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University of Toronto St. George
Donald Dewees

Economics 320F An Economic Analysis of Law Midterm Exam Suggested AnswersFall 2003 University of Toronto Joanne RobertsPlease answer all parts of the exam in the exam booklet provided Calculators are permitted This test will be marked out of 50 The marks for each question are noted throughout the exam Part 1 20 marks10 eachComment on two of the following1Should society take as its objective the eradication of all crimeOf all pollutionOf all accidentsOn what basis should society allocate its scarce resources toward reduction of crime pollution accidents and other bad thingsA Efficiency suggests that resources should be allocated toward the reduction of these bad things to the extent that it is efficient to do so The efficient allocation of resources to the reduction of one of these bad things is the level at which the marginal benefit of allocating the last unit of a resource to the reduction in question equals the marginal cost of allocating that last unit If fewer resources are allocated to the reduction of the bad thing such that the marginal benefit of adding an additional unit of resource is greater than the marginal cost that would be incurred it would clearly be efficiency enhancing to allocate that additional unit On the other hand if more resources than this level were allocated such that the MC of adding the last unit is greater than the MB of doing so it would be efficiency enhancing to reduce the level of resources so allocated Therefore in general it is not desirable from an efficiency point of view to allocate resources so as to eradicate all crime all pollution andor all accidents Instead resources should be allocated such that no more and no less than an efficient level of each of these things occurs2Recently steps have been taken in the United States to ban the commercial market in human bloodThe principal argument given was that commerciallyprovided blood is more likely to be infected with hepatitis the AIDS virus and other harmful elements than
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