Marissa owns a small cottage by the lake. Big Boy’s Sawmill is next door, and it dumps sawdust into a sinkhole it owns. Unfortunately for Marissa, the sinkhole opens into a brook on her land, which gets clogged by the sawdust. It costs Marissa $3,000 per year to clean up the sawdust. Big Boy’s can dispose of the sawdust by having it hauled away for $2,000 per year. Marissa offers to pay Big Boy’s $2,500 per year to have the sawdust hauled away. In this example of the Coase theorem, what is the negative externality?
a. the cabin
b. the sawdust
c. the lake
d. the sinkhole
b. the sawdust
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Consumer surplus is the area
A) below the demand curve and above the market price. B) below the supply curve and above the market price. C) above the demand curve and below the market price. D) above the supply curve and below the market price. E) below the demand curve and above the supply curve.
Ensuring that high-quality public education is freely available to all children is one of the most important ways that a country can:
A. increase its stock of human capital. B. decrease its stock of human capital. C. decrease its productivity. D. increase its foreign direct investment.
In determining wages, ability, effort, and chance
a. probably play no role whatsoever. b. play a role, but their importance is hard to gauge since ability, effort, and chance are hard to measure. c. play a role, and that role is fully captured in easy-to-measure factors such as human capital and age. d. play a role, and it is fully explained within the context of compensating differentials.
Economic theory suggests that discriminating employers will be driven from the marketplace when the output market is competitive. Why?
A. The government mandates that the employer not act on his or her desire to discriminate. B. A competitive output market requires all workers to be paid the same wage. C. Workers will refuse to work for a discriminating employer. D. Customers will refuse to purchase from a discriminating employer. E. Discrimination imposes an additional cost on the employer, and high-cost firms are eventually driven out of a competitive output market.