ECON 2 Assignment 1

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

a. TRUE

In some cases the government can make everyone better off by raising taxes to pay for certain goods that the market fails to provide. a. TRUE b. FALSE

a. TRUE

In the Tragedy of the Commons, joint action among the individual citizens would be necessary to solve their common resource problem unless the government intervenes. a. TRUE b. FALSE

a. TRUE

Markets may fail to allocate resources efficiently when property rights are not well established. a. TRUE b. FALSE

a. TRUE

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

a. TRUE

When goods are available free of charge, the market forces that normally allocate resources in our economy are absent. a. TRUE b. FALSE

a. TRUE

Recall the four types of goods. Are national defense and basic research the same type of good? Briefly explain. a. yes b. no

a. yes

A study that compares the costs and benefits to society of providing a public good is called externality analysis. a. TRUE b. FALSE

b. FALSE

Although national defense is currently a public good, economists who advocate small government generally agree that the U.S. should privatize national defense to increase the efficiency of the good. a. TRUE b. FALSE

b. FALSE

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

b. FALSE

Free goods are usually efficiently allocated without government intervention. a. TRUE b. FALSE

b. FALSE

Government intervention cannot improve the allocation of resources for goods that do not have prices attached to them. a. TRUE b. FALSE

b. FALSE

Pollution is a negative externality, but it is not appropriate to view the problem of pollution as a common-resource problem. a. TRUE b. FALSE

b. FALSE

Are common resources excludable? Are they rival in consumption? a. yes b. no

b. no

Consider a small town with only three families, the Greene family, the Brown family, and the Black family. The town does not currently have any streetlights so it is very dark at night. The three families are considering putting in streetlights on Main Street and are trying to determine how many lights to install. The table below shows each family's willingness to pay for each streetlight. Number of Streetlights The Greene Family The Brown Family The Black Family 1 $340 $480 $420 2 260 380 400 3 160 260 340 4 40 130 240 5 0 50 100 6 0 0 20 Refer to Table 11-2. Suppose the cost to install each streetlight is $900 and the families have agreed to split the cost of the streetlights equally. If the families vote to determine the number of streetlights to install, basing their decision solely on their own willingness to pay (and trying to maximize their own surplus), what is the greatest number of streetlights for which the majority of families would vote "yes?" A. 2 streetlights B. 3 streetlights C. 4 streetlights D. 1 streetlight

A. 2 streetlights

The Tragedy of the Commons can be corrected by A. assigning property rights to individuals. B. providing government subsidies for the resource. C. making certain everyone in the economy has access to the resource. D. conducting a cost-benefit analysis.

A. assigning property rights to individuals.

National defense is a classic example of a public good because A. it is difficult to exclude people from receiving the benefits from national defense once it is provided. B. everyone agrees that some level of national defense is important, but only the government knows the optimal amount. C. there is no market for private security services. D. there are no private firms willing to supply defense goods such as tanks and weapons.

A. it is difficult to exclude people from receiving the benefits from national defense once it is provided.

A television broadcast is an example of a good that is A. not rival in consumption. B. social. C. normal. D. private.

A. not rival in consumption

The value and cost of goods are easiest to determine when the goods are A. private goods. B. common resources. C. public goods. D. club goods.

A. private goods

Knowledge is an example of a A. public good. B. club good. C. common resource. D. private good.

A. public good

When a free-rider problem exists, A. the market will devote too few resources to the production of the good. B. the cost of the good will always be more than the benefit of the good. C. the good will not be produced. D. entrepreneurs will eventually find a way to make free-riders pay their share.

A. the market will devote too few resources to the production of the good.

Table 11-2 Consider a small town with only three families, the Greene family, the Brown family, and the Black family. The town does not currently have any streetlights so it is very dark at night. The three families are considering putting in streetlights on Main Street and are trying to determine how many lights to install. The table below shows each family's willingness to pay for each streetlight. Number of Streetlights The Greene Family The Brown Family The Black Family 1 $340 $480 $420 2 260 380 400 3 160 260 340 4 40 130 240 5 0 50 100 6 0 0 20 Refer to Table 11-2. Suppose the cost to install each streetlight is $360 and the families have agreed to split the cost of the streetlights equally. If the families vote to determine the number of streetlights to install, basing their decision solely on their own willingness to pay (and trying to maximize their own surplus), what is the greatest number of streetlights for which the majority of families would vote "yes?" A. 2 streetlights B. 4 streetlights C. 1 streetlight D. 3 streetlights

B. 4 streetlights

The town of Isle is on a small island connected to Big City by a single bridge. Most of the residents of Isle work in Big City. As a result, the bridge becomes very congested for 2 hours each day at the typical morning and evening commute times. Which of the following policies considered by the mayor of Isle would likely be most effective in alleviating the congestion? A. A fixed toll for the bridge payable by every vehicle crossing the bridge at all days and times. B. A variable toll for the bridge payable only by vehicles crossing the bridge during the congested commute times. C. Any vehicle crossing the bridge at any time must have a sticker paid for with a one-time fee of $25. D. A press conference in which the mayor requests that people try to cross the bridge earlier or later than the typical commute times.

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

Rival in Consumption? Yes No Excludable? Yes A B No C D Refer to Figure 11-1. For which two boxes is it the case that externalities arise because something of value has no price attached to it? A. Box A and Box C B. Box C and Box D C. Box A and Box B D. Box B and Box D

B. Box C and Box D

Which of the following is not a reason why government agencies subsidize basic research? A. The general knowledge developed through basic research can be used without charge. B. The government wants to attract the brightest researchers away from private research firms. C. The private market devotes too few resources to basic research. D. The social benefit of additional knowledge is perceived to be greater than the cost of the subsidies.

B. The government wants to attract the brightest researchers away from private research firms.

Stewart is a lobsterman. His traps are A. rival in consumption and the lobster he catches are not rival in consumption. B. private goods and the lobster he catches are common resources. C. not rival in consumption and the lobster he catches are not rival in consumption. D. private goods and the lobster he catches are public goods.

B. private goods and the lobster he catches are common resources.

The idea of requiring motorists to pay to use the busiest streets in a city A. was tried in New York City in the 1990s, but the result was more — not less — congestion on busy streets, and the experiment was short-lived. B. reflects the fact that a congested road is a common resource. C. has been proposed by many public officials, but to date the idea never has been tried in a major city anywhere in the world. D. reflects the fact that a congested road is a public good.

B. reflects the fact that a congested road is a common resource.

Suppose that policymakers are doing cost-benefit analysis on a proposal to add traffic barriers to divide the flow of traffic in an effort to increase safety on a given highway. Which of the following statements is correct? A. Because human life is priceless, any measure to increase traffic safety would generate benefits that outweigh the costs. B. The benefits are usually easier to measure than the costs. C. Estimating the value of a human life is difficult but necessary to evaluate the proposal. D. Both a and b are correct.

C. Estimating the value of a human life is difficult but necessary to evaluate the proposal.

Which of the following is not a common resource? A. a narrow trail in a park B. elephants in the wild C. a neighborhood garden D. Neither a nor b is a common resource.

C. a neighborhood garden

Cost-benefit analysis is important to determine the role of government in our economy because A. markets for private goods cannot effectively assign costs and benefits. B. the government should provide all goods for which the benefits exceed the costs. C. cost-benefit analysis identifies the possible gains to society from government provision of a particular good. D. cost-benefit analysis is the best tool to identify market failures.

C. cost-benefit analysis identifies the possible gains to society from government provision of a particular good.

A toll collected from each car traveling during rush hour on a congested road is an effective correction to the Tragedy of the Commons for all of the following reasons except the toll provides an incentive for commuters to A. car-pool. B. use public transit rather than driving. C. drive more fuel-efficient cars. D. drive at times other than rush hour.

C. drive more fuel-efficient cars.

Each of the following explains why cost-benefit analysis is difficult except A. there is no price with which to judge the value of a public good. B. surveys are often biased and unreliable. C. government projects rarely have sufficient funding to complete them on time. D. it is difficult to identify all factors that influence costs and benefits of public goods.

C. government projects rarely have sufficient funding to complete them on time.

At the local park there is a playground that anyone may use. There is rarely anyone using the playground, so children who use the playground receive full enjoyment from its use. The playground is A. rival in consumption, but is not excludable. B. rival in consumption and is excludable. C. not rival in consumption nor is it excludable. D. not rival in consumption, but is excludable.

C. not rival in consumption nor is it excludable

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. Acres Sophia Amber Cedric 1 $10 $24 $6 2 8 18 5 3 6 14 4 4 3 8 3 5 1 6 2 6 0 4 1 7 0 2 0 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. 2 acres B. 3 acres C. 1 acre D. 4 acres

D. 4 acres

The ocean remains one of the largest unregulated resources for each of the following reasons except A. it is difficult to get international cooperation among countries that hold different values. B. the oceans are so vast that enforcing any agreements would be difficult. C. many countries have access to the ocean. D. All of the above are reasons the ocean remains one of the largest unregulated resources.

D. All of the above are reasons the ocean remains one of the largest unregulated resources.

When goods do not have a price, which of the following primarily ensures that the good is produced? A. the market B. buyers C. sellers D. government

D. government

Mike Miller is the town manager of Medfield, a town with 50,000 residents. At a recent town meeting, several citizens proposed building a large public swimming pool in the center of town for all of the residents to enjoy. A survey of all 50,000 residents revealed that the pool would be worth $50 to each of them. Because the cost to build the swimming pool is only $1,000,000, Manager Miller arranges to have the pool built. Everyone in town enjoys the pool, but when Manager Miller asks for donations to pay for the pool, he only collects $250,000. Manager Miller soon realizes that A. the pool is a club good. B. the survey was conducted improperly. C. the cost of the pool exceeded the social benefits. D. most residents of the town are probably free-riders at the pool.

D. most residents of the town are probably free-riders at the pool.

Because it is A. neither excludable nor rival in consumption, a tornado siren is a common resource. B. excludable but not rival in consumption, a tornado siren is produced by a natural monopoly. C. rival in consumption but not excludable, a tornado siren is a common resource. D. neither excludable nor rival in consumption, a tornado siren is a public good.

D. neither excludable nor rival in consumption, a tornado siren is a public good.

When a good is rival in consumption, A. people can be prevented from using the good. B. an unlimited number of people can use the good at the same time. C. everyone will be excluded from obtaining the good. D. one person's use of the good diminishes another person's ability to use it.

D. one person's use of the good diminishes another person's ability to use it.