Briefly explain at least three reasons why private negotiations cannot eliminate inefficiencies related to pollution control.
What will be an ideal response?
First is the issue of ambiguity regarding property rights in air, water, and other environmental media. Firms that have historically polluted resent controls, giving up their rights to pollute only if bribed, yet consumers feel they have the right to breathe clean air and use clean bodies of water. These conflicting positions must be resolved in court, with the winner being, of course, made wealthier. Second, transaction costs increase greatly with the number of transactors, making it next to impossible for individual firms and citizens to negotiate private agreements. Third, if either party lacks the information about the cost and benefits of pollution reduction, it will likely result in non-optimal outcomes. That is, it is hard to bargain effectively when you don’t know the full impact of the pollution activity. Finally, the properties of air or water quality (and similar public goods) are such that additional people can enjoy the benefits at no additional cost and cannot be excluded from doing so. Hence, in practice, private agreements are unlikely to solve many problems of market failure.
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Refer to Scenario 18.1. If the fishermen are given the right to clean water,
A) the outcome will be more efficient than if the factory is given the right to use the water as it sees fit. B) the outcome will be less efficient than if the factory is given the right to use the water as it sees fit. C) the efficient outcome will occur no matter who is given which property right, and the individual gains will be the same in each case. D) the factory will be forced to shut down. E) the efficient outcome will occur no matter who is given which property right, but how that maximum gain is split will be determined during bargaining.
Although asset price bubbles seem obvious after the fact, it is much more difficult to draw such a conclusion before the fact
a. True b. False Indicate whether the statement is true or false
Exhibit 1A-7 Straight line relationship
Using the relationship shown in Exhibit 1A-7, suppose the price of air travel increases. How would you revise the graph to show this change?
A. Draw a new point on the graph upward and to the left. B. Draw a new point on the graph downward and to the right. C. Draw a new line on the graph. D. Change the current line so that its slope is flatter.
U.S. Gross Domestic Product (GDP) does NOT include which of the following?
A. business investment in the United States B. U.S. exports to Canada C. the purchase of all final goods and services by U.S. households D. the value of goods produced in China by a U.S. owned firm