Question

Tina is an enthusiastic gardener. The pride of her yard is her Jacaranda, which flowers every October. This creates a lot of flowers which blow into Dan’s yard on windy days. Tina values having the tree in her yard at $100. Select the item from the list provided to make the following statements true.

- If Dan is annoyed by the flowers blowing into his yard, a solution may be reached if the parties __________.

- If Dan insists on using a lawyer who costs $200/hour to come to an agreement, it may render coming to a solution __________ if the benefits he would obtain from stopping the leaves blowing into his yard are low.

- If Dan is willing to pay Tina more than $100 to cut down the tree today, the current situation is therefore __________.

1. Negative externality 2. Positive externality 3. Tax 4. Subsidise 5. Command and control 6. Negotiate 7. Possible 8. Impossible 9. Private 10. Efficient 11. Inefficient 12. Social

Answer 1

- If Dan is annoyed by the flowers blowing into his yard, a solution may be reached if the parties _negotiate is the right answer, since Dan is apparently suffering due to what goes on in Tina's garden_________.

- If Dan insists on using a lawyer who costs $200/hour to come to an agreement, it may render coming to a solution _impossible since the cost of the solution is higher than the benefit Dan will derive_________ if the benefits he would obtain from stopping the leaves blowing into his yard are low.

- If Dan is willing to pay Tina more than $100 to cut down the tree today, the current situation is therefore _efficient, since the amount he offers is very likely less than the benefit he woudl derive from getting the tree cut down_________.