Microeconomics Answers

1.     Suppose that under the United States-Canada Air Quality Agreement, both countries agree to a combined 30 percent SO₂ abatement standard. Further assume that the following SO₂ abatement cost functions have been estimated by each country:

                                              TAC_US = 500 + 1.5(A_US)²

                                              MAC_US = 3 A_US

                                              TAC_CAN = 1000 + 3(A_CAN)²

                                              MAC_CAN = 6 A_CAN

A.     If the countries implement a uniform abatement standard, find the resulting values of TAC and MAC for each nation. Based on these values, is there an economic incentive the two nations to participate in an emissions trading program? Explain. (10 marks)

B.     Assuming a trading program is enacted, find the cost savings associated with a cost-effective abatement solution? (12 marks)

C.     What must be the price of a tradeable permit to achieve the cost-effective abatement allocation? (3 marks)

1.     Consider the following model of a hypothetical market for MSW management services:

                                   MPB   =         25 − 2Q           

                                   MPC    =          4 + Q

                                   MEC    =         0.5Q,

           where Q is the number of trash containers per household per month.

A.     Quantitatively determine the effect of the resource misallocation due to: (12 marks)

a.     the presence of the negative externality, and

b.     the use of a flat fee pricing system in the presence of a negative externality.

B.     Determine the dollar value of a waste-end charge that would restore efficiency to this market. Explain your answer intuitively. (3 marks)

1.     Consider the following model of a hypothetical market for MSW management services:

                                   MPB   =         18.35 − 2Q     

                                   MPC    =          2 + Q

                                   MEC    =         0.25Q,

           where Q is the number of trash containers per household per month.

A.     Quantitatively determine the effect of the resource misallocation due to:  

                                           i.           the presence of the negative externality, and

                                          ii.           the use of a flat fee pricing system in the presence of a negative externality.

B.     Determine the dollar value of a waste-end charge that would restore efficiency to this market. Explain your answer intuitively.  

1.     Consider the following model of a hypothetical market for MSW management services:

                                   MPB   =         18.35 − 2Q     

                                   MPC    =          2 + Q

                                   MEC    =         0.25Q,

           where Q is the number of trash containers per household per month.

A.     Quantitatively determine the effect of the resource misallocation due to:  

                                           i.           the presence of the negative externality, and

                                          ii.           the use of a flat fee pricing system in the presence of a negative externality.

B.     Determine the dollar value of a waste-end charge that would restore efficiency to this market. Explain your answer intuitively.  

On any given day there are 15,000 people who listen to Minnesota Public Radio (MPR). The per-person yearly benefit is $150. Twice a year MPR holds a fund raising drive requesting listeners contribute to keep their programming on the air.

What is the per-person incentive to make a contribution?

A. $0 

B. $300

C. $30,000

D. $15,000,000

In the country of Tansyland there are 5 states and each state has 20,000 people that reside there. The amount of income varies for each person and each person in Tansyland is taxed based on the total cost of government-funded projects divided by the number of people who live in Tansyland. Three states are located on the coast of the Pacific Ocean and each have one government-funded lighthouse. A lighthouse can add up to $1 million per year to an individual state’s local economy. The yearly marginal benefit to Tansyland of having another lighthouse is shown in the graph below.

Given the information above, taxes in Tansyland are:

A. regressive. 

B. based on each resident’s willingness to pay.

C. proportional.

D. progressive.

The price of shoes in Cuba, a closed economy, is more than the world price of shoes. Cuba decides to open itself to world trade and the result will be that Cuba will begin to _______ shoes.

A. import 

B. export

C. import and export

D. produce more shoes

For which type of goods will the deadweight loss be smaller as the result of a tax? For those:

A. whose supply and demand curves are more inelastic.

B. whose supply and demand curves are more elastic.

C. that are relatively expensive.

D. that are consumed by a large fraction of the population.

Under a proportional tax system, Karl pays $30,250 on a salary of $275,000. Jan pays $36,300 in taxes which means Jan’s salary is:

A. $325,000.

B. $275,000.

C. $330,000.

D. $350,000.

Bart and Jeremy share an access road to each of their properties. They are thinking of having the access road paved. Bart is willing to pay $2000 for the paving process while Jeremy’s value for this is just $1200. Both people will benefit from the paving no matter who pays. To secure the contract for the paving job, what is the maximum the paving company can charge and still be assured of being hired by one of the property owners?

A. $800

B. $1200

C. $2,000

D. $3,200