Two roommates are opposites. One enjoys playingModern Warfare with his friends all night.

| November 24, 2016

Two roommates are opposites. One enjoys playingModern Warfare with his friends all night. The other likes to get to bed early for a full eight hours of sleep. The roommate who plays Modern Warfare values gaming more than his roommate values his sleep. According to the Coase Theorem,

a.

the person playsModern Warfare will compensate his roommate for loss of sleep.

b.

the person who prefers sleep will pay the gamer to keep quiet at night.

Refer to the supply and demand graph below. In the graph, point Q1 is the market equilibrium of output of this product, and point Q2 is the social optimum. This figure indicates that there are _______________ externalities created by this good. This good should be ______________ to reach the social optimum level.

a.

positive, taxed

b.

positive, left alone

c.

positive, subsidized

d.

negative, taxed

e.

negative, left alone

f.

negative, taxed

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Which of the following are club goods (select all that apply)?

a.

a bacon double cheeseburger

b.

attendance at an NHL hockey game between the Pittsburgh Penguins and the Minnesota Wilds

c.

a Fourth of July fireworks show

d.

an uncrowded swimming pool

e.

a dose of flu vaccine

f.

streetlights

Refer to the below supply and demand graph. This is a __________ externality which can be corrected to the optimal level with a ______________.

a.

positive, tax

b.

positive, subsidy

c.

negative, tax

d.

negative, subsidy

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Which of the following activities create negative externalities (select all that apply)?

a.

Late-night road construction begins on a new bridge. As a consequence, traffic is rerouted past your house while the construction takes place.

b.

An excavation firm pollutes a local stream with acid rock drainage.

c.

A homeowner whose property is next to a city park enjoys the sounds of kids playing soccer.

d.

A student talks on her cell phone during class.

e.

You and your friends volunteer to plant wildflowers along the local highway.

In most areas, developers are required to submit environmental impact studies before work can begin on new construction projects. Suppose that a commercial developer wants to build a new shopping center on an environmentally protected piece of property that is home to a rare three-eyed toad. The shopping complex, if approved by the local planning commission, will cover 10 acres.
The planning commission wants construction to go forward, since that means additional jobs for the local community, but it also wants to be environmentally responsible. One member of the commission suggests that the developer relocate the toads. She describes the relocation process as follows: “The developer builds the shopping mall and agrees to create 10 acres of artificial toad habitat elsewhere.” The builder will agree with the proposed solution if ______________

a.

the additional cost of relocating the toads makes the project unprofitable.

b.

the benefits of building the shopping center outweigh the costs including that of relocating the toads.

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