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  Economics 101-300 Quiz #3 20 points   INSTRUCTIONS:  You have 45 minutes to complete the quiz

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Economics 101-300

Quiz #3

20 points

 

INSTRUCTIONS:  You have 45 minutes to complete the quiz.  Please make sure to fill in your name on the line below.  Please read each question carefully and answer it fully.  Answer all of the questions in this quiz. Point values for each question are listed with the question.  Write your answers directly on this document.  If the question is multiple choice, circle the letter of the answer you believe is correct.  For analytical questions, work out your answer on the paper in the space given.  We can give partial credit even if the answer is incorrect if we see the work and can figure out where the problem is. Turn in this entire document when you are finished. Take your time, and good luck.

 

Your name___________________________________________

 

 

1. (3 points) Suppose that any time oil companies drill for oil off the Gulf coast, some oil inevitably spills into the water. People want to use those waters for recreational purposes but can’t if they’re highly contaminated. The government is concerned, then, that companies produce more oil than is socially optimal. What can the government do to ensure that the socially optimal level of oil is produced?

 

1. 1. subsidize consumers’ purchase of oil products
   2. tax consumers’ purchase of oil products
   3. subsidize firms’ production of oil
   4. none of the above will work
   5. all of the above will work

 

 

2. Six students on Hill St. share a house and tailgate very early on game days. Their tailgating frequently awakens their neighbor, who lives in a one bedroom apartment next door, and actually owns the building that the students live in. Suppose that the City has passed a law that limits noise. The students clearly violate the law and would be subject to a $300 fine if the neighbor reports them.

 

1. 1. (1 point) The neighbor could simply report the students to the police, or could privately negotiate with the students.  Is the better solution for the neighbor simply report the violation and let the government solve the problem? Circle the correct answer.

 

YES

 

NO

 

b. (3 points) Is there an alternative solution that is better for the neighbor and for the students if the two parties just bargained privately? If your answer to a) is yes, explain why reporting is the better solution.  If your answer to a) is no, explain why negotiating is a better solution than private bargaining, how a solution could be reached and what the solution generally looks like.

 

 

 

 

3. The graph below shows the marginal costs of pollution abatement (abatement means to reduce) for two polluting firms, GM and Toyota. Right now each firm pollutes 300 tons a day (150 tons each).  The government wants to reduce total pollution by 60 tons.  So the government issues 120 pollution permits to GM and Toyota.  Each permit allows one ton of pollution. These permits can be sold and purchased.   The government only cares that the total pollution emitted is 240 tons a day. 

 

1. 1. (2 points) By how much does GM reduce its pollution?  By how much does Toyota reduce its pollution?

 

 

 

1. 2. (2 points) What is the price of the pollution permits when GM and Toyota traded them?

 

 

 

 

1. (3 points)   Car manufacturers produce CO2 (carbon dioxide) as a byproduct of production. Therefore, the social marginal cost of car production is higher than the private marginal cost of car production. Take a look at the graph below--Suppose the government levies a $4,000 per car tax on the producers of cars. Comparing the private competitive equilibrium to the new taxed equilibrium leads to a reduction of the deadweight loss by:

 

1. $6,000,000
2. $18,000,000
3. $26,000,000
4. $30,000,000
5. the answer can’t be determined from the information given