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Exam 3: Modeling Market Failure

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Question 1

Multiple Choice

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If a good has the characteristic of nonrivalness, it means that

A) the good is publicly provided
B) it is impossible to prevent others from sharing the benefits of consumption
C) the benefits linked to consumption are indivisible
D) none of the above

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Question 2

Multiple Choice

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Consider the following model for the production of refined oil: MSC = 10 + 0.5Q; MEC = 0.3Q; MSB = 30 - 0.3Q; MEB = 0. Use these relationships to answer any or all of Questions. -Based on the model, the price at the efficient equilibrium is

A) P_E = $18
B) P_E = $22.50
C) P_E = $20
D) P_E = $40

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B

Question 3

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Property rights are the set of valid claims to a good or resource that allow its use and the transfer of ownership through a sale.

An external effect that generates costs to a third party is called

Use the following graph of the refined petroleum market to answer the questions below. -Which area represents the net gain to society? Should the reduction in output from Q_C to Q_E take place? Why or why not?

At Q_C, the maximum payment recreational users of the river would be willing to pay the producer for a unit change in output is

The study conducted by Greenpeace China of the Pearl River Delta (PRD) region indicates that progress is being made to improve water quality.

The underlying assumptions of the Coase Theorem are that transactions are costless and that damages are accessible and can be measured.

According to the Coase Theorem, assignment of property rights will permit bargaining that leads to an efficient solution only in the absence of externalities.

If we define the relevant market as "environmental quality," then the market failure is due to the presence of a negative externality.

The original 'long box' packaging of CD's is an example of

If the market for a public good is comprised of two consumers, 1 and 2, who have individual demands of p1 = 100 - 0.2Q_D and p2 = 250 - 0.5Q_D, then the market demand function would be P = 350 - 0.7Q_D.

The reduction in damages to the environment from changing output from Q_C to Q_E is

Environmental pollution can be characterized as a market failure that distorts the classical market outcome.

If property rights are held by the producer of an externality-generating good, then bargaining will continue as long as MEC > ρ > Mπ, where ρ represents the payment offered to the producer not to pollute.

The Coase Theorem assumes

According to the Coase Theorem

Nonexcludability refers to the possibility that the benefits of consumption can be shared.

Consider the following model for the production of refined oil: MSC = 10 + 0.5Q; MEC = 0.3Q; MSB = 30 - 0.3Q; MEB = 0. Use these relationships to answer any or all of Questions. -Based on the model, the firm's M $\pi$ function must be

Consider the following model for the production of refined oil: MSC = 10 + 0.5Q; MEC = 0.3Q; MSB = 30 - 0.3Q; MEB = 0. Use these relationships to answer any or all of Questions. -Based on the model, the competitive price level is