Version 2 Page 1 Name: __________________________ Date: _____________ Econ 2010 sec. 100 Final: Version 2 Fall 2010 There are 88 questions on this exam spread over 20 pages. 1. George has many tattoos on his body that the public finds offensive. George also likes walking around without much clothing on. This leads to a situation where George is displaying more tattoos than is socially efficient. Which of the following would be a Coasian solution to the problem? A) A tax on the number of tattoos that George displays. B) A law forbidding George from displaying tattoos. C) A law clarifying property rights, that says that George cannot have tattoos showing unless everyone is OK with it. In this case, society could end up with the socially optimal amount of tattoos on George because George has an incentive to bribe people so he can go naked. D) None of the above. Use the following to answer questions 2-3: Figure: Efficiency and PollutionVersion 2 Page 2 2. (Figure: Efficiency and Pollution) If the government imposed an environmental standard that did not allow the quantity of pollution to exceed 20 tons, there would be: A) a socially optimal quantity of pollution. B) too much pollution, because the marginal social cost of pollution would exceed the marginal social benefit of pollution. C) too much pollution, because any pollution is too much pollution from an economist's perspective. D) too little pollution, because the marginal social benefit of pollution would exceed the marginal social cost of pollution. 3. (Figure: Efficiency and Pollution) If the government imposed an environmental standard that did not allow the quantity of pollution to exceed 30 tons, there would be: A) too much pollution, because the marginal social cost of pollution would exceed the marginal social benefit of pollution. B) a socially optimal quantity of pollution. C) too little pollution, because the marginal social benefit of pollution would exceed the marginal social cost of pollution. D) too much pollution, because any pollution is too much pollution from an economist's perspective. 4. Joe is a cocaine addict. For him, the marginal utility of consuming the first ounce of cocaine is 15 utils and the marginal utility of consuming the second ounce of cocaine is 20 utils. This behavior is possible, and contradicts the principle of diminishing marginal utility. A) True B) False 5. Assume that there are only 2 commodities in this economy. If these two commodities are both bads, a consumer in this economy can achieve a maximum level of utility when ______. A) he or she chooses a consumption bundle that maximizes the amount of each commodity. B) he or she consumes a bundle consisting of just one of the commodities. C) he or she consumes nothing. D) None of the above.Version 2 Page 3 Use the following to answer questions 6-9: Figure: Efficiency and Pollution 6. (Figure: Efficiency and Pollution) The socially efficient quantity of pollution is: A) 0 tons. B) 30 tons. C) 45 tons. D) 20 tons. 7. (Figure: Efficiency and Pollution) In the absence of government intervention, the quantity of pollution will be: A) 40 tons. B) 30 tons. C) 45 tons. D) 20 tons. 8. (Figure: Efficiency and Pollution) A Pigouvian tax of $10 will result in a quantity of pollution for which the: A) marginal social benefit is less than the marginal social cost. B) marginal social benefit exceeds the marginal social cost. C) marginal social benefit equals the marginal social cost. D) resources are allocated efficiently.Version 2 Page 4 9. (Figure: Efficiency and Pollution) In the absence of government intervention, the marginal social cost of pollution will exceed the marginal benefit of pollution by: A) $25. B) $16.67. C) $15. D) $0. 10. In a society that consists of one individual, which statement best describes the allocation of resources that is socially optimal A) It is an equilibrium B) The allocation is efficient C) The individual is doing well D) The individual is doing the best they can given their constraints 11. If the market price of a good decreases, Wilbur's demand curve for the good remaining the same, his consumer's surplus associated with that good increases. A) Maybe B) Yes C) No 12. Within a firm, inputs are not allocated by markets. A) True B) False 13. Betsy loves to garden and her rose garden is enjoyed by everyone in her neighborhood. Because her consumption of rosebushes provides a positive external effect to her neighborhood, the government should: A) provide Betsy a subsidy because the market quantity of rosebushes is lower than the socially efficient quantity. B) provide Betsy a subsidy because the market quantity of rosebushes is greater than the socially efficient quantity. C) impose a tax on Betsy because the market quantity of rosebushes is lower than the socially efficient quantity. D) impose a tax on Betsy because the market quantity of rosebushes is greater than the socially efficient quantity.Version 2 Page 5 14. If both the demand and supply curves for peanut butter ($ on the vertical axis) shift left A) Equilibrium price will rise but we cannot say what will happen to equilibrium quantity B) Equilibrium price will fall but we cannot say what will happen to equilibrium quantity C) Equilibrium quantity will rise but we cannot say what will happen to equilibrium price D) Equilibrium quantity will fall but we cannot say what will happen to equilibrium price 15. Our text, Krugman and Wells, costs $100. Gerard's WTP is $95. His consumer's surplus from the book is -$5. A) True B) False 16. In lecture, we looked at an example where Professor Morey's daughter, Fred, was paid $1 per mile skied. Fred's only cost was the value of her time, $3 an hour. In order to maximize profit, Fred will ski up the point where her marginal cost equals $3. A) True B) False 17. Both Fred and George can buy as many Cuban cigars as they want at $5 a cigar. George buys 8/day, Fred, 3/day. George's consumer's surplus from cigar consumption A) is smaller than Fred's consumer's surplus from cigar consumption. B) equals Fred's because they both pay $5/cigar. C) might be smaller than Fred's consumer's surplus from cigar consumption. D) is larger than Fred's consumer's surplus from cigar consumption. 18. Ingrid, when she is in Sweden, and not skiing for CU, consumes only pickled herring and Aquavit (a Swedish type of booze). She loves pickled herring: the more the better, but is