Problem 1
State whether each of the following primarily causes an external cost or an external benefit. \([\mathrm{LO} 18.1]\) a. Fishing at a popular lakeside vacation spot. b. Buying a fax machine. c. Conducting research to find an AIDS vaccine. d. Occupying a seat on a bench in a crowded park. e. Littering f. Spaying or neutering your pet.
Problem 2
You are considering whether to enter a holiday lights display contest that pays \(\$ 1,000\) to the winner. State whether each of the following constitutes private costs, private benefits, external costs, or external benefits. Check all that apply. [LO 18.1\(]\) a. Increased traffic congestion and difficulty parking on your street. b. Increased electric bill from the holiday lights. c. Winning the holiday lights display contest.
Problem 7
Your neighbor never mows her lawn. You don't have any legal right to force her to mow, but the mess in her front yard is making your neighborhood unsightly and reducing the value of your house. The reduction in the value of your house is \(\$ 5,000\), and the value of her time to mow the lawn once a week is \(\$ 1,000\). Suppose you offer her a deal in which you pay her \(\$ 3,000\) to mow. How does this deal affect surplus? [LO 18.4] a. The deal increases only your surplus. b. The deal increases only your neighbor's surplus. c. The deal increases both your surplus and your neighbor's. d. The deal increases your surplus but decreases your neighbor's. e. The deal increases your neighbor's surplus but decreases yours. f. The deal does not affect surplus.
Problem 8
Johnston Forest in Rhode Island has a cave that houses thousands of fruit bats. Bat droppings are highly acidic and have ruined the paint on many cars. The flying radius of the Johnston Forest bats encompasses two towns, Johnston and Foster. The residents of Johnston collectively value bat removal at \(\$ 400,000 .\) Foster residents collectively value bat removal at \(\$ 500,000 .\) Pest control experts estimate that the cost of bat removal would be \(\$ 450,000\). Which of the following scenarios would lead to removal of the bats? Check all that apply. [LO 18.4\(]\) a. Foster pays Johnston \(\$ 50,000\) to contribute to bat removal. b. Foster and Johnston evenly split the cost of bat removal. c. Johnston contributes nothing toward bat removal.
