practice_final_4

practice_final_4 - Econ M134 UCLA Winter 2009 Prof Kahn...

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Econ M134 UCLA Winter 2009 Prof. Kahn Final Exam Answer Key This is a 150 point, 180 minute exam. Plan to allocate one minute for each point. You should have 30 extra minutes for checking your work. Please write your name and UCLA ID on your exam. Longer is not better, keep your answers brief and to the point. Read the entire question, and be sure to follow the directions. Multiple Choice Section: (100 points) Answer all 18 questions. There can be more than one correct answer in each question. You must select all the correct answers. Please mark your answers on a scantron, and the exam sheet. (this is to protect you against scantron machine errors) 1. (6 points) Suppose a steel factory is located in San Diego. San Diego has a population of 1 million people. In San Diego, each unit of pollution causes each person to be sick for 3 days. Each person is willing to pay $100 steel production to meet foreign demand. An unintended consequence of this increased production would be 3 total units of pollution. There does exist a pollution prevention device that the steel factory can use such that the factory creates no pollution. In equilibrium: A. In absence of transaction costs, San Diego ±victims² would pay $300 in aggregate to the ³rm to not increase production. B. If the steel factory has the property right to pollute, then if transac- tion costs are low the people of San Diego will pool their money and purchase a pollution cleaning device if its price is more than $1 billion. C. If the steel factory has the property right to pollute, then if transaction costs are low the people of San Diego will pool their money and purchase a pollution cleaning device if its price is less than $900 million. D. None of the above 2. (6 points) Smoking is legal in St. Louis. The aggregate smoke created by St. Louis smokers ´oats downwind and lands in Chicago. In Chicago, the 1
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total population equals 500 people. Each person in Chicago is willing to pay $2 to avoid one unit of smoke from cigars. Assume that one cigar creates one 2*P. In this equation, Q is quantity of cigars and P equals price (in $) per cigar. The Equilibrium price of a cigar is $20. If a cigar tax of $10 per cigar is imposed, aggregate damage from this smoking externality will decline by: (hint: assume that consumers pay the entire tax) A. 500 B. 300*20 C. 20*2*500 D. 20*2 E. None of the above 3. (6 points) Information regulation such as the Los Angeles Smog Alerts or the California ±Report Cards²for restaurant hygiene may mainly bene³t the non-poor because: A. More educated people are more likely to read the infor- mation B. Wealthy people have better access to travel (i.e cars) and thus have greater substitution possibilities.
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practice_final_4 - Econ M134 UCLA Winter 2009 Prof Kahn...

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