29) Transaction costs are
A) the costs associated with making a transaction that is required by the government.
B) not true costs since they are often not paid.
C) the costs associated with exchanges in the service area.
D) the costs associated with making, reaching and enforcing agreements.
30) Which of the following is a TRUE statement?
A) Externalities cannot be solved by market solutions and always require government action.
B) Externalities would never be a problem if people were willing to comply with government
regulations.
C) Voluntary agreements can solve externality situations by making the party incurring the costs
bear the costs of his or her actions.
D) Externalities can only be handled by government regulation and emission taxes cannot work
effectively.
31) Your neighbor in an apartment complex plays his music very loudly late at night, which
makes it difficult for you to get to sleep. You offer the neighbor $50, the monetary value you put
on your sleep, to never play his music between midnight and 7 AM. By doing so
A) you have failed to bring about an efficient solution since you should have complained to the
police.
B) you have indicated the cost of the externality. The externality is not internalized even if he
accepts your offer.
C) you have indicated the cost of the externality, which internalizes the externality.
D) you have indicated a willingness to make the external cost a social cost.
32) Which of the following is a TRUE statement?
A) Any property right system will yield a situation in which all externalities are internalized.
B) Voluntary agreements can always yield a situation in which all externalities are internalized.
C) Opportunity costs always exist with whoever has property rights.
D) Opportunity costs turn external costs into social costs.
33) Voluntary agreements may not be a feasible method to internalize an externality when
A) the dollar value of the externality is large.
B) the externality is negative rather than positive.
C) there are significant transaction costs.
D) there are high taxes on the firms that cause the externalities.
34) In which of the following externality situations would it be most likely that voluntary
agreements could be used to internalize an externality?
A) littering on highways
B) overharvesting of alligators in Louisiana
C) poaching of elephants in Africa
D) trees of one neighbor blocking a view of another
35) Which of the following is NOT a possible solution to the problem of pollution?
A) converting a resource that is communally owned into a privately owned resource
B) imposing a tax on polluters that is related to the amount of pollution
C) regulating the amount of pollution that a firm can produce
D) subsidizing the costs of production of activities that generate pollution
36) The best method to reduce pollution is
A) to never start polluting.
B) to establish private property rights.
C) dependent upon the characteristics of the resources and the transaction costs.
D) dependent upon the quality of government bureaucrats and the level of greed in the society.
37) When there is a resource for which property rights are NOT well defined and there is a
difference between private costs and social costs, then all but which of the following is a way to
close the difference?
A) the free market system
B) taxation
C) subsidization
D) regulation
38) Common property
A) is owned by everyone.
B) is owned by no one.
C) Neither A nor B are correct.
D) Both A and B are correct.
39) The exclusive rights of ownership of property are generally referred to as
A) level property rights.
B) private property rights.
C) public property rights.
D) common property rights.
40) A resource that is a common property is
A) oil on land owned by a drilling and refining company.
B) natural gas on land owned by an energy producer.
C) your neighbor’s backyard.
D) water in a publicly owned river.
41) Property that is owned by everyone and therefore by no one in particular is referred to as
A) common property.
B) social property.
C) private property.
D) free property.
42) Property owned by everyone is generally referred to as
A) social property.
B) free property.
C) common property.
D) natural property.
43) Which of the following is NOT an example of common property?
A) cable TV
B) air
C) gravity
D) sunshine
44) Which type of property would be the most likely to experience pollution?
A) common property
B) private property
C) property held in partnership
D) corporate property
45) For voluntary action to correct an externality
A) transaction costs have to be high.
B) transaction costs have to be low.
C) transaction costs have to be split evenly between all of the parties involved.
D) transaction costs are irrelevant.
46) All of the costs associated with making and enforcing contracts are referred to as
A) alternative costs.
B) opportunity costs.
C) marginal costs.
D) transactions costs.
47) In a situation in which property rights are not well-defined and social costs exceed private
costs, government can use all of the following to induce producers to bring private costs into
alignment with social costs EXCEPT
A) taxing production.
B) coercive limits on production.
C) subsidization of production.
D) regulation of production.
48) Suppose a large tree on Jack’s property blocks Amy’s view of the ocean. Jack accepts Amy’s
offer of $2,000 to cut down the tree. This is an example of
A) internalizing externalities via voluntary agreements.
B) a result of logrolling.
C) a consequence of a positive externality.
D) a consequence of private costs exceeding social costs.
49) The costs associated with the negotiation and enforcement of an agreement are
A) property costs.
B) resource factor costs.
C) transaction costs.
D) opportunity costs.
50) When property rights are clearly defined, there is generally a
A) law that must be passed to ensure fairness.
B) regulatory agency that handles externalities.
C) common property problem.
D) voluntary agreement that can be reached.
51) In order for a voluntary agreement to be reached in general, transaction costs should be
A) infinite.
B) high relative to expected marginal benefits of the agreement.
C) low relative to expected marginal benefits of the agreement.
D) determined by the Environmental Protection Agency.
52) Many ecologists argue that several species of whales are close to extinction. If this is TRUE,
the reason is
A) inadequate enforcement of international laws.
B) whales are a type of common property.
C) the marginal benefit of hunting and killing a whale is greater than zero.
D) whale-killing technology is too productive.
53) All of following are commonly considered to be common property EXCEPT
A) spotted owls in the wild.
B) fish in an ocean.
C) pigs raised in a farm.
D) wild salmon in a river.
54) Which of the following is most likely to be common property?
A) lawn in a privately owned golf club
B) farm raised catfish in Alabama
C) tuna in the Pacific Ocean
D) cattle in a Texas ranch
55) Which of the following are most likely to become an endangered species?
A) animals in the wild
B) domesticated animals
C) animals that people like to keep at home as pets
D) animals that people have property rights to own
56) Endangered species are likely to be
A) private property.
B) common property.
C) both private and common property.
D) neither private nor common property.
57) Protecting endangered species are likely to be
A) a private cost.
B) a public cost.
C) both private and public costs.
D) neither a private nor public cost.
58) Which of the following is TRUE about species in the world?
A) Most extinct species became extinct within the past 30 years.
B) The majority of extinct species became extinct before humans appeared.
C) Extinct species became extinct only after human appeared.
D) No species has ever become extinct.
59) The trade-off of saving the spotted owls in the Pacific Northwest was
A) the loss of salmon in the region.
B) the increase in the number of marbled murrelets.
C) the loss of logging activities by lumber companies.
D) none.
60) Which of the following is most likely to be private property?
A) bees
B) house flies
C) farm raised shrimps
D) winds
61) Wild animals are likely to be
A) private property.
B) endangered species.
C) externalities.
D) all of the above.
62) The Endangered Species Act is an attempt to
A) protect endangered species against greedy loggers, farmers, and business people.
B) protect endangered species from the overzealousness of many environmentalists.
C) protect species endangered because there are no private property rights on them.
D) prevent some people from earning a good living.
63) For endangered species, the federal government
A) can only protect the animal on federal property because of common property issues.
B) has the right to regulate activities on private land to save the species from extinction.
C) turns over the protection of an endangered species to the state authorities where the species
lives.
D) will capture a pair of animals so that the species does not become extinct.
64) Saving endangered species
A) benefits all people in society without any trade-off.
B) must involve the loss of another species.
C) may involve a trade-off in terms of the loss of other economic activities.
D) requires the government to list those species as common property.
65) The problem associated with endangered populations of migratory birds is the
A) common property problem.
B) free rider problem.
C) deadweight loss problem.
D) inefficient production problem.
66) The problem of overfishing in waters that are commonly owned can be solved by
A) the use of the Coase Theorem.
B) establishing property rights for fishing in the waters.
C) subsidizing fishing.
D) allowing the market to ration fish.
67) The problem of overfishing in waters that are commonly owned can be solved when the
government determines the total amount of fish can be removed from a given area during each
fishing season. Then the fishermen
A) will not be able to fish.
B) can trade their rights (shares) to fish or not.
C) will externalize their private costs to the government.
D) will lower their private costs to fish.
68) The Endangered Species Act has
A) caused a loss of economic activities on some private land.
B) saved all endangered species without affecting anyone.
C) further reduced the number of endangered species.
D) had no impact on either the number of endangered species or other economic activities.
69) Approximately what percentage of the world’s extinct species became extinct before humans
appeared on earth?
A) 2 percent
B) 10 percent
C) 67 percent
D) more than 99 percent
70) Today, the earth has ________ of all of the species that have ever lived.
A) less than 1 percent
B) about 50 percent
C) about 99 percent
D) 100 percent
71) What is common property? What does common property have to do with externalities?
72) Why are externalities associated with common property rather than private property?
73) Explain why the buffalo almost became extinct while cattle did not, even though both
provide similar goods for people.
74) “The number of species on earth is decreasing drastically and economic development is the
main factor for the problem.” Do you agree or disagree? Why?
75) Why are most endangered species belong to common property?