Suppose that Company A's railroad cars pass through Farmer B's corn fields. The railroad causes an externality to the farmer because the railroad cars emit sparks that cause $1,500 in damage to the farmer's crops. There is a special soy-based grease that the railroad could purchase that would eliminate the damaging sparks. The grease costs $1,200 . Suppose that the farmer has the right to
compensation for any damage that his crops suffer. Assume that there are no transaction costs. Which of the following characterizes the efficient outcome?
a. The railroad will continue to operate but will pay the farmer $1,500 in damages.
b. The railroad will purchase the grease for $1,200 and pay the farmer nothing because no crop damage will occur.
c. The farmer will incur $1,500 in damages to his crops.
d. The farmer will pay the railroad $1,200 to purchase the grease so that no crop damage will occur.
b
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The imaginary figure who advises us whether society is making the most of its scarce resources is the
A) opportunity-cost pixie. B) benevolent social planner. C) scarcity goddess. D) compassionate dictator.
Make use of a T-account to show the effect of the Fed's sale of $500 million worth of government securities on the Fed's balance sheet. (assume the Fed receives a check from the sale of securities)
What will be an ideal response?
Suppose that the salary range for recent college graduates with a bachelor's degree in economics is $30,000 to $50,000, with 25 percent of jobs offering $30,000 per year, 50 percent offering $40,000 per year and 25 percent offering $50,000 per year and that in all other respects, the jobs are equally satisfying. Assume that in this market, a job offer remains open for only a short time so that continuing to search requires an applicant to reject any current job offer. If this scenario describes job searches in general, the segment of the population that is most risk-averse will tend to earn:
A. average salaries. B. stable salaries. C. below-average salaries. D. above-average salaries.
Suppose that government imposes a specific excise tax on product X of $2 per unit and that the price elasticity of demand for X is unitary (coefficient = 1). If the incidence of the tax is such that the producers of X pay $1.75 of the tax and the
consumers pay $.25, we can conclude that the: A. supply of X is highly inelastic. B. supply of X is highly elastic. C. demand for X is highly inelastic. D. demand for X is highly elastic.