Question

1.if violent crime rates in hot weather, the growth of air conditioning generates
a.   a negative externality c. negative private net benefits
b.   a positive externality d. no link to the crime rate e. public goods
2. if a community is assigned property rights over air quality and the environment, a steel mill in the community that generates air pollution:
a.   will sue damages and for the right to produce steel.
b.   will cease to pollute.
c.   can contract to pay the community to allow some level of air pollution.
d.   must shut down
e.   will outsource production to a” pollution haven” country, such as China.
3. if producing plastic toys generates acid rain that damages wildlife habitat in a region from a factory, from a social perspective, the price of toys will be ___ but the quantity produced will be _.
a. too low; correct b. too low; too high c. correct; too low d. too high; too low
e. too high; too high
4. private firms will not provide such goods as flood-control projects, research in basic sciences, space exploration and wildlife preservation because
a)   such projects generate harmful spillover effects
b)   marginal benefits invariably fall short of marginal cost in such projects
c)   these are major sources of revenue for the government
d)   there is no way of denying benefits to those who are unwilling to pay
e)   these projects do not benefit the society.

Answer 1

Solution:

1. Growth of air conditioning creates more heat, but that does not necessarily mean a hot weather, and so relation of it with crime rate seems kind of implausible. Also, air conditioning growth is in no way and case a public good.

Thus, the correct option is (D).

2. Since the property rights of air quality and environment lies with the community, steel mill have to obey the community and convince it for any desired action. It could issue a contract for some level of pollution by compensating the community with economic damage and loss generated due to this level of pollution.

Thus, the correct option is (C).

3. Production of plastic toys is hazardous for the environment, meaning generation of a negative externality. Thus, the private equilibrium will result in greater production being sold at a lower price than the social equilibrium. Then, from social perspective, the price will be too low, while quantity will be too high.

Thus, the correct option is (B).

4. The mentioned projects are usually funded by the government (and big corporates also contribute sometimes) for the benefit of entire society. Since, it's for entire society, even those who do not pay tend to advantage from it. So, firm's private marginal cost exceeds it's private benefit, however, social benefit will be a lot high, and it would not be advantageous for the firm.

Thus, the correct option is (D).