ECO320 midterm 1 UPDATED ACTUAL
Exam Questions and CORRECT Answers
Should efficiency be the only value that matters to making law and applying it? - CORRECT
ANSWER • Not always leads to an equitable outcome
• For law efficiency should be the only thing that matters because there is a large amount of
variation of what people think is fair, as efficiency can be measured
• Argument 1: Fairness comes at the expense of individual wellness (progressive taxes, rent
controls)
• argument 2: individuals that would thought to benefit from a law often are the victims of that
same benefit (again rent control, because your better off if you already have one but if you are
looking for an apt you pay more)
What other policy values should matter to making law and applying it - CORRECT
ANSWER - income, wealth, consumption, contractual activity, property owned, harm caused,
harm suffered are all imperfect signals of individuals.
Using economic analysis what is the most optimal way to change a law - majority vote? Court
decisions by judges? - CORRECT ANSWER - single judge is more likely to come to a
optimal decision. lower costs and more timely
- individual preferences can come into play, juries are the group option
Define and distinguish between productive efficiency and allocative efficiency - CORRECT
ANSWER • Productive: the production decisions of a firm and the supply side of the market.
Knowledge and control over resources and minimizing costs of selling the goods and obtaining
them, moving resources to less productive to more productive.
• Allocative (redistributive): the buying decisions of consumer and the firms, focused on the
demand side of the market. Minimizing the transaction costs of transmitting information, (how
much you value a good, what are you willing to pay) lowest cost production, moves wealth to the
less informed party to the well informed party.
A non-voluntary transaction never increases utility. True or False. - CORRECT
ANSWER FALSE: goods that are acquired through voluntary exchange are guaranteed to
make both parties better off (coase theorem)
, With the coming legalization of marijuana on October 17, 2018, should the smoking of
marijuana be regulated the same way as cigarettes? How could the government apply cost benefit
analysis? What are the issues? - CORRECT ANSWER - both cause negative health
externalities
- grey markets, perfect substitutes in legal and illegal markets
- if cigg market is regulations are optimal, so could weed market
What are the two (2) main approaches economists use to define efficiency and how might each
approach be applied to a law and economics problem. Give one example of each. - CORRECT
ANSWER • 1. Costs and benefits: something is worth while if gain excees the loss (taxes) no
allowing inappropriate uses on certain areas having a club in a residential neighbourhood, giving
out parking tickets (pg 14 and 42) 2. Pereato optimality pg. 12-14(cant make someone better off
by making someone worse off) ex people sharing chores agreement between a smoker and non
smoker on private property
Think of an example of a landlord and tenant problem (slum tenancies, chronic disrepairs, illegal
or unsafe basement suites, cock roaches, bedbugs or homelessness). Are these problems linked to
a problem of rent controls (price ceiling on rents). If so, how? Think this through - using
diagrams that show the landlord operating as a firm and the supply and demand for apartments
operating as a market. - CORRECT ANSWER (diagram) rent control limits the owners ability
to raise rent without the tenant leaving
- owners can leave units unattended and "force" tenants to leave in order to increase rent for new
tenant
The Ontario government allowed the landlords of new apartment buildings built after 1976 to
charge whatever rents they wanted. Any apartment rented before 1976 would be subject to rent
controls, even if a new tenant took over the lease after 1976, the rent control would remain in
place. The intent of the amendment was to encourage the expansion of the supply of apartments.
Using your analysis from question 8, explain what was wrong with this amendment? -
CORRECT ANSWER if rent controlled units are market substitutes for exempt units, the
exempt units will not be able to charge the allowable rents and the desired supply level will not
be met
In Figure 2.15, showing the cost structure in a firm, if the firm is producing output, is there any
external cost being generated? If so, why is this output level called a social optimum? Would it
Exam Questions and CORRECT Answers
Should efficiency be the only value that matters to making law and applying it? - CORRECT
ANSWER • Not always leads to an equitable outcome
• For law efficiency should be the only thing that matters because there is a large amount of
variation of what people think is fair, as efficiency can be measured
• Argument 1: Fairness comes at the expense of individual wellness (progressive taxes, rent
controls)
• argument 2: individuals that would thought to benefit from a law often are the victims of that
same benefit (again rent control, because your better off if you already have one but if you are
looking for an apt you pay more)
What other policy values should matter to making law and applying it - CORRECT
ANSWER - income, wealth, consumption, contractual activity, property owned, harm caused,
harm suffered are all imperfect signals of individuals.
Using economic analysis what is the most optimal way to change a law - majority vote? Court
decisions by judges? - CORRECT ANSWER - single judge is more likely to come to a
optimal decision. lower costs and more timely
- individual preferences can come into play, juries are the group option
Define and distinguish between productive efficiency and allocative efficiency - CORRECT
ANSWER • Productive: the production decisions of a firm and the supply side of the market.
Knowledge and control over resources and minimizing costs of selling the goods and obtaining
them, moving resources to less productive to more productive.
• Allocative (redistributive): the buying decisions of consumer and the firms, focused on the
demand side of the market. Minimizing the transaction costs of transmitting information, (how
much you value a good, what are you willing to pay) lowest cost production, moves wealth to the
less informed party to the well informed party.
A non-voluntary transaction never increases utility. True or False. - CORRECT
ANSWER FALSE: goods that are acquired through voluntary exchange are guaranteed to
make both parties better off (coase theorem)
, With the coming legalization of marijuana on October 17, 2018, should the smoking of
marijuana be regulated the same way as cigarettes? How could the government apply cost benefit
analysis? What are the issues? - CORRECT ANSWER - both cause negative health
externalities
- grey markets, perfect substitutes in legal and illegal markets
- if cigg market is regulations are optimal, so could weed market
What are the two (2) main approaches economists use to define efficiency and how might each
approach be applied to a law and economics problem. Give one example of each. - CORRECT
ANSWER • 1. Costs and benefits: something is worth while if gain excees the loss (taxes) no
allowing inappropriate uses on certain areas having a club in a residential neighbourhood, giving
out parking tickets (pg 14 and 42) 2. Pereato optimality pg. 12-14(cant make someone better off
by making someone worse off) ex people sharing chores agreement between a smoker and non
smoker on private property
Think of an example of a landlord and tenant problem (slum tenancies, chronic disrepairs, illegal
or unsafe basement suites, cock roaches, bedbugs or homelessness). Are these problems linked to
a problem of rent controls (price ceiling on rents). If so, how? Think this through - using
diagrams that show the landlord operating as a firm and the supply and demand for apartments
operating as a market. - CORRECT ANSWER (diagram) rent control limits the owners ability
to raise rent without the tenant leaving
- owners can leave units unattended and "force" tenants to leave in order to increase rent for new
tenant
The Ontario government allowed the landlords of new apartment buildings built after 1976 to
charge whatever rents they wanted. Any apartment rented before 1976 would be subject to rent
controls, even if a new tenant took over the lease after 1976, the rent control would remain in
place. The intent of the amendment was to encourage the expansion of the supply of apartments.
Using your analysis from question 8, explain what was wrong with this amendment? -
CORRECT ANSWER if rent controlled units are market substitutes for exempt units, the
exempt units will not be able to charge the allowable rents and the desired supply level will not
be met
In Figure 2.15, showing the cost structure in a firm, if the firm is producing output, is there any
external cost being generated? If so, why is this output level called a social optimum? Would it
