Test bank questions: Unit I: Economic Analysis of the Law
| IA. How civil suits work | |
| 1. | Briefly describe what each of the following means in the context of a civil suit: (1) answer; (2) discovery; (3) injunction; (4) easement: (5) stare decisis doctrine |
| 2. | In a civil suit, which side can (1) request a jury? (2) appeal a verdict? |
| 3. | In a civil suit, (1) what remedies are available? (2) what is the burden of proof? |
| IB. The relationship between law and economics | ||
| 1. | What is the "common law"? | |
| 2. | Describe what each of the following deals with: (1) property law; (2) contract law; (3) tort law | |
| 3. | In resolving legal disputes, what is the distinction between the ex post perspective of lawyers and the ex ante perspective of economists? | |
| IC. Review of how markets work | ||
| 1. | Expain briefly what it means to say that a change increases efficiency. | |
| 2. | Decide whether the following is true or false, and support your answer: every Pareto improvement is a Kaldor-Hicks improvement, but not every Kaldor-Hicks improvement is a Pareto improvement. | |
| 3. | Questions from: Worksheet: Applying microeconomics to the economic analysis of the law | |
| 4. | The economics of externalities: | |
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a. |
What is the difference between a pecuniary and nonpecuniary externality? | |
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b. |
Do both types justify policy intervention? If so, explain why. If not, then which does and which does not, and why? | |
| ID. Ronald Coase: "The Problem of Social Cost" | |||
| 1. | a. | State the Coase theorem. | |
| b. | Explain how the Coase theorem results in the following conclusions stated by Friedman: | ||
| (1) | "The existence of externalities does not necessarily lead to an inefficient result." | ||
| (2) | "Pigouvian taxes do not in general lead to the efficient result." | ||
| (3) | "The problem is not really externalities at all; it is transaction costs." | ||
| 2. | A factory pollutes a lake which is also used by 20 vacation resorts. It would cost the factory $1,000,000 a year to prevent the pollution. Each resort faces the following alternatives (remember that there are 20 resorts): | |||||||||||||||
| 1. Operate as a resort on an unpolluted lake, making $100,000/year profit. | ||||||||||||||||
| 2. Operate as a resort on a polluted lake, making $40,000/year profit. | ||||||||||||||||
| 3. Operate as a hunting lodge, making $60,000/year profit, whether or not the lake is polluted. | ||||||||||||||||
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a. |
Complete the following table of total net gains from the alternative options available to the factory and the 20 vacation providers: | |||||||||||||||
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b. |
Which option is most efficient? Explain briefly. | |||||||||||||||
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c. |
For each of the following decide (1) which outcome will occur without bargaining; and (2) whether the outcome will change if bargaining occurs: | |||||||||||||||
| (a) | The factory has the right to pollute if it wants to. | |||||||||||||||
| (b) | Any resort can enjoin the pollution, so the factory can only pollute if it has permission from all the resorts. | |||||||||||||||
| 3. | A newly opened electric company emits smoke which dirties the wash hanging at a nearby laundry which has been operating for many years. No other parties are affected by the smoke. Two options exist for eliminating the smoke damage: (1) the installation of scrubbers by the electric company, or (2) the installation of air filters by the laundry. The laundry sues to seek an injunction preventing the electric company from emitting smoke. | |
| a. | If the parties cannot bargain, how would you decide what court decision to recommend? Explain briefly. | |
| b. | How would your answer to part a change if the parties can bargain costlessly? | |
| 4. | Define a bilateral monopoly, and discuss whether it tends to make transaction costs higher or lower. | |
| 5. | Consider the following four cases discussed by Ronald Coase: | |
| (1) Sturges v. Bridgman (1879) - doctor v.
confectioner (2) Cooke v. Forbes (1867-8) - matting mfr v. chemical mfr (3) Bryant v. Lefever (1878-9) - chimney v. wall (4) Bass v. Gregory (1890) - public (beer) house v. private house |
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| What was the main point that Coase tried to make in his comments about these cases? | ||
| 6. | Based on Coase's analysis:, what should the courts aim to do in the assignment of property rights? Briefly explain the underlying reasoning. | |