There are 1,000 families in a neighborhood that are affected by noise pollution from a local factory. The noise could be reduced if the company spent $5,000 on technological improvements. The company agrees to make these improvements if the affected families contribute the $5,000. However, because individuals will benefit from the reduction in noise whether they contribute or not, most people will not contribute and the firm will not make the improvements. This outcome is an example of the
A. drop-in-the-bucket problem.
B. free-rider problem.
C. Coase theorem.
D. collective action problem (that arises when there are too many parties involved).
Answer: B
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If the Fed orders a contractionary monetary policy, describe what will happen to the following variables relative to what would have happened without the policy:
a. The money supply b. Interest rates c. Investment d. Consumption e. Net Exports f. The aggregate demand curve g. Real GDP h. The price level
Investments
A. are more profitable when interest rates rise. B. are less profitable when interest rates rise. C. are more profitable when economic rents rise. D. are less profitable when economic rents rise.
If the Federal Reserve reduced its reserve requirement from 6.5 percent to 5 percent, and banks held no excess reserves, this policy would:
A. increase both the money multiplier and the money supply. B. increase the money multiplier but decrease the money supply. C. decrease both the money multiplier and the money supply. D. decrease the money multiplier but increase the money supply.
(Consider This) The ratchet effect is the tendency
A. the price level to increase but not to decrease. B. nominal GDP to increase more rapidly than real GDP. C. real interest rates to fall more rapidly than nominal interest rates. D. consumption to rise year after year regardless of what happens to disposable income.