 |
1 | |
The following nine questions relate to the graph below and the story that follows. Mr. Loud Mouth buys tickets to a baseball game. He is more interested in beer and raucous behaviour than in baseball, and so he makes life difficult for Mr. Ardent Fan, who is seated next to him. The marginal benefit curve on the graph shows the extra benefit Loud gets from each successive beer. Thus the area under the curve is the total perceived benefit he gets from beer. If he tried to protect people like Ardent from being annoyed, he would have to stop drinking or hire someone to monitor his behaviour and keep it in check. The more he drinks, the more expensive the monitor. This cost is listed as "Cost of monitoring beer drinker". Two other costs are relevant to this problem. First, Ardent Fan could absorb the irritation by staying in the next seat. This cost function is called "Cost of sitting next to beer drinker". Finally, Mr. Fan could move back to a less desirable, but unoccupied seat. This function is called "Cost of moving away". The more beer Loud drinks the farther Ardent must move away. If the rules allow Loud Mouth to do as he pleases and Mr. Mouth and Mr. Fan can negotiate without cost, how many drinks will Loud consume?
 <![CDATA[<a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=gif::frank_mci_17-1::/sites/dl/free/0070889708/33968/17-1revised.gif','popWin', 'width=607,height=255,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif">frank_mci_17-1 (3.0K)</a>]]>frank_mci_17-1 |
| | A) | DR |
| | B) | DU |
| | C) | DN |
| | D) | DK |
|
|
2 | |
If the rules prohibit disturbing behaviour and are enforced only upon request of an offended party and Loud and Ardent can negotiate freely, how much will Loud drink? |
| | A) | DR |
| | B) | DU |
| | C) | DN |
| | D) | DK |
|
|
3 | |
The moral of the story of questions 17-1 and 17-2 is |
| | A) | Always make the perpetrator of the problem responsible for the solution. |
| | B) | There is no efficient outcome of an externality problem. |
| | C) | If negotiation costs are zero, it makes no difference who is responsible because efficiency will be reached. |
| | D) | If negotiation costs are zero, efficiency is best served if the person held responsible for the problem is the one with the highest cost of solving the problem. |
|
|
4 | |
If Ardent and Loud are so upset with each other that no deals can be made and there are no rules against disturbance, then how much beer will be consumed? |
| | A) | DR |
| | B) | DU |
| | C) | DN |
| | D) | DK |
|
|
5 | |
What will be the disturbance cost of Loud''s action in question 17-4 above? |
| | A) | DFK |
| | B) | DGK |
| | C) | DHK |
| | D) | DEK |
|
|
6 | |
If Ardent and Loud are so upset with each other that no deals can be made and disturbances are stopped upon complaint, how much beer will Loud drink? |
| | A) | DR |
| | B) | DU |
| | C) | DN |
| | D) | DK |
|
|
7 | |
The moral of the story in questions 17-4 to 17-6 is that |
| | A) | when negotiation costs are prohibitive, the best alternative is to make the person responsible who has the highest cost of solving the problem. |
| | B) | when negotiation costs are prohibitive, the best alternative is to make the person responsible who has the lowest cost of solving the problem. |
| | C) | a law outlawing beer at games would serve society best. |
| | D) | no rules or regulations are necessary. Let the parties battle to some solution or live in conflict. The medicine of rules is worse than the externality disease. |
|
|
8 | |
If ball park owners held an auction of rights between Loud and Ardent, how high would Loud bid, and who would win the bid for the right to make the beer drinking rules? |
| | A) | DEK; Ardent would win the bid. |
| | B) | DEK; Loud would win the bid. |
| | C) | DEHK; Loud would win the bid. |
| | D) | EHK; Ardent would win. |
|
|
9 | |
In the case of Loud and Ardent, the ball park owners could achieve the efficient result if they added a tax to the cost of beer. The correct amount of tax would be |
| | A) | OA per beer. |
| | B) | BR per beer. |
| | C) | CU per beer. |
| | D) | EN per beer. |
|
|
10 | |
Suppose that recently, increasing numbers of people in business have begun seeking a career change into academia. The reason often given is that they are tired of working 80 hours a week away from home and would rather have a different lifestyle. Given this information, which of the following statements is clearly false? |
| | A) | These people would probably favour a requirement that would make long workweeks an exception rather than the rule. |
| | B) | There are positional externalities to long workweeks in a firm. |
| | C) | The cost of career climbing is starting to exceed the benefits for these workers. |
| | D) | These workers are not willing to give up good ratings and promotions in business for family time, so they seek an environment where family time and work esteem are not mutually exclusive. |
| | E) | None of the above is clearly false. |
|
2002 McGraw-Hill Higher Education