exam2answers-s06 - Resource Economics 102 Exam 2 April 11,...

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Unformatted text preview: Resource Economics 102 Exam 2 April 11, 2006 There are m parts to this exam; multiple choice and- short essay. Please put' answers to the 30 multiple choice questions on the multipurpose answer sheet. Each multiple choice question is worth 2 points. Answers to the essay questions should be put on the exam itself. These questions are worth a total of 40 points. Be sure to put your name and Don both the scan sheet and the essay part of this exam. Thanks. Part 1. Multiple Choice ldentifiz the letter of the choice. that best completes the statement or answers the question. _'Ci_/ 1. The equilibrium of supply and demand in a market a. maximizes the profits of producers. b. can only be- achieved with government intervention. c. produces both an efficient and equitable market outcome. 7 d. maximizes the total benefits received by buyers and sellers. __ . The particular price that results in quantity supplied being equal to quantity demanded is the best price because it , ' a. maximizes costs of the seller. b. maximizes the profit of buyers. _ I c. maximizes the total welfare of buyers and sellers. 0 ' d. minimizes the expenditure of buyers. 3 . Denise values a stainless steel dishwasher for her new house at $500, but buys it for $350. Denise's willingness to pay is a. . $150. b. $350. c._ $500. d. $850. 4. Suppose there is an early fi‘eeze in California that ruins the lemon crop. What happens to consumer surplus in the market for lemons? I ' ' ' a. It increases. b. It decreases. _ . _ c. It is not affected by this change in market forces. d. It increases very briefly then decreases. _ ‘ _C_-_/ 5. IfyOu pay a price exactly equal to your willingness to pay, then. your consumer surplus is negative. . ' ' your willingness to pay is less than your consumer surplus. your consumer surplus is zero. ' you place little value on the good. 999‘s» Name: This table refers to five possible buyers' willingness to pay for a case of Vanilla Coke. Table 7-2 ’ BUYER WILLINGNESS TO PAY DAVID $8.50 35700 MALLORY $4.00 AUDREY $3.50 . Refer to Table 7-2. Which of the following is NOT true? a. At a price of $9.00, no buyer is willing to purchase Vanilla Coke. b The table shows the willingness to pay of the marginal buyer. c. When the price is $3.50, each person would receive consumer surplus. (1 At a price of $4.00, total consumer surplus in the market will be $9.00. Figure 7-1 . Refer to Figure 7-1. When the price is P1, consumer surplus is a. A. b. A + B. c. A + B + C. d. A + B + D. . Rich sells investment advice for $100 per hour. His cost is $20 per hour. Rich's producer surplus is a. $20. ' b. $80. c. $100. (1. $120. ID: Name: ( 6’ ll. 12. 1]):A When a beekeeper places his hives of bees in an orchard so that the bees can gather nectar to produce honey, the bees pollinate the orchard, which increases the yield of fruit. This benefits a. only the beekeeper. b. the beekeeper, but creates a negative externality because the bees are a hazard to the orchard owner. c. only the owner of the orchard. d. both the beekeeper and the orchard owner. When a negative externality exists in a market the cost to producers a. is greater than the cost to society. b. will be the same as the cost to society. c. will be less than the cost to society. (1. and society will be different regardless of whether an externality is present. Suppose that large-scale pork production has the potential to create ground water pollution. Why might this type of pollution be considered an externality? a. The groundwater pollution reduces the cost of large-scale pork production. b. The economic impact of a large-scale pork production facility is localized in a small geographic area. c. The pollution has the potential for creating a health risk for water users in the region surrounding the pork production facility. d. Consumers will not reap the benefits of lower production cost from large-scale pork production. Figure 10-3 Price Social Cost Supply (Private Cost) Demand (Private Value) 03 04 Quantity Refer to Figure 10-3. Assume that the concert organizers must purchase a concert permit (the cost for the permit is included in private cost) before organizing the concert. What criteria should the city use in determining whether or not to issue a permit? a. The majority vote of the residents in surrounding neighborhoods should determine whether a permit is issued. b. As long as the value to consumers of concerts exceeds the cost of concerts (including the external costs) the permit should be issued. c. As long as concert organizers are willing to return the park to its original condition after the concert, the permit should be issued. d. The permit should not be issued as long as there are identifiable external costs imposed on residents in surrounding neighborhoods. 15. Internalizing an externality refers to making a. buyers and sellers take into account the external effects of their actions. b. certain that all market transaction benefits go to only buyers and sellers. c. certain government does not disrupt the internal workings of the market. d. buyers pay the full price for the products they purchase. ID:'A Suppose that a steel factory emits a certain amount of air pollution, which constitutes a negative externality. The social cost of producing the steel includes the a. private costs of the steel producers and the price consumers pay for the steel. b. private costs of the steel producers and the costs to the bystanders affected by the pollution. - c. costs to the bystanders effected by the pollution only. (1. price consumers pay for the steel. Which of the following is true concerning government attempts to internalize externalities? a. Government should tax goods with negative externalities and subsidize goods with positive externalities. b. Government should tax goods with either positive or negative externalities. c. Government should subsidize goods with either positive or negative externalities. (1. Government should tax goods with positive externalities and subsidize goods with negative externalities. A negative externality will cause a private market to produce a. less than is socially desirable. b. more than is socially desirable. c. more than is market optimal. (1. less than is market optimal. When dealing with externalities, government a. can correct the market failure only in the case of positive externalities. b. can correct the market failure only in the case of negative externalities. c. can correct the market failure in both the positive and negative externalities by inducing market participants to internalize the externality. d. cannot correct for externalities due to consumer rights laws. Which of the following is true of the Coase theorem? a. Interested parties can reach an outcome in which everyone is better off. b. The outcome reached will be inefficient. c. Interested parties will need an arbitrator inorder to reach an agreement that is efficient. (1. None of the above is correct. In which of the following cases is the Coase Theorem most likely to work to solve the externality? a. Richard is annoyed because his roommate smokes. b. Chemicals from farms in the Mississippi Valley are polluting the Gulf of Mexico. c. Car exhaust in a small town is making one of its residents ill. (1. Industrialization around the world is causing acid rain. A good is excludable if a. one person's use of the good diminishes another person's enjoyment of it. I b. the government can regulate its availability. c. it is not a normal good. (1. people can be prevented from using it. Name: ' ID: Ia 21 If one person's use of a good diminishes another person's enjoyment of it, the good is a. rival. b. excludable. 0. normal. 0 d. exhaustible. 22. Private goods are both a. excludable and nonrival. b. nonexcludable and rival. c. excludable and rival. d. nonexcludable and nonrival. 23. .If the local government in Richmond, Missouri decides to put on a public fireworks display, the display would be a. excludable. b. rival. c. a public good. (1. All of the above are correct. 0 _0: 24. The fish in the ocean are an example of a a. common resource. b. public good. c. private good. b (1. natural monopoly. 25. National defense is a classic example of a public good because a. private security services are very difficult to find. . b. it is difficult to exclude people from receiving the benefits from national defense once it is provided. c. everyone agrees that some level of national defense is important, but only the government knows the optimal amount. " d. if individuals were required to purchase their own armored tank, there wouldn't be b enough to go around. 26. The free-rider problem is worse if a. the government refuses to provide the product. b. the number of beneficiaries is large. c. private markets can provide the rival good. (1. the number of provisions is small. 27. Each of the following would be considered a common resource EXCEPT a. clean air. I ' b. congested roads. c. national defense. (1. open grazing land. 0 28. Road pricing is used in Singapore to raise revenue for new roads. sell the rights to 50 mile stretches of roads to individuals. reduce congestion and pollution problems. allow contractors to bid on the specific sections of new roads they want to build. P-PP‘?’ Name: 0\ l @- 29. ID:A Because in many countries in Africa elephants roam freely, each individual African elephant poacher has a. a strong incentive to kill as many elephants as he can find. b. a strong incentive to protect the elephants. c. the ability to save the elephants. d. All of the above are correct. The town of Sointenly does not have any public snow-plows. Anyone who wants their street cleared of snow must hire a private snow-plow company to do it for $75. Curly, Larry and Moe all live on a dead-end street, with Curly living at the very end of it. Each one values snow removal at $50. At present, the snow is never cleared from the street. We can conclude that a. the current situation is best because the cost of snow removal exceeds what each of them is willing to pay for it. b. Larry and Moe should wait for Curly to pay for the service because if the snow is cleared all the way to Curly's house, Larry and Moe will get the service for free. c. the fee charged by the snow removal company is unfairly high. d. Curly, Larry and Moe could all be better off if they acted collectively. Name: Student ID: Part II. Short Essay (10 points) Set up an economic model of supply and demand for SUVs and use this model to show: 7 ' a. The deadweight loss imposed by a tax on SUVs. 5 1— X b. Who bears most of the burden of this tax? Why? / f "F l , ./ ' / W /////// A +6 2 JQ a - ~ « Cg Cgmdmmh Mfr 7777 W7< «films» @600 W (‘2 £9": "’k 37% W cm W W W580 0“ W Name: I Student ID: 2. (5 points) Show how you would calculate the present value of a government program to control global warming. Assume that this program yields a benefit of $100 billion 50 years from now and $75 billion 100 years from now. Also assume a 6% interest rate. 3. (10 points) Setup and use an 'economic model to show why 100% control of nontoxic water pollution is, at least from an economic perspective, generally bad public policy. (a Name: Student ID: (10 points) Briefly discuss the advantages and disadvantages of marketable ollution ermits for atmospheric pollution control. b% qt rflm m 2 @mlv 1 Wéflrgfl h) angol {:3} amlmwlflfil? 16W, L‘ )Ub 190? W 5. (5 points) Briefly discuss why the private market does not provide “enough” higher education. ...
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This note was uploaded on 04/29/2008 for the course RES-ECON 102 taught by Professor Thomasstevens during the Spring '08 term at UMass (Amherst).

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exam2answers-s06 - Resource Economics 102 Exam 2 April 11,...

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