Econ CH 17
The marginal cost of producing an artificially scarce good is equal to: A. the marginal benefit if consumer surplus equals zero. B. zero. C. the average total cost. D. its price.
B
Artificially scarce goods are inefficiently consumed because the market price is zero. True False
FALSE
For a public good, the marginal social benefit is the horizontal summation of each individual's marginal benefit curve. False True
FALSE
The efficient price for a good that is nonrival in consumption is necessarily greater than zero. True False
FALSE
For a public good, the marginal social benefit will be higher than any individual's marginal benefit of consumption. False True
TRUE
The efficient level of provision of a public good is the level at which its marginal social benefit is equal to the marginal social cost of its production. False True
TRUE
To ensure efficient use of a common resource, the government could assign property rights. True False
TRUE
Assigning property rights helps to correct the problems associated with common resources: A. because it allows property owners to exclude users and to manage the resource more efficiently. B. and therefore allows the market to better assess the marginal social benefits. C. because it allows the government to determine the amount that would lead to the socially optimal amount. D. because it makes the good nonrival in consumption.
A
If a good is subject to the free-rider problem and an inefficiently high level of consumption, the good must be a(n): A. private good. B. artificially scarce good. C. common resource. D. public good.
C
For a good to be efficiently provided by the private market, it must be: a. excludable. b. rival in consumption and excludable. c. rival in consumption. d. a common resource.
b
If the marginal social benefit received from a good is less than the marginal opportunity cost of production: A. an increase in production will improve society's well-being. B. a decrease in production will improve society's well-being. C. the market is producing too little of the good. D. no change in production can improve society's well-being.
b
The best example of a public good is: a. legal services. b. national defense. c. a municipal library. d. cable television programming.
b
Which of the following is an example of a nonexcludable good? a. health care b. national defense c. education d. ice cream
b
An inefficient allocation of resources will occur when: a. decision makers are faced with the full costs and benefits of their actions. b. there are clearly defined property rights. c. no alternative would increase the welfare of society. d. decision makers are not faced with the full benefits and costs of their choices.
d
A city government engages in cost-benefit analysis when it estimates the social costs and social benefits to provide trash collection services. False True
true
In a market economy, goods that are nonexcludable and nonrival will be produced at inefficiently low levels (if they are produced at all), and goods that are excludable but nonrival in consumption will be produced at inefficiently low consumption levels. False True
true
Most neighborhood streets are illuminated at night by streetlights. The streetlights are _____ and _____. Therefore, they are likely to be _____ by the competitive market. A. nonrival; excludable; underprovided B. rival; excludable; efficiently provided C. nonrival; nonexcludable; overprovided D. nonrival; nonexcludable; underprovided
D
An individual will continue to use a common resource until his or her: a. marginal benefit equals the marginal social cost. b. marginal benefit exceeds marginal cost. c. marginal cost is zero. d. marginal benefit is zero.
d
Alexander and Vanessa benefit from scientific research. Alexander's marginal private benefit from such research is given by the equation P = 200 - Q, Vanessa's marginal private benefit is given by the equation P = 100 - Q. The marginal social cost of engaging in such research is constant at $100. If Alexander and Vanessa are the only two individuals in a society, which of the following equations correctly represents the marginal social benefit (MSB) of scientific research? A. MSB = 300 - 2Q. B. MSB = 200 - Q. C. MSB = 100. D. MSB = 100 - Q.
A
Common resources tend to be overused because: A. individuals tend to ignore the cost to others of their use of the resource. B. common resources are nonrival and nonexcludable. C. the individual marginal cost is greater than the marginal social cost. D. the marginal cost of allowing one more unit of consumption is zero.
A
Imposing a Pigouvian tax on a good, establishing a system of tradable licenses, and assigning property rights are methods to alleviate the problems associated with: A. common resources. B. public goods. C. private goods. D. positive externalities.
A
Stephanie stops at a gas station to fill up the tank of her car. The unleaded gasoline in her tank is best described as a(n): A. private good. B. common resource. C. artificially scarce good. D. public good.
A
Suppose the Alaskan king crab harvest is unregulated and any person with a crab boat and some diesel fuel can go offshore, lower a crab pot, and harvest king crab. As a result, this common resource is overused. Which of the following policy choices might produce the socially optimal king crab harvest? A. Alaska auctions a limited number of licenses to harvest king crab. B. The U.S. and Canadian governments remove trade barriers, which allows for more trade of products like king crab. C. Alaska removes taxes on diesel fuel, which lowers the price of diesel. D. Alaska subsidizes the purchase of crab boats.
A
A Pigouvian tax can lead to the efficient level of production and consumption of: A. an artificially scarce good. B. a common resource. C. a public good. D. no goods, since all taxes cause inefficiency.
B
Although most citizens have access to police protection, they also take measures, such as putting locks on their doors, to protect themselves. For most citizens police protection is a(n) _____ good, while self-protection is a(n) _____ good. A. public; artificially scarce good B. public; private C. common resource; private D. artificially scarce good; common resource
B
Bluefin tuna travel in schools throughout the world's oceans. Fishing boats from many nations harvest bluefin tuna as the schools migrate through their national waters. The schools of bluefin tuna are best described as: A. a private good. B. a common resource. C. an artificially scarce resource. D. a public good.
B
Consumption of a common resource is inefficiently too _____ because the marginal social cost of the resource is _____ than the private marginal cost. A. low; higher B. high; higher C. low; less D. high; less
B
For a nonexcludable good like national defense, the private market will lead to _____ of the good. A. the efficient level of consumption B. too little production C. too much consumption D. too much production
B
If a good has a marginal cost of production of zero and an inefficiently low level of consumption, the good must be a(n): A. public good. B. artificially scarce good. C. common resource. D. private good.
B
If the marginal social benefit received from a good is greater than the marginal social cost of production: A. no change in production can improve society's well-being. B. an increase in production will improve society's well-being. C. the market is producing too much of the good. D. a decrease in production will improve society's well-being.
B
Pharmaceutical companies typically face very high fixed costs when developing new drugs. The marginal cost of producing a drug after development is very low. When these companies set price and output to maximize profit, patients pay a _____ price for _____ amounts of the drug than are socially optimal. A. lower; higher B. higher; lower C. lower; lower D. higher; higher
B
Suppose the Alaskan king crab harvest is unregulated, and any person with a boat can go offshore, lower a crab pot, and harvest king crab. This common resource will likely be _____ because the marginal social cost of harvesting crabs _____ the market price of crab. A. overfished; is equal to B. overfished; exceeds C. overfished; is less than D. efficiently fished; is equal to
B
Which of the following activities is a public good? A. smoking B. voting C. going to school D. getting a flu shot
B
Which of the following is a common resource? A. a dorm kitchen B. fish, forests, and a dorm kitchen C. fish D. forests
B
In London, any motorist entering a particular area in the city center during certain specified times must pay a congestion fee equal to £8, with fines for noncompliance rising to as high as £120. The congestion fee is: A. an attempt to internalize the costs of traffic delays and congestion. B. a Pigouvian tax aimed at regulating the use of city streets, a common resource. C. a Pigouvian tax aimed at regulating the use of city streets, a common resource, and an attempt to internalize the costs of traffic delays and congestion. D. the wrong policy tool for solving the problem of congestion; instead, motorists should be allowed to make deals to determine when and where they are permitted to drive.
C
One way the government of Alaska could prevent an inefficiently large production of crab fishing would be to: A. subsidize fishermen to encourage competition. B. offer tax breaks for more efficient boats. C. sell exclusive licenses for the right to fish. D. allow competition from foreign fishermen.
C
Producers of artificially scarce goods face _____ that are similar to those of natural monopolists; they decline over the relevant range of output. A. external costs B. total fixed costs C. average total costs D. external benefits
C
The free-rider problem is a direct result of: A. full-cost pricing. B. horizontally summed supply curves. C. the inability to exclude nonpayers. D. marginal-cost pricing.
C
The government can intervene to avoid overfishing by: A. granting a limited number of tradable fishing permits. B. assigning property rights. C. assigning property rights, imposing a tax on usage, and/or granting a limited number of tradable fishing permits. D. imposing a tax on usage.
C
Volunteer fire departments are good examples of the _____ provision of _____. A. public; artificially scarce goods B. public; common resources C. private; public goods D. private; private goods
C
After many years, a small community builds a toll road but discovers it is little used. If it wishes the road to be used at the socially optimal level, the community should: A. set the toll higher. B. set the toll equal to $1. C. build another toll road. D. set the toll lower.
D
Economic policy is _____ in consumption and _____. A. rival; nonexcludable B. rival; excludable C. nonrival; excludable D. nonrival; nonexcludable
D
No individual is willing to pay to provide the efficient level of a public good, since the: A. marginal cost of production is zero. B. marginal benefit of allowing one more individual to consume the good is zero. C. good will be nonrival and thus underconsumed. D. individual's marginal benefit is less than the marginal social benefit.
D
The marginal social cost of a common resource is _____ than an individual's marginal cost, and without government intervention the market will allow provision of _____ of the common resource than is socially optimal. A. less; less B. greater; less C. less; more D. greater; more
D
The problem with common resources is similar to the problem with negative externalities because: A. the individual's marginal cost of producing another unit exceeds the individual's marginal benefit. B. the marginal social benefit of producing another unit exceeds the individual's marginal benefit. C. both issues deal with natural resources. D. the marginal social cost of producing another unit exceeds the individual's marginal cost.
D
Which of the following statements is TRUE? A. Individuals tend to underestimate the amount of a public good that they desire. B. It is straightforward to estimate the marginal social benefits of public goods. C. It is possible to observe how much people benefit from consuming an additional unit of a public good. D. It is difficult to get an accurate estimate of the marginal social benefits of public goods because individuals have an incentive to distort the truth about their willingness to pay.
D
Clean water in a river is nonexcludable because: a. it is not possible to prevent consumption by people who do not pay for it. b. more than one person can consume the same unit of the good at the same time. c. individuals ignore the effect their use has on the amount of the resource remaining for others. d. consumption is inefficiently low.
a
Common resources tend to be overused because: a. individuals tend to ignore the cost to others of their use of the resource. b. the individual marginal cost is greater than the marginal social cost. c. common resources are nonrival and nonexcludable. d. the marginal cost of allowing one more unit of consumption is zero.
a
Public goods are NOT sold in efficient quantities in the marketplace because: a. once supplied to a buyer, they can be made available at no cost to someone else. b. the more one person has, the less another person has. c. they are usually so costly that only the wealthy can afford them. d. they are usually very poor quality goods.
a
The best example of a private good is: a. an automobile. b. public education. c. national defense. d. law enforcement.
a
The best example of a public good is: a. a court of law. b. clothing. c. food. d. a state university.
a
The best example of a public good is: a. a court of law. b. clothing. c. food. d. a state university.
a
The best example of an artificially scarce good is: a. cable television programming. b. legal services. c. national defense. d. a municipal library.
a
The source of the inefficient use of artificially scarce goods is similar to the source of inefficiencies created by: a. a natural monopoly. b. an oligopoly. c. price discrimination. d. externalities.
a
When Joe watched a television movie, his viewing was _____ in consumption because other people _____ able to view the movie at the same time Joe did. a. nonrival; were b. rival; were c. rival; were not d. nonrival; were not
a
When the allocation of resources is such that a different allocation would increase society's welfare, economists say: a. market failure has occurred. b. the efficiency condition is met. c. decision makers have faced the full marginal benefits and marginal costs of their decisions. d. producers have maximized total cost.
a
Computer software that you can download from the Internet for a price is an artificially scarce good because it is _____ but _____ in consumption. a. nonexcludable; nonrival b. excludable; nonrival c. excludable; rival d. nonexcludable; rival
b
Which of the following goods is most likely a common resource? a. the Super Bowl b. a public park c. a pair of pants d. the fire department
b
Which of the following goods is most likely an artificially scarce good? a. tickets to a boxing match b. pay-per-view of a boxing match c. health care d. the police department
b
A common resource is a good or service for which exclusion is _____ and which is _____ in consumption. a. possible; rival b. possible; nonrival c. not possible; rival d. not possible; nonrival
c
For a common resource, the marginal social benefit at the quantity provided by a private market is _____ the marginal social cost. a. equal to b. greater than c. less than d. irrelevant to
c
Suppose the town of Falls Valley has a mosquito problem. After a bad summer, the town accountants explain that the marginal cost of providing one more treatment for mosquito control is $100,000. The town should provide the additional mosquito control only if the marginal: a. social cost of mosquito control is more than $100,000. b. benefit for any individual citizen is at least $100,000. c. benefit for all individual citizens adds up to at least $100,000. d. social cost of mosquito control is less than $100,000.
c
Television programs are nonrival because: a. individuals ignore the effect of their use on the amount of the resource remaining for others. b. the supplier cannot prevent consumption by people who do not pay for it. c. more than one person can consume the same unit of the good at the same time. d. the market suffers from inefficiently low consumption.
c
The problem of free riders is most apparent for: a. private goods. b. nonrival private goods. c. public goods. d. textbooks.
c
When goods are rival in consumption and excludable, markets: a. will find that consumers are unwilling to purchase the good. b. will consistently produce less than the efficient quantity of the good. c. will produce an efficient quantity of the good. d. will not be able to produce the efficient quantity of the good.
c
If policy makers provide only enough tradable permits to provide efficient use of a common resource, only those who _____ will use the resource. a. have monopoly power b. have the largest market share c. initially obtain the permit d. gain the most
d
If the extent to which common resources (such as fish in the sea) should be used is left to the private market: a. resource use will be efficient and will maximize social welfare. b. each individual will use the resource until his or her marginal benefit is equal to the marginal social cost. c. the marginal social cost and each individual's marginal private cost will be the same. d. the marginal social cost will be greater than the marginal private cost, and the resource will be overused.
d
Which of the following is a common resource? a. a city sewer system b. seats on an airplane c. a highway to which access is granted only to those who pay a specified toll d. a public beach with free access
d