Microeconomics Final Public Goods

Goods that are rival in consumption include both Answers: a. common resources and private goods. b. natural monopolies and public goods. c. public goods and common resources. d. private goods and natural monopolies.

common resources and private goods

Which of the following is an approach used by economists to calculate the value of a human life? Answers: a. comparing the salaries of people who live in cities with more traffic lights to those who live in cities with fewer traffic lights b. comparing the wages of more risky occupations to less risky occupations c. comparing the costs of vehicles with safety features such as side-impact airbags to those without such safety features d. All of the above are correct.

comparing the wages of more risky occupations to less risky occupations

Consider a public road that anyone is allowed to drive on. If the road is often congested, the road would be considered a Answers: a. common resource. b. private good. c. natural monopoly. d. public good.

common resource.

Many species of animals are common resources, and many must be protected by law to keep them from extinction. Why is the cow not one of these endangered species even though there is such a high demand for beef?. Answers: a. Public policies protect cows from predators and diseases. b. Cows are privately owned, whereas many endangered species are owned by no one. c. Cows reproduce at a high rate and have adapted well to their environment. d. There is a natural ecological balance between the birth rate of cows and human consumption.

Cows are privately owned, whereas many endangered species are owned by no one.

Who among the following is a free rider? Answers: a. Fred watches many public television programs, but he has never sent in a contribution to the station. b. Betty rides to work with Sally, but she pays Sally for gasoline and other travel-related expenses. c. Joe drives 20,000 miles a year on public streets, but he pays no more in property taxes than Sam, who only drives 1,000 miles. d. Barry buys candy from the store where he works.

Fred watches many public television programs, but he has never sent in a contribution to the station.

Four roommates share an off-campus house and equally share the cost of rent. Everyone says that she values a clean house, yet the house is usually dirty. To an economist, a clean house in this case represents Answers: a. a common resource problem. b. a public good. c. a natural monopoly. d. All of the above are correct.

a common resource problem.

Suppose that the Town of Podunk is considering hiring an additional police officer. The reduction in crime is estimated to be worth $10 for each of Podunk's 4,500 residents. What should the city do? Answers: a. Do not hire the police officer because the costs exceed the benefits. b. Hire the police officer because additional safety is priceless. c. Hire the police officer if the cost of the new officer is less than $45,000. d. Hire the police officer only if the benefit to the residents exceeds $4,500.

c. Hire the police officer if the cost of the new officer is less than $45,000.

Suppose the cost to erect a tornado siren in a small town is $20,000. In addition, suppose the value of a human life is $10 million. By what percentage would the siren need to reduce the risk of a fatality for the benefits of the siren to exceed the costs of the siren? Answers: a. By at least 2 percentage points. b. By at least 0.5 percentage points. c. By at least 5 percentage points. d. By at least 0.2 percentage points.

d. By at least 0.2 percentage points.

Excessive fishing occurs because Answers: a. each individual fisherman has little incentive to maintain the species for the next year. b. fishermen rely on government managers to worry about fish populations. c. fishermen have other marketable skills and do not fear exploitation of fish reserves. d. fishermen are unionized, so they are not concerned with externalities.

each individual fisherman has little incentive to maintain the species for the next year.

Both private goods and natural monopolies are Answers: a. rival in consumption. b. excludable. c. nonrival in consumption. d. nonexcludable.

excludable

To achieve the optimal provision of public goods, the Answers: a. government must either provide the goods or subsidize their production. b. government must tax producers of the goods. c. government must limit the provision of the goods. d. market should be allowed to arrive at an equilibrium without government intervention.

government must either provide the goods or subsidize their production.

Imagine a 2,000-acre park with picnic benches, trees, and a pond. Suppose it is publicly owned, and people are invited to enjoy its beauty. When the weather is nice, it is difficult to find parking, and the trash cans overflow with food wrappers on summer afternoons. Otherwise, it is a great place. The park is a common resource because Answers: a. people can be prevented from using it. b. access is limited due to driving distances. c. if too many people use it, one person's use diminishes other peoples' use. d. anyone can use it without affecting anyone else.

if too many people use it, one person's use diminishes other peoples' use.

Private decisions about consumption of common resources and production of public goods usually lead to an Answers: a. efficient allocation of resources and external effects. b. inefficient allocation of resources and no external effects. c. inefficient allocation of resources and external effects. d. efficient allocation of resources and no external effects.

inefficient allocation of resources and external effects.

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

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

One way to eliminate the Tragedy of the Commons is to Answers: a. increase access to the commons. b. increase law enforcement in public areas. c. limit access to the commons. d. decrease taxes.

limit access to the commmons

You are the mayor of a town with 10,000 residents. The head of your economic development agency recently conducted a survey in which the 10,000 residents said that a small public library in the center of town would be worth $25 to each of them. Because the cost to build the library is only $150,000, you arrange to have the library built. Everyone in town enjoys the library, but when you asked for donations to pay for the library, you only collected $15,000. You are convinced that Answers: a. the library was an example of the Tragedy of the Commons. b. most residents of the town are probably free-riders at the library. c. the survey must have overstated how much the library was worth to each resident; otherwise, you would have collected $250,000 in donations. d. the cost of the library exceeded the social benefits.

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

If a road is congested, then use of that road by an additional person would lead to a Answers: a. negative externality. b. free-rider problem with rush hour drivers stuck in traffic. c. positive externality. d. Pigovian externality.

negative externality.

An FM radio signal is an example of a good that is Answers: a. nonrival in consumption. b. nonexcludable in production. c. private. d. social.

nonrival in consumption

The provision of a public good generates a Answers: a. positive externality and the use of a common resource generates a negative externality. b. negative externality, as does the use of a common resource. c. negative externality and the use of a common resource generates a positive externality. d. positive externality, as does the use of a common resource.

positive externality and the use of a common resource generates a negative externality.

For private goods allocated in markets, Answers: a. the government guides the decisions of buyers and sellers and these decisions lead to an efficient allocation of resources. b. prices guide the decisions of buyers and sellers and these decisions lead to an inefficient allocation of resources. c. the government guides the decisions of buyers and sellers and these decisions lead to an inefficient allocation of resources. d. prices guide the decisions of buyers and sellers and these decisions lead to an efficient allocation of resources.

prices guide the decisions of buyers and sellers and these decisions lead to an efficient allocation of resources.

Goods that are excludable include both. Answers: a. common resources and private goods. b. public goods and common resources. c. natural monopolies and public goods. d. private goods and natural monopolies.

private goods and natural monopolies.

The Tragedy of the Commons occurs because Answers: a. government property is most heavily used by the wealthy. b. everyone deserves an equal share of government property. c. established property rights create competition. d. social and private incentives differ.

social and private incentives differ

It is commonly argued that national defense is a public good. Nevertheless, the weapons used by the U.S. military are produced by private firms. We can conclude that Answers: a. resources would be used more efficiently if the government produced the weapons. b. national defense is rival in consumption and excludable, but weapons are not rival in consumption and not excludable. c. weapons are rival in consumption and excludable, but national defense is not rival in consumption and not excludable. d. resources would be used more efficiently if private firms provided national defense.

weapons are rival in consumption and excludable, but national defense is not rival in consumption and not excludable.