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Unformatted text preview: True / False - 2 points each - (no explanation needed) 1. If you own land next to a lake, your riparian right may be sold to a non-riparian neighbor as long as his property is next to yours. FALSE 2. In times of shortage, a riparian diverter must cut back their water diversions based on the amounts that other appropriators are using. FALSE 3. All else equal, land irrigated with a relatively senior appropriative right is more valuable than land irrigated with a relatively junior appropriative right. TRUE 4. Consider a farmer using water from an abundant source for irrigation of his crops. The farmer will stop irrigating when his net marginal benefit of doing so is zero. TRUE 5. It is always efficient to require residential water users to install water meters so water agencies can price based on consumption. FALSE 6. Water utilities should never set price below long-run marginal cost FALSE Multiple Choice Questions - 2 points each - (no explanation necessary) 7.) Why do economists advocate marginal cost pricing for water? A) When water is priced below marginal cost, farmers use it irrationally. B) Pricing below long run marginal cost may encourage unnecessary capacity expansion. C) We think that marginal cost pricing gives the correct incentives to consumers D) All of the above E) B and C only F) A and C only 8.) Given the different incentives (pleasing customers, accommodating growth, ensuring dependable supplies, getting re-elected) facing a public water utility manager, why might she prefer to use average cost pricing? A) Average cost pricing usually ensures revenue equals costs B) Average cost pricing leads to the efficient consumption quantity C) Shortages from incorrect pricing signals may be more politically tolerated than higher prices D) A and C E) All of the above 9.) In California, public water agencies, as opposed to private water agencies, do not pay tax on their property (vehicles, land, etc.). Which of the following are true? Assume that the agencies are identical in every other aspect. A) The costs of water provision, from the perspective of the public agency, are less than those for a private agency B) The costs of water provision, from the perspective of the private agency, are less than those for a public agency C) The overall cost of water provision is the same because the property tax exemption is merely a transfer of money from the general taxpayer to the public water company.transfer of money from the general taxpayer to the public water company....
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- Spring '11