Microeconomics Ch 11

Market failure associated with the free-rider problem is a result of

benefits that accrue to those who don't pay.

Goods that are rival in consumption but not excludable would be considered

common resources.

If the government decides to build a new community center, the first step would be to conduct a study to determine the value of the project. The study is called a

cost-benefit analysis.

Private companies are most likely to invest in medical research if

they will produce a specific product for which they may receive a patent.

The town of Smallhaven is on a small island connected to Large City by a single bridge. Most of the residents of Smallhaven work in Large City. As a result, the bridge becomes very congested for two hours each day at the typical morning and evening commute times. Which of the following policies considered by the mayor of Smallhaven would likely be most efficient in alleviating the congestion?

A variable toll for the bridge payable only by vehicles crossing the bridge during the congested commute times.

A good that is rival in consumption is one that someone can be prevented from using if she did not pay for it.

False

Common resources and public goods have in common that they are not excludable and they are not rival in consumption.

False

Consider the city of Widgetapolis with only four residents, John, James, Mary, and Lydia. The four residents are trying to determine how many hours to spend in cleaning up the public lake. The table below shows each resident's willingness to pay for each hour of cleaning. Refer to Table 11-2. Suppose the cost to clean the lake is $12 per hour and that the residents have agreed to split the cost of cleaning the lake equally. The number of cleaning hours that maximizes total surplus of Widgetapolis is 7 hours.

False

A good that is excludable is one that someone can be prevented from using if she did not pay for it.

True

The free-rider problem makes it unlikely that poverty will be entirely eliminated through private charity.

True

Under which of the following scenarios would a park be considered a common resource?

Visitors can enter the park free of charge, but frequently all of the picnic tables are in use.

Private decisions about consumption of common resources and production of public goods usually lead to an

inefficient allocation of resources and external effects.

If a highway is congested, then use of that highway by an additional person would lead to a

negative externality.

For private goods allocated in markets,

prices guide the decisions of buyers and sellers and these decisions lead to an efficient allocation of resources.

People cannot be prevented from using a good if the good is a

public good or a common resource.