ECON 431 Midterm: ECON 431 Cal Poly SLO 2004 Midterm
Document Summary
Section i: true/ false - short answer (8 points each) Answer the 2 questions below with true or false . If you answer true, briefly explain why the statement is true. If you answer false, briefly explain what is incorrect about the statement or qualify it. In a production externality situation, an unregulated competitive market will always produce a larger quantity than the socially optimal (welfare maximizing) level. If a regulator does not know a firm"s demand for pollution, but believes it to be elastic, then the regulator should favor a standard over a tax as a method to reduce pollution. A local waste-hauling company collects trash and dumps it in the municipal. A bad odor rises from the landfill and crosses into a neighboring subdivision where it decreases the value of people"s homes. Because this value is reflected in the housing market, this is an example of a pecuniary externality. Round off values to two decimal places where necessary.
