Question 1

Why might merit goods be under-consumed if left to the market and so what can be done to correct this problem?

Accepted Answer

Merit goods maybe under-consumed because consumers may have imperfect information about the benefits of these goods and are not able to value them appropriately as a result. They also make decisions only based on the private benefit and not the social benefit. If the market signal does not fully convey the value of the benefits to consumers then they are likely to under invest in these goods. For example sacrificing a job now for studying a degree is made in the belief that it will provide a greater future benefit in both income and through having more rewarding jobs, but that is in the future and its exact nature is not specific. The information to base this decision on is imperfect. Also the social benefit of gaining a degree is ignored when making a decision because the consumer is only interested in the private benefit from education. This social benefit of adding to the human capital of the country is important to the government and hence a government may subsidise higher education or offer loans that will be repayable from future incomes.

Question 2

Which merit good is likely to be under consumed when left to the market mechanism?

Accepted Answer

A)  tobacco 
B)  alcohol 
C)  education 
D)  heroin 
A)  tobacco 
B)  alcohol 
C)  education 
D)  heroin C

Question 3

Common resources are overused because common resources are free to the consumer.

Accepted Answer

A) True 
 B)False  True

Question 4

A common resource is

Accepted Answer

A)  not rival but excludable. 
B)  both rival and excludable. 
C)  rival but not excludable. 
D)  neither rival nor excludable. 
A)  not rival but excludable. 
B)  both rival and excludable. 
C)  rival but not excludable. 
D)  neither rival nor excludable.

Question 5

What are the characteristics of common resources and why do governments seek to limit the use of common resources?

Accepted Answer

Common resources are rival but not exclu

Question 6

Public goods are difficult for a private market to provide due to

Accepted Answer

A)  the rivalness problem. 
B)  the public goods problem. 
C)  the Tragedy of the Commons. 
D)  the free-rider problem. 
A)  the rivalness problem. 
B)  the public goods problem. 
C)  the Tragedy of the Commons. 
D)  the free-rider problem.

Question 7

What is meant by goods which are excludable and rival?

Accepted Answer

A good is excludable if it is possible t

Question 8

An overcrowded beach is an example of

Accepted Answer

A)  a positive externality. 
B)  a tragedy of the commons. 
C)  environmentally inefficient allocation. 
D)  economically unsound allocation. 
A)  a positive externality. 
B)  a tragedy of the commons. 
C)  environmentally inefficient allocation. 
D)  economically unsound allocation.

Question 9

A club good produced by a natural monopoly is

Accepted Answer

A)  rival but not excludable. 
B)  neither rival nor excludable. 
C)  not rival but excludable. 
D)  both rival and excludable. 
A)  rival but not excludable. 
B)  neither rival nor excludable. 
C)  not rival but excludable. 
D)  both rival and excludable.

Question 10

Merit goods are

Accepted Answer

A)  not supplied by the price sector. 
B)  always free to the consumer. 
C)  considered over or under consumed by the government. 
D)  are not excludable. 
A)  not supplied by the price sector. 
B)  always free to the consumer. 
C)  considered over or under consumed by the government. 
D)  are not excludable.

Question 11

Why do wild salmon populations face the threat of extinction while goldfish populations are in no such danger?

Accepted Answer

No one owns the wild salmon, while priva

Question 12

A public good is both rival and excludable.

Accepted Answer

A) True 
 B)False

Question 13

Merit goods are goods that governments feel without subsidies or extra taxes would be under or over consumed.

Accepted Answer

A) True 
 B)False

Question 14

A congested toll road is

Accepted Answer

A)  a good produced by a natural monopoly. 
B)  a private good. 
C)  a public good. 
D)  a common resource. 
A)  a good produced by a natural monopoly. 
B)  a private good. 
C)  a public good. 
D)  a common resource.

Question 15

The Tragedy of the Commons is a parable that illustrates why

Accepted Answer

A)  common resources are over consumed. 
B)  public goods are under produced. 
C)  private goods are under consumed. 
D)  natural monopolies overproduce goods. 
A)  common resources are over consumed. 
B)  public goods are under produced. 
C)  private goods are under consumed. 
D)  natural monopolies overproduce goods.

Question 16

A merit good cannot be provided by the private sector.

Accepted Answer

A) True 
 B)False

Question 17

A negative externality affects market efficiency in a manner similar to

Accepted Answer

A)  an excludable good. 
B)  a private good. 
C)  a common resource. 
D)  a public good. 
A)  an excludable good. 
B)  a private good. 
C)  a common resource. 
D)  a public good.

Question 18

Governments can improve market outcomes for

Accepted Answer

A)  public goods but not common resources. 
B)  common resources but not public goods. 
C)  both public goods and common resources. 
D)  neither public goods nor common resources. 
A)  public goods but not common resources. 
B)  common resources but not public goods. 
C)  both public goods and common resources. 
D)  neither public goods nor common resources.

Question 19

When markets fail to allocate resources efficiently, the ultimate source of the problem is usually

Accepted Answer

A)  government regulation. 
B)  that prices are not low enough so firms overproduce. 
C)  that prices are not high enough so people over consume. 
D)  that property rights have not been well established. 
A)  government regulation. 
B)  that prices are not low enough so firms overproduce. 
C)  that prices are not high enough so people over consume. 
D)  that property rights have not been well established.

Question 20

Which of the following could be a merit good?

Accepted Answer

A)  education. 
B)  national defence. 
C)  police service. 
D)  flood control schemes. 
A)  education. 
B)  national defence. 
C)  police service. 
D)  flood control schemes.

Exam 10: Public Goods, Common Resources and Merit Goods

Why might merit goods be under-consumed if left to the market and so what can be done to correct this problem?

Which merit good is likely to be under consumed when left to the market mechanism?

Common resources are overused because common resources are free to the consumer.

A common resource is

What are the characteristics of common resources and why do governments seek to limit the use of common resources?

Public goods are difficult for a private market to provide due to

What is meant by goods which are excludable and rival?

An overcrowded beach is an example of

A club good produced by a natural monopoly is

Merit goods are

Why do wild salmon populations face the threat of extinction while goldfish populations are in no such danger?

A public good is both rival and excludable.

Merit goods are goods that governments feel without subsidies or extra taxes would be under or over consumed.

A congested toll road is

The Tragedy of the Commons is a parable that illustrates why

A merit good cannot be provided by the private sector.

A negative externality affects market efficiency in a manner similar to

Governments can improve market outcomes for

When markets fail to allocate resources efficiently, the ultimate source of the problem is usually

Which of the following could be a merit good?

What Is Economics

Thinking Like an Economist

The Market Forces of Supply and Demand

Elasticity and Its Applications

Background to Demand: Consumer Choices

Background to Supply: Firms in Competitive Markets

Consumers, Producers and the Efficiency of Markets

Supply, Demand and Government Policies

The Tax System

Market Failure and Externalities

Information and Behavioural Economics

Firms Production Decisions

Market Structures I: Monopoly

Market Structures Ii: Monopolistic Competition

Market Structures Iii: Oligopoly

The Economics of Factor Markets

Income Inequality and Poverty

Interdependence and the Gains From Trade

Measuring a Nations Well-Being

Measuring the Cost of Living

Production and Growth

Unemployment

Saving, Investment and the Financial System

The Basic Tools of Finance

Issues in Financial Markets

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Business Cycles

Keynesian Economics and the Is-Lm Analysis

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Trade-Off Between Inflation and Unemployment

Supply-Side Policies

Common Currency Areas and European Monetary Union

The Financial Crisis and Sovereign Debt

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