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ECO320 midterm 1 Questions with Answers
Should efficiency be the only value that matters to making law and applying it?
Ans: • 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
Ans: - 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?
Ans: - 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
Ans: • 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.
Ans: 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?
Q&A
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Ans: - 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.
Ans: • 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.
Ans: (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?
Ans: 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 not be optimal to have no external cost? At what level of output
would that occur? Does the point at which (social) marginal cost equals (social)
marginal benefit provide any guidance? Is the point at which social marginal cost and
social marginal benefit are equal consistent with the existence of some external cost?
Why or why not?
Q&A
ECO320 midterm 1 Questions with Answers
Should efficiency be the only value that matters to making law and applying it?
Ans: • 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
Ans: - 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?
Ans: - 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
Ans: • 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.
Ans: 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?
Q&A
, Q&A Q&A Q&A Q&A Q&A Q&A Q&A Q&A Q&A Q&A Q&A
Ans: - 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.
Ans: • 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.
Ans: (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?
Ans: 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 not be optimal to have no external cost? At what level of output
would that occur? Does the point at which (social) marginal cost equals (social)
marginal benefit provide any guidance? Is the point at which social marginal cost and
social marginal benefit are equal consistent with the existence of some external cost?
Why or why not?
Q&A
