Suppose there are ten people playing cards in a room. One of them wants to smoke a cigar, nine of them dislike the smell of cigar smoke. The smoker values the privilege of smoking at $5, and each of the other nine people of the room would be willing to pay fifty cents for clean air in the room. The rules governing use of the room state that smoking is not allowed unless everyone agrees to allow smoking. Declaring the card room a non-smoking area with no opportunity to negotiate would:
A. increase total economic surplus.
B. leave total economic surplus unchanged, but redistribute benefits.
C. decrease total economic surplus.
D. efficiently solve the externality problem.
Answer: C
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Economists view pollution as an economic problem that arises because
a. private enterprise always minimizes the amount of pollution produced b. profitable firms rarely pollute c. as the economy grows, the level of pollution declines d. firms that pollute do not pay the full social cost of producing their output e. pollution costs are borne by the consumer
The name of the rate that equalizes the prices of internationally traded goods between countries is called the
a. international interest rate. b. arbitrage rate. c. purchasing power parity rate. d. foreign exchange rate.
A country with a civilian population of 120,000 (all over age 16) has 100,000 employed and 10,000 unemployed persons, of which 5,000 are frictionally unemployed and another 3,000 structurally unemployed
a. What is the size of the labor force? b. What is the actual unemployment rate? c. What is the labor force participation rate? d. What is the employment/population ratio? e. What is the natural rate of unemployment? f. Is this economy in a recession or a boom? Explain.
If the crowding-out effect is complete and the marginal propensity to save is 0.2, then an increase in government spending of $500 billion will generate how much more real Gross Domestic Product (GDP)?
A. $0 B. $500 billion C. $50 billion D. $400 billion