University of New Brunswick

A firm plans to invest $400,000 in a new high-efficiency furnace that will reduce its energy bill by $100,000 in years 1 and 2, $75,000 in years 3, 4, and 5, and $50,000 in years 6 through 10. Calculate the project's internal rate of return. (Use your BA ii plus financial calculator.)

Multiple choice question.

13.07%

11.19%

10.08%

12.7%

11. Common resources versus private goods

Spring is here, and Bob and his brother would like to go fishing for the weekend in New Brunswick. Bob could either go to the river in town where anyone can fish without a permit, or he could drive up to a pond located on his family's property in the countryside to fish. Assume that, no matter where people fish, all of the fish that are caught would be kept (that is, there is no "catch and release" policy).

The fish in the river are considered    and    , whereas the fish in the private pond are    and    . In other words, the fish in the river are an example of a     , and the fish in the private pond are an example of a     .

Fishing in the river will likely lead to     because of which of the following reasons?

All fishers will choose to fish in the river because of the limited access to the pond.

Nobody will enjoy fishing because of the lack of private contributions to the maintenance of the river.

Anyone can fish in the river, and one person's fishing activity decreases the ability of someone else to fish with success.

All fishers will choose to fish in the pond believing that there are more fish there

10. Categories of goods
Complete the following table by selecting the appropriate definition for each of the given terms.
Term
Definition
Excludable        
Rival        
If a good is both rival in consumption and excludable, then it is a

A group of university students buys coconuts from a farmers' market. The students consume the meat of the coconuts for food and use the shells to make sculptures. These sculptures are placed in a public park that any student can visit. The park sustains itself through students' donations.

Some individuals have no incentive to donate to the park and will, instead, depend on those who do donate. This is an example of which of the following?

The free-rider problem

A negative externality

Overuse of coconuts

Socially efficient allocation of coconuts

8. Achieving lower pollution
Suppose the government decides to raise the gasoline tax as a way to reduce air pollution and traffic congestion to their optimal levels.
Which of the following describes why pollution taxes, such as the gasoline tax, are unlike most other taxes?

    Other taxes are typically used to cover general spending, but funds from pollution taxes can be used only to alleviate pollution.
    Pollution taxes alter incentives, whereas other taxes typically do not.
    Pollution taxes bring the allocation of resources closer to the social optimum and, thus, improve economic efficiency.
    Other taxes get passed on from businesses to consumers, whereas pollution taxes do not