows for large gains from trade, but it also allows for cheating."

Suppose 10 people live on a street and that each of them is willing to pay $2 for streetlight, regardless of the number of streetlights provided. If the cost of providing x streetlights is given by c(x)= x2, what is the Pareto efficient number of streetlights to provide?

Why are transaction costs fundamental for the analysis of property rights?

Whereas negative externalities cause inefficiency, positive externalities are good for the economy and improve economic efficiency.

Externalities result because:

Which of the following is not a public good?

Explain the distinction between legal and economic property rights and illustrate it with an example.

If a good has a positive externality, at the market equilibrium the marginal private benefit is greater than the marginal private cost.

The no- fault divorce law was the main factor affecting the increase in the divorce rate in the last forty years.

Suppose that the economy is composed of two individuals, A and B. Their respective demand curves for a public good, y, are given by: y_A= 50 - p/2 and y_B= 25 - p. The marginal social value (MSV) function is:

Suppose 10 people live on a street and that each of them is willing to pay $2 for streetlight, regardless of the number of streetlights provided. If the cost of providing x streetlights is given by c(x)= x², what is the Pareto efficient number of streetlights to provide?