There are 500 families in a neighborhood that are affected by air pollution from a local factory. The pollution is within legal limits, but could be reduced further if the company spent $10,000 on upgraded ventilators. The company agrees to install the ventilators if the affected families contribute the $10,000. A committee starts to collect donations to pay for the ventilators. Which of the following is most likely to occur?
A. Because there are relatively few families involved and the individual contribution is so small, all families will voluntarily contribute.
B. Even if the families raise $10,000, the firm will not reduce its air pollution since it is within legal limits.
C. Because each individual contribution is so small and individuals will benefit from the reduction in air pollution whether they contribute or not, most people will not contribute and the firm will not upgrade the ventilators.
D. The courts will force the firm to spend the $10,000 regardless of whether or not the families contribute the money.
Answer: C
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Suppose a retail store was offering 10% off list prices on all goods. The benefit of the 10% savings is:
A. unrelated to the list price of the good. B. zero since costs and benefits shouldn't be measured proportionally. C. positively related to the list price of the good. D. negatively related to the list price of the good.
What is the equilibrium quantity of a market with a demand curve P = 10 - Q and a supply curve equal to P = 2 + 2Q and a tax imposed on the seller of $2 per unit? How does this tax effect resource allocation? What might justify the allocation effect of the tax?
What will be an ideal response?
Alberta owns a nature preserve next to a coal mine. The mine produces dust that enters a stream on its land but which later flows through Alberta’s land. The dust in the stream does about $20,000 of damage to Alberta’s plants per year. The mine can clean up the dust before it reaches the stream for about $12,000 per year. Alberta offers them $15,000 per year to clean up the dust. What economic idea does this scenario exemplify and why?
What will be an ideal response?
Crowding out occurs when the federal government:
A. raises taxes to finance a budget deficit. B. refinances maturing U.S. Treasury bonds. C. borrows by selling bonds to finance a deficit. D. uses a budget surplus to pay off part of the national debt.