ECON 528 FINAL 2.5
POST TEST QUESTIONS
AND CORRECT ANSWERS
GRADED A+ 2025-2026
If transaction costs are low, the efficient activity will occur, either the rancher or
railroad installing fences to protect from rampaging cattle and/or sound insulation
with trees, or if it is cheaper, fewer train trips per day. The cheapest or most efficient
solution will happen, regardless of who is assigned the original property right - ANS-
The Coase Theorem works best in places that transaction costs for contracts among
people is low. Often in the world of torts and externalities both parties can claim that
they have rights to impose on others. One case is that of a railroad that is noisy and
scares the cattle and the rancher whose cattle sometimes wander in front of moving
trains causing damage to them and the train. What does the Coase say would happen?
Select one:
a. The rancher should have the property right to be safe from noisy trains, and the
railroad should be liable for weight loss of cattle from train whistles and rumbling
noise.
b. If transaction costs are low, the efficient activity will occur, either the rancher or
railroad installing fences to protect from rampaging cattle and/or sound insulation
with trees, or if it is cheaper, fewer train trips per day. The cheapest or most efficient
solution will happen, regardless of who is assigned the original property right
c. The train should have property right to be safe from wandering cattle, and the
rancher should be liable for train damage of rampaging cattle.
d. The two party should fight with each other. The winner will be able to establish their
right while the loser will can do nothing.
4 - ANS-(Figure 17.2) Suppose the external marginal cost is constant at $5 per unit.
Price (demand) equals social marginal cost at output level:
Select one:
, a. 6
b. 4
c. 3
d. 7
I and III - ANS-(Figure 17.3) Which of the following statements is (are) TRUE?
I.
The socially optimal quantity is 3.
II.
The deadweight loss associated with the perfectly competitive output level is $4.50.
III.
The external marginal cost is $6.
Select one:
a. I, II, and III
b. II and III
c. I and II
d. I
3 - ANS-Table 17.1) According to the table, what is the socially optimal output level?
Select one:
a. 4
POST TEST QUESTIONS
AND CORRECT ANSWERS
GRADED A+ 2025-2026
If transaction costs are low, the efficient activity will occur, either the rancher or
railroad installing fences to protect from rampaging cattle and/or sound insulation
with trees, or if it is cheaper, fewer train trips per day. The cheapest or most efficient
solution will happen, regardless of who is assigned the original property right - ANS-
The Coase Theorem works best in places that transaction costs for contracts among
people is low. Often in the world of torts and externalities both parties can claim that
they have rights to impose on others. One case is that of a railroad that is noisy and
scares the cattle and the rancher whose cattle sometimes wander in front of moving
trains causing damage to them and the train. What does the Coase say would happen?
Select one:
a. The rancher should have the property right to be safe from noisy trains, and the
railroad should be liable for weight loss of cattle from train whistles and rumbling
noise.
b. If transaction costs are low, the efficient activity will occur, either the rancher or
railroad installing fences to protect from rampaging cattle and/or sound insulation
with trees, or if it is cheaper, fewer train trips per day. The cheapest or most efficient
solution will happen, regardless of who is assigned the original property right
c. The train should have property right to be safe from wandering cattle, and the
rancher should be liable for train damage of rampaging cattle.
d. The two party should fight with each other. The winner will be able to establish their
right while the loser will can do nothing.
4 - ANS-(Figure 17.2) Suppose the external marginal cost is constant at $5 per unit.
Price (demand) equals social marginal cost at output level:
Select one:
, a. 6
b. 4
c. 3
d. 7
I and III - ANS-(Figure 17.3) Which of the following statements is (are) TRUE?
I.
The socially optimal quantity is 3.
II.
The deadweight loss associated with the perfectly competitive output level is $4.50.
III.
The external marginal cost is $6.
Select one:
a. I, II, and III
b. II and III
c. I and II
d. I
3 - ANS-Table 17.1) According to the table, what is the socially optimal output level?
Select one:
a. 4
