1. Laws are efficient if they A. Uphold absolute property rights B. Restrict all
ID: 1113707 • Letter: 1
Question
1. Laws are efficient if they
A. Uphold absolute property rights
B. Restrict all undesirable action like polluting
C. Work to equate the marginal benefits and marginal costs of behavior
D. Help maximize total benefits of behavior
E. Impose no costs on citizens
2- If transactions costs are high and auctions for pollution permits are not possible, which of the following is the most effective way to deal with pollution?
A. Allow the parties to negotiate
B. Tax pollution
C. Require all polluters to limit their pollution to a certain level with regulation
D. Give subsidies to reduce pollution
3- According to the Coase theorem, when the parties affected by externalities can negotiate costlessly with one another
A. An efficient outcome results if the liability is placed on the party with the lowest cost of prevention
B. An efficient outcome results no matter how the law assigns responsibility
C. Efficiency cannot be reached without government intervention
D. The correct way to deal with an externality is to tax it
4- A positional externality occurs when
A. One person's increase in consumption lowers his neighbor's utility
B. One person builds a house which obstructs his neighbor's view
C. A polluter positions himself in a crowded city
D. A drunk person decides to drive
Explanation / Answer
1. C, efficiency require that marginal benefits is equal to marginal cost
2. B, since transaction cost are high it would be better if government imposes pollution tax . Firms will equate their marginal cost .
3 . B , according to coase theorem if property rights are clearly defined then we can achieve efficient solution without government intervention.
4. C, because position of individual doesn't. remain constant if someone increase or decrease it's consumption the utility of other person is reduced.
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