Question

08. 3 of 6 An airport Causes noise pollution that has nearby residents If the airport owns the property rights to the air and there are voluntary exchanges with no transactions costs, which is the most likely outcome? a) There will be no noise pollution b) The airport will agree to compensate the residents for the noise pollution c) The residents will pay the airport to take pollution abatement measures d) The airport will buy all the houses and rent them to people who do not care much about noise 69 Private negotiations are likely to fail to resolve externality problems whenever which of the following cour? a) The Coase theorer holds b) Transactions costs are high c) Property rights are assigned to the individual who pollutes. d) Property rights are assigned to the third parties affected by the externality 16 The Coase Theorem works best under which conditions? a) The property rights belong to the polluters b) There are scientific and technical uncertainties about the causes and sources of pollution c) There are high inherent costs of negotiations d) There are low transaction costs Which of the following is most likely to result in achieving a given level of pollution control at the lowest cost? a) A cap and trade approach b) The command-and-control approach c) An hands-off policy toward polluters d) All of the above are equally efficient

Answer 1

8 Option c is correct

a)

As it is given that Airport causes noise pollution in the environment. So, this option is incorrect

b) As the Airport owns the property rights so it has no obligation to compensate the residents for the noise pollution until the government intervenes. So, this option is incorrect.

c) Voluntray exchanges will take place from the residents who will pay the airport to take pollution abatement measures as the property rights of creating the pollution is owned by the Airport. So, this option is correct.

d) Airport would not have to buy new houses as it would increase the total cost. Also, Airport owns the property rights as well. So, this option is incorrect.

9 Option b is correct

a) When the Coase theorem holds, the market efficiency is acheived and both the players involved in externality are better off. Private Negotiations between both the players will not likely to fail in this case as property rights are well assigned. Sp, this option is incorrect.

b) High Transaction cost reduces the bargaining power of both the parties and leads to market inefficiency Private Negotiations will likely to fail in this case. This option is correct.

c) If property rights are assigned to the individual who pollutes then the affected party has to pay so that the individual takes externality abatement measures. Here, efficiency can be achieved through private negotiations. So, this option is incorrect.

d) if rights are assigned to the affected third party then the party can ask the firm to stop creating externality. Efficiency can be achieved through private negotiations. So, this option is incorrect.

10. a) The Coase theorem works best when the property rights belong to the polluters as the theorem states that mutually beneficial outcome can be achieved if the transaction costs are zero, property rights belong to polluters and the marginal damage from the pollution is higher than the polluter's marginal benefit. So, this option is correct.

11. Option a) is correct.

a) Cap and Trade approach works best to control the pollution at the lowest cost. The government intervenes in the market and limits the pollution level created by the polluter. So, this option is correct

b) Under this approach, pollution controlling technologies are adopted which increases the cost to the government. So, this option is incorrect.

c) Hands off policy also increases the total cost to the government. So, it is also incorrect.