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Econ 100b (Grossman) - Winter 2010 Final Exam - Version A Multiple Choice Test - University Of California Page 3

10. The dollar value of ﬁsh caught from Lake Spooky is given by f (b) = 100b

, where b is the

number of ﬁshing boats. Fishing boats are costless to buy and operate. What is the optimal tax

that the Department of Fish Aﬀairs should impose on ﬁshing boats, so as to avoid the Tragedy of the

Commons?

(a) $0 per boat

(b) $50 per boat

(d) $100 per boat

11. Fortuna, California has 500 people. Every year a ﬁreworks show is held. Each resident of Fortuna is

willing to pay $4 for ﬁreworks. If the cost of providing the ﬁreworks (f ) is c(f ) = 2f

, what is the

Pareto Eﬃcient amount of ﬁreworks?

(a) 2000

(b) 1000

(d) 500

12. Three people play the following game. Each person is given $10 and must privately choose an amount

x to contribute to the group ‘pot’. The total money in the pot is doubled and distributed equally

among all the people in the group. What is the Pareto eﬃcient outcome?

(a) Each person contributes x = 0

(b) Each person contributes x = 3

(d) Each person contributes x = 5

13. The town of Rexford is deciding whether to proceed with a public project. The only residents of the

town have the following net valuations (including cost) of the project: V

= 60, V

= 10 and V

100.

If the town applies a VCG mechanism to make the decision, which of the following is true?

(a) The project is abandoned and c pays a tax of 70

(b) The project is abandoned and no one pays any tax

(d) The project is abandoned and a, b and c pay respective taxes of 40, 0, and 30

14. The city of Santa Barbara is thinking about doing some landscaping work on the start of the Jesusita

trail, which burned last year. Homeowners A and B live next to the trailhead and 100 more people

enjoy the use of the trail. A and B each have a net valuation of

40 for the project because it will

increase traﬃc on their street. The project improves the hiking experience and each of the 100 trail

users has a net valuation of 1. If the city applies a VCG mechanism, which of the following is true?

(a) The project is approved and no one pays any tax

(b) The project is approved and each trail user pays a tax of $0.80

(d) The project is not approved

Econ 100b (Grossman) - Winter 2010 Final Exam - Version A Multiple Choice Test - University Of California Page 3