Micro Chapter 13

Which scenario best characterizes the tragedy of the commons?

Users of a shared shower in a dorm allowing the shower to get nasty by failing to clean it often enough.

National defense is a good that is nonexcludable and nonrival in consumption. Suppose that, instead of national defense being paid with tax dollars, national defense is paid by voluntary contributions from (potentially) all individuals within Latvia. Donald, who is a Latvian citizen, must decide whether he wants to contribute to the national defense budget. Further, suppose that there are a total of 10 citizens, including Donald. For the optimal amount of safety, each citizen should pay $10. Every $1 contributed (by anyone) to the national defense, leads to increased security, which each person values at $0.30. This means that every dollar spent on defense is worth $3.00 to Latvia as a whole. 1. How much does Donald personally value the increase in national defense when he contributes $10 to the defense fund? 2. If contributions are voluntary, and assuming people rationally maximize their utility, what is the total contributed to national defense? 3. Suppose that, instead of relying on voluntary contributions, the government simply levies a tax of $10 on each person to pay for national defense. How much better or worse off would Donald be if everyone (including himself) were taxed $10 instead of contributing voluntarily? If Donald is worse off, be sure to put a negative sign in front of the number.

1. $3.00 2. $0.00 3. $20.00

Which of the following are examples of free riding? 1. Bob can pay to support his local public radio station, which depends on donations to be as effective as possible. Bob listens to the radio station several hours per day but never donates since he suspects that other people will donate enough to keep the station on the air. 2. Drew always buys the lunch special for $5 at the restaurant across the street from where he works. If he decided to eat at the restaurant after 3:00 PM, however, he would be unable to get the lunch special and would instead have to pay $10 for the same food. Jim is working on a group project in a class in which he wants a high grade. However, since the grades are assigned to the group as a whole and he knows that the other group members will pick up most of the extra work, 3. Jim calls in sick and plays video games on his DreamStation 64. 4. Karl never drives at night, and so gets no benefit from street lamps (at all). Street lamps are nonexcludable and nonrival in consumption. When the community group tries to collect money to build street lamps, Karl doesn\'t donate any money.

1. Free Riding 2. Not Free Riding 3. Free Riding 4. Not Free Riding

For each of the goods below, identify the characteristics that describe each good. Note that each good will be characterized with two characteristics. Rivalrous is also referred to as rival in consumption. Consider only the immediate benefits and costs, not any externalities that might be associated with a good. (Excludable, Nonexcludable, Rivalrous, Nonrivalrous) 1. National Defense 2. Pay per view cable TV 3. A Hot Pocket sandwich 4. Private classroom education 5. Pajamas 6. A unicycle

1. Nonexcludable, nonrivalrous 2. excludable, nonrivalrous 3. excludable, rivalrous 4. excludable, rivalrous 5. excludable, rivalrous 6. excludable, rivalrous

In the early 1990's, the United States developed a new rating system for energy efficient appliances and electronics equipment. The rating, known as Energy Star, was given to products that use less energy than conventional machines, and thus allowed to use a special symbol intended to identify these products to consumers and increase awareness of new, energy-efficiency technologies. 1. What type of externality is likely to result from a consumer\'s decision to purchase an Energy Star appliance, and how does it arise? 2. Given the externality produced by such purchases, what is a likely policy response you would expect the US government to undertake?

1. Positive because these products will result in less environmental pollution. 2. A subsidy to consumers who choose to purchase Energy Star products

Statement 2: If a company incurs a tax because it generates pollution, the tax will force the company to stop polluting.

False

Statement 3: With respect to pollution, it is easy to determine and provide compensation through liability rules.

False

Intellectual property laws include which of the following: Patents, Deregulation, Copyrights, Trade Secrets, Trademarks, Control of a Physical Resource

Patents, Trademarks, Copyrights, Trade Secrets

Which of the following statements describes a positive externality resulting from the use of a new technology to produce an existing good?

People who neither paid for developing the technology nor purchase good produced by the new technology are better off because of the new technology.

In an economic context, what is the \"tragedy of the commons?\"

The idea that people overuse or misuse a resources when property rights are not clearly defined.

Why does the United States government provide tax breaks related to the amount of money companies spend on research and development? There is more than one correct answer.

To provide incentives for companies to conduct research and development, and To involve less government scrutiny than a government funded project

Public goods are related to positive externalities because the potential buyers of public goods ignore the external benefits those goods provide to other consumers when they make their decision about whether to purchase public goods.

True

Statement 1: Forbidding the use of asbestos, a cancer-causing material, in construction through the use of legislation is an example of directly regulating a negative externality.

True

Statement 4: An efficient solution to a negative externality such as noise pollution is to avoid it provided that there is enough incentive to do so.

True

Statement 5: The government can use subsidies or tax breaks to encourage activities with positive externalities.

True

We think of acquiring skills as an investment because it involves _ today in anticipation of _ in the future. Firms invest in their workers to increase _ in the future

costs, benefits, productivity

When firms in an oligopoly successfully collude and do not cheat on their collusive agreement, they achieve economic profit similar to:

monopoly

Investment in human capital is best described as?

investing in education & training to improve a workers productivity

When there is an external benefit, the free markets will provide ____ of the good and the price is _________ compared to the socially optimal levels.

too little; too low

The aggregate, or overall, demand for a public good is found by:

vertically summing all the individual demand curves for the good.