Chapter 10 // Public Goods and Role of Government

A person who receives the benefits of a public good without bearing a proportional share of the costs is known as ______________ . A} Free-Rider B} Benevolent Social Planner C} An entrepreneur

A

Based on your answers to problems 6 and 7, it is likely that your textbook [rival, excludable] is a __________. A} pure private good B} pure public good C} common pool resource D} club good

A

Club goods and common pool resources are neither purely private goods nor purely public goods . Is the government more likely to intervene in the market for common pool resources or in the market for club goods? A} Common pool resources: Due to their nonexcludability, government may help prevent overuse and depletion. B} Neither: Markets are generally more effective at providing these goods, so government intervention is unnecessary. C} Both: Government intervention prevents market failures and thus increases the size of the economic pie. D} Club goods: Due to their excludability, government can ensure that everybody has access to these resources.

A

Consider this copy of your textbook: It is difficult for more than one person at a time to read it. This means that your textbook is a(n) __________ good. A} rival B} nonrival C} excludable D} nonexcludable

A

Because of the opportunity for free ridership that pure public goods present, private individuals probably __________. A} provide the right amount of pure public goods B} provide fewer public goods than the benevolent social planner would like to see C} provide more public goods than the benevolent social planner would like to see

B

Four people want to commission a beautiful statue to grace their neighborhood. The difficulties they experience in getting one another to commit to paying for the statue are best described as __________. A} property rights B} transactions costs C} incongruent incentives D} eminent domain

B

In the case of public goods, the ability to free ride on the efforts of others is an example of __________. A} low transactions costs B} insecure property rights C} the taxing power of government D} poor cost-benefit analysis

B

Pollution problems arise because A} It's hard for polluters to avoid sharing their benefits with others B} It's hard to keep polluters for forcing others to share their costs C} Of positive externalities D} All of the above

B

To maximize the economic pie, government __________. A} should provide all possible pure public goods B} should provide only public goods whose benefits outweigh their costs C} should provide only public goods whose costs outweigh their benefits D} should not provide any public goods

B

Which of the following best meets the criteria for being a pure public good? A} A city swimming pool. B} A fireworks show. C} A theater performance of Rent. D} An iPod.

B

Consider this copy of your textbook: If your annoying roommate, who didn't buy the book, keeps trying to read your copy, you can prevent it by hiding it or locking it away. This means your textbook is a(n) __________ good. A} rival B} nonrival C} excludable D} nonexcludable

C

Government typically solves the free-rider issue by using its __________. A} power of eminent domain B} ability to print money C} power of taxation D} ability to borrow money without paying interest

C

Homeowners in many rural areas obtain fire protection by voluntarily enrolling in, and paying a fee for, a rural fire service. In 2010, Gene Cranick's rural Tennessee home caught fire. The fire service sent its trucks to Cranick's neighborhood, but because Cranick had not paid his $75 annual fee, firefighters simply watched his home burn to the ground. When the desperate Cranick offered to enroll in the fire service on the spot, he was turned away. Was the fire department's refusal to extinguish the fire and accept Cranick's enrollment a good decision for society? A} Yes, it sets a precedent that free riding will not be tolerated in this rural Tennessee community. B} No, fire protection is a pure public good, and due to it's nonexcludable nature, Cranick is entitled to fire service C} In the short run, maybe not, but if homeowners like Cranick only enroll when their homes catch fire, then in the long run, it was likely a good decision. D} Uncertain, as it depends on whether the Benevolent Social Planner approved the Fire Service's decision

C

If you wish, you can subscribe to the Hulu streaming service. Hulu streaming can best be categorized as __________. A} a pure private good B} a pure public good C} a club good D} a common pool resource

C

Public goods problems arise because A} Individual's are forced to share a good's cost B} Of negative externalities C} It's hard to keep others from enjoying a good's benefits D} All of the above

C

A good that is nonrival but excludable is a ____ good.

Club

A good that is rival but nonexcludable is a ______ ____ resource.

Common Pool

A pure public good ___________. A} is any good that is provided by government B} will never be provided by individuals acting on their own initiative C} Both (a) and (b) are true. D} Neither (a) nor (b) is true.

D

Do you agree with the following statement: "The real problem with pure public goods is that they're nonrival." A} Yes, if goods were rival, then people would have more incentive to pay for the good, which eliminates free riding. B} Uncertain, as it depends on whether the good pleases the benevolent social planner. C} Yes, if you provide a nonrival good for one person, you've provided it for everyone, which leads to overproducing. D} No, the real problem with pure public goods is that they're nonexcludable, which encourages free riding.

D

Stephanie was shocked to discover that the federal government charges an entry fee to view the Grand Canyon. "It's everyone's property. I ought to be able to view it for free. The government should pay for it like it pays for everything else—with tax dollars!" Which of the following is not a reason for using an entry fee to pay for the upkeep and personnel needed to maintain the Grand Canyon? A} By making users pay for access, government can guarantee that the Grand Canyon's benefits exceed its costs. B} Since more personnel are required to process the entry fee, it increases the size of the economic pie. C} It ensures that the Grand Canyon is provided at the user's expense, rather than at the expense of all taxpayers. D} An entry fee helps control potential overuse and depletion of the Grand Canyon.

D

The federal government created the interstate highway system. That road network is largely nonrival, and the government has chosen to make it available to all. Suppose the government has the choice of paying for the maintenance and upkeep of the highway system with a tax on gasoline or, alternatively, with income tax. Which source would you recommend? Why? A} Income tax: It forces all taxpayers to help pay for the maintenance and upkeep of the interstate highway system. B} Income tax: A gas tax reduces demand for gasoline, which in turn reduces the size of the economic pie. C} Neither: A toll road may be a better option, as it would help control overuse of the highway system. D} Gas tax: It more directly imposes costs on those who use the highway system and thus receive the largest benefits.

D

The free-rider problem arises because pure public goods are __________. A} rival B} nonrival C} excludable D} nonexcludable

D

Which characteristic of a pure public good is linked to poorly defined property rights? Which is not? A} Excludability; rivalry. B} Nonrivalry; nonexcludability. C} Rivalry; excludability. D} Nonexcludability; nonrivalry.

D

A club good is a good that is nonrival and __________.

Excludable

Goods can also be classified by whether people can be prevented from enjoying the good's benefits. It is easy to keep people from enjoying an _________ good, and it's difficult to keep people from enjoying a ____________ good.

Excludable, Nonexcludable

A person who receives the benefits of a public good without bearing a proportional share of the costs is known as a(n) __________.

Free Rider

The nonexcludability of pure public goods leads to the ____ _____ problem. Because people cannot be prevented from enjoying the benefits of the good, they have little incentive to help pay for that good.

Free-Rider

If it's hard to prevent people from enjoying the benefits of a particular good, that good is said to be __________.

Nonexcludable

Because the enjoyment you get from watching a meteor shower doesn't diminish when others watch, too, the meteor shower is said to be __________.

Nonrival

A public swimming pool is an example of a good that is [club good]

Nonrival and excludable

A pure public good is both __________ and __________.

Nonrival, Nonexcludable

Both pollution and public goods problems stem from ____ _____ property rights

Poorly Defined

The individual who _________ provides a public good is unable to capture all the benefits of that good. Instead, ____ _______ capture a meaningful portion of those benefits, and those people cannot be compelled to pay for the value they receive.

Privately, Free Riders

Because a public good that could potentially create great value is underprovided by private individuals, the ______ _____ _______ decreases overall social well-being.

Public Goods Problem

If private individuals are the only producers of a pure public good, those individuals are likely to produce less of it than is socially desirable. This outcome is known as __________.

Public Goods Problem

What stems from poorly-defined property rights?

Public Goods Problem

When a good that should be produced is not produced because everybody attempts to free ride, it is known as a

Public Goods Problem

That power is most useful to society in the case of pure ______ goods; it is least helpful in the case of pure _______ goods.

Public, Private

A good that is both rival and excludable is a ____ _______ good.

Pure Private

A good that is rival and excludable is known as a(n) __________.

Pure Private Good

A good that is nonrival and nonexcludable is a ____ ______ good.

Pure Public

Goods can be classified by their ability to be simultaneously enjoyed. A _____ good cannot be simultaneously enjoyed; a ________ good can.

Rival, Nonrival

Governments can overcome public goods problems by providing the goods and then forcing everyone to contribute through their _____

Taxes

If enough people behave in such a strategic fashion, free riding can result in ___ ______ of the good being provided.

Too Little

This problem would disappear if there were a way to bind free riders to a pledge to help pay for the good, but often high ___________ _____ prevent producers and free riders from reaching such agreements.

Transactions Costs

It is possible for government to provide goods whose costs ___ _____ than benefits they provide to society. One reasonable check to prevent that is to charge users a tax that is proportional to the benefits the users receive.

are more

aurora borealis is an example of a good that is [pure public good]

nonrival and nonexcludable

Homeowners in many rural areas obtain fire protection by voluntarily enrolling in, and paying a fee for, a rural fire service. In 2010, Gene Cranick's rural Tennessee home caught fire. The fire service sent its trucks to Cranick's neighborhood, but because Cranick had not paid his $75 annual fee, firefighters simply watched his home burn to the ground. When the desperate Cranick offered to enroll in the fire service on the spot, he was turned away. Assuming that it costs less to save the house than the house is worth, the benevolent social planner _____ have approved of the fire service's decision to let Cranick's house burn

would not