Suppose that Charles wants to dine at a fancy restaurant, but the only available table is in the smoking section. Charles dislikes the smell of cigarette smoke. He notices that only one person, Sam, is smoking in the smoking section. Charles values the absence of smoke at $40 . Sam values the ability to smoke in the restaurant at $15 . Which of the following represents an efficient solution in
the absence of transaction costs?
a. Sam continues to smoke because he has a right to smoke in the smoking section.
b. Charles offers Sam between $15 and $40 not to smoke. Sam accepts, and both parties are better off.
c. Charles offers Sam between $15 and $40 not to smoke. Sam declines because he has a right to smoke in the smoking section.
d. Only a government policy banning smoking in restaurants will solve this problem.
b
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Suppose that Joan, the only consumer of pork, has a downward-sloping demand curve for pork and faces an upward-sloping supply curve. If her demand curve shifts out because she develops a craving for pork, then at the new equilibrium (everything else equal),
a. the price of pork relative to other goods will be higher than before. b. Joan's marginal utility from every unit of pork she eats will be higher than before. c. Joan's real income will be lower than before. d. All of the above are correct.
Given the underlying demographic changes in our society, we can expect
a. budget surpluses to outnumber budget deficits in the years ahead. b. the number of budget surpluses to be approximately equal to the number of budget deficits in the years ahead. c. budget deficits to outnumber budget surpluses in the years ahead. d. budget deficits one year to be followed by a budget surplus the next so that the budget balances every two years.
Political instability is an obstacle to development in:
A. both market and socialist economies. B. neither market nor socialist economies. C. market economies. D. socialist economies.
The Fed would be pursuing a contractionary monetary policy if it was
A. lowering the reserve requirement. B. selling dollars in foreign exchange markets. C. selling bonds in the open market. D. lowering the differential between the discount rate and the federal funds rate.