CHAPTER 11 - PROBLEMS ( 10 Qs )

Table 11-1 Consider the town of Springfield with only three residents, Sophia, Amber, and Cedric. The three residents are trying to determine how large, in acres, they should build the public park. The table below shows each resident's willingness to pay for each acre of the park. 5. Refer to Table 11-1. Suppose the cost to build the park is $24 per acre and that the residents have agreed to split the cost of building the park equally. If the residents vote to determine the size of park to build, basing their decision solely on their own willingness to pay (and trying to maximize their own surplus), what is the largest park size for which the majority of residents would vote "yes?" a. 0 acres b. 1 acre c. 2 acres d. 3 acres

b. 1 acre (if cost sharing is not enforced) c (if cost sharing is enforced)

1. Which of the following goods is the best example of a public good? a. garbage-collection services that are provided by a municipal government b. music that is broadcast over the airwaves by a privately-owned FM radio station c. electricity that is provided to farmhouses by a rural electric cooperative d. cable TV services that are provided by a privately-owned firm that is regulated by the government of the city in which it operates

b. music that is broadcast over the airwaves by a privately-owned FM radio station

10. Before considering any public project, the government should (i) compare the total cost and total benefits of the project. (ii) conduct a cost-benefit analysis. (iii) infer that citizens who vote for a project are willing to pay equally for it. a. (i) only b. (ii) only c. (i) and (ii) only d. (i), (ii), and (iii)

c. (i) and (ii) only

6. Refer to Table 11-1. Suppose the cost to build the park is $9 per acre and that the residents have agreed to split the cost of building the park equally. If the residents vote to determine the size of park to build, basing their decision solely on their own willingness to pay (and trying to maximize their own surplus), what is the largest park size for which the majority of residents would vote "yes?" a. 1 acre b. 2 acres c. 3 acres d. 4 acres

d. 4 acres

9. A stairwell in a certain office building is always congested at 12:00 p.m. and 1:00 p.m. The congestion is so bad that people have been complaining to the building's owner. Which of the following methods would be the most efficient way of reducing congestion? (a) Assign each person in the building a time when they are allowed to use the stairwell. (b) Encourage people to voluntarily keep off the stairwell during peak times. (c) Charge everyone who uses the stairwell when it is congested the same fee. People who value the use of the stairs the most will be the ones who use the stairwell at peak times. (d) Hold a lottery to determine who wins the right to use the stairwell at peak times.

(c) Charge everyone who uses the stairwell when it is congested the same fee. People who value the use of the stairs the most will be the ones who use the stairwell at peak times.

3. Which of the following is a disadvantage of government provision of a public good such as national defense? (i) The government does not know the exact willingness of consumers to pay for the public good. (ii) The free-rider problem is more likely to occur when the government provides a public good than when the private sector provides a public good. (iii) Taxpayers do not agree on the optimal quantity of the public good that the government should provide. a. (i) only b. (i) and (ii) only c. (i) and (iii) only d. (i), (ii), and (iii)

c. (i) and (iii) only

2. Which of the following is an example of the free-rider problem? a. Both Zoe and Zach receive low-cost dental care at the local dental school, so neither of them pays the full cost of the care. b. Alfred receives a free lunch from the local "Meals on Wheels" program because of his low monthly income. Yet his next door neighbor, Alice, is not eligible for the free lunch. c. Bruce owns Buster, a large dog who barks whenever anyone walks near his house. Betty lives next to Bruce, and Buster's barking can be heard whenever anyone walks near her house, too. Thus, Betty receives free protection from burglars because of Buster's barking. d. Sam purchases a burger at a fast food restaurant and gets a second burger free because the restaurant is having a buy one, get one free sale.

c. Bruce owns Buster, a large dog who barks whenever anyone walks near his house. Betty lives next to Bruce, and Buster's barking can be heard whenever anyone walks near her house, too. Thus, Betty receives free protection from burglars because of Buster's barking.

Table 11-5 A small island off the coast of Cape Cod contains two restaurants and two retail stores. Tourists need to take a ferry boat to reach the island, but with a recent slowdown in the economy, tourists are less willing to pay for the boat ride to visit the island. The owners of the restaurants and stores on the island — Restaurants 1 and 2, and Stores A and B — think that if tourists could ride the ferry for free, they would be happy to visit the island, eat and shop. The business owners are considering contributing to a pool of money that will be used to pay for roundtrip ferry service each day. The table represents their willingness to pay, that is, the maximum amount that each business owner is willing to contribute, per day, to pay for each ferry trip. 7. Refer to Table 11-5. Suppose the cost to run the ferry for each roundtrip is $750 per day and the 4 business owners have agreed to split the costs of the ferry trips equally. Which of the following statements is correct? a. The owner of Restaurant 1 would prefer to have 3 ferry trips. b. The owner of Restaurant 2 would prefer to have 2 ferry trips. c. The owner of Store A would prefer to have 1 ferry trip. d. All of the above are correct.

c. The owner of Store A would prefer to have 1 ferry trip.

8. By driving onto a congested road for which no toll is charged, a driver a. contributes to the overuse of a common resource. b. contributes to a negative-externality problem. c. is inflicting additional time cost on all of the other drivers. d. All of the above are correct.

d. All of the above are correct.

4. The privately-owned school system in Smalltown has a virtually unlimited capacity. It accepts all applicants and operates on both tuition and private donations. Although every resident places value on having an educated community, the school's revenues have suffered lately due to a large decline in private donations from the elderly population. Since the benefit that each citizen receives from having an educated community is a public good, which of the following would not be correct? a. The free-rider problem causes the private market to undersupply education to the community. b. The government can potentially help the market reach a socially optimal level of education. c. A tax increase to pay for education could potentially make the community better off. d. The private market is the best way to supply education.

d. The private market is the best way to supply education.