Micro Econ 2001-- HW 6 Review, Section 2 (Exam #3)

(See HW 6, pg. 9) Refer to Figure 11-1. Which of the following items is not a clear-cut example of the type of good represented by Box A? a. a candy bar b. a stapler c. a garden of blooming flowers d. a mobile phone

c. a garden of blooming flowers

Markets do not ensure that the air we breathe is clean because:

property rights are not well established for clean air.

(See HW 6, pg. 11) Refer to Figure 11-1. The box labeled D represents what type of good?

public goods

(See HW 6, pg. 9) Refer to Figure 11-1. A bottle of soda is an example of the type of good represented by Box:

Box A

(See HW 6, pg. 9) Refer to Figure 11-1. A tornado siren in a small town is an example of the type of good represented by Box:

Box D

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

False.

(T/F) A pair of jeans is rival but non-excludable.

False.

(T/F) One person's use of common resources does not reduce the enjoyment other people receive from the resource.

False.

The government often intervenes when private markets fail to provide an optimal level of certain goods and services. For example, the government imposes an excise tax on gasoline to account for the negative externality that drivers impose on one another. Why might the private market not reach the socially optimal level of traffic without the help of government?

It is possible that everyone can agree that the roads are too crowded, but no one is willing to make the sacrifice to stay home to help solve the congestion problem. The private incentive to fix the problem is small, so government policies such as tolls and gasoline taxes may improve social welfare.

An economics professor, upset about the rising cost of textbooks, proposed that his department purchase 50 copies of a statistics book so the students in the statistics class would not have to purchase their own books but rather could borrow a book for the semester and then return it for the next class to use. Which of the following strategies would not prevent a common resource problem with the textbooks?

The textbooks are placed in a common area of the department so students can borrow and return them as needed.

(T/F) Even economists who advocate small government agree that national defense is a good that the government should provide.

True.

(T/F) The free-rider problem arises when the number of beneficiaries is large and exclusion of any of them is impossible.

True.

(T/F) You and your friends eat potato chips in your bedroom. For you and your friends, the potato chips are rival in consumption.

True.

Which of the following statements about private goods and public goods is correct? a. Private goods are rival in consumption and public goods are not excludable. b. Private goods are not excludable and public goods are excludable. c. Private goods and public goods are both rival in consumption. d. Private goods and public goods are both excludable.

a. Private goods are rival in consumption and public goods are not excludable.

Which of the following statements is correct? a. The absence of property rights sometimes gives rise to market failure. b. The establishment of property rights sometimes gives rise to market failure. c. Government regulation of private behavior, in response to market failure, can never improve social well-being. d. In the context of public goods, the Coase theorem implies that total surplus in some markets can be improved by the elimination of property rights.

a. The absence of property rights sometimes gives rise to market failure.

The Tragedy of the Commons can be corrected by:

assigning property rights to individuals.

Refer to Figure 11-1. The box labeled C represents: a. private goods. b. common goods. c. public goods. d. club goods.

b. common goods.

Private goods are both: a. nonexcludable and rival in consumption. b. excludable and rival in consumption. c. nonexcludable and nonrival consumption. d. excludable and nonrival in consumption.

b. excludable and rival in consumption.

Each of the following would be considered a common resource except a: a. book from a public library. b. a congested road. c. streetlight. d. water reservoir.

c. streetlight.

Knowledge that is patented is a:

club good, whereas knowledge that is not patented is a public good.

At the local park there is a playground for children to use. While anyone is allowed to use the playground, it is often very busy, reducing the enjoyment of many of the children who use it. The playground is a:

common resource.

(See HW 6, pg. 11) Refer to Figure 11-1. The box labeled C represents what type of good?

common resources

Goods that are not excludable include both:

common resources and public goods.

Drivers have to pay a toll to drive on certain roads. In essence, a toll is a corrective tax on the externality of __________.

congestion.

Seymour owns 3 acres of beautiful waterfront property on a large inland lake. In his will, Seymour donates the land to the state with the understanding that the land will be used as a state beach that anyone may use without paying any fees. This state beach: a. is rival in consumption when it becomes crowded on sunny summer weekends. b. will tend to be overused because it is nonexcludable. c. is a common resource when it becomes crowded on sunny summer weekends. d. All of the above are correct.

d. All of the above are correct.

The degradation of the environment from litter is a: a. a negative externality. b. free rider problem. c. Tragedy of the Commons. d. Both a and c are correct.

d. Both a and c are correct.

The U.S. military defends Jacob from foreign attackers. The fact that Jacob enjoys this protection does not detract from others Americans' enjoyment of it. For this reason, we say that national defense is:

not rival in consumption

The Ogallala aquifer is a large underground pool of fresh water under several western states in the United States. Any farmer with land above the aquifer can at present pump water out of it. We might expect that:

over time, the aquifer is likely to be overused.

When good X is produced, some people benefit. A free-rider problem arises when:

the number of beneficiaries is large and it is impossible to prevent anyone from benefiting.