In a world without transactions costs, how will a change in property rights affect
(i) economic efficiency,
(ii) the distribution of income, and
(iii) the allocation of resources? Explain, using the Weak and Strong Coase Theorems.
(i) The Weak Coase Theorem guarantees that, as long as property rights are well-defined, changes in those property rights will have no effect on economic efficiency. Private bargaining among the relevant parties will result in an efficient outcome, no matter how the property rights are assigned.
(ii) Changing property rights will affect the distribution of income. The parties receiving the property right will be better off, and the parties losing the property right will be worse off.
(iii) A change in property rights may or may not affect the allocation of resources. If the resulting redistribution of income does not significantly affect the pattern of market demand, then the Strong Coase Theorem holds and there will be no change in the distribution of income. Otherwise, a different, albeit still efficient, allocation of resources will occur.
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If there is no Ricardo-Barro effect, a government budget surplus ________ the total supply of loanable funds and ________ the real interest rate
A) does not change; does not change B) increases; raises C) increases; lowers D) decreases; lowers E) decreases; raises
In monopolistic competition, profit is maximized by producing so that marginal revenue
A) equals price. B) is negative. C) equals marginal cost and which are less than price. D) equals average total cost but not marginal cost. E) equals marginal cost and equals price.
Under perfect competition in the resource market, the marginal factor cost curve:
a. is positively sloped. b. is vertical. c. is negatively sloped. d. is horizontal. e. does not exist.
The view that the government budget should always be balanced except in wartime refers to:
A. the Ricardian equivalence. B. fiscal policy. C. public finance. D. sound finance.