Question 1

The private market fails to correct for the positive externalities associated with basic research.

Accepted Answer

A) True 
 B)False

Question 2

A town engineer comes to the town council with a proposal to build a traffic light at a certain intersection that currently has a stop sign.The benefit of the traffic light is increased safety.In fact, the traffic light will reduce the incidence of fatal traffic accidents by 50 per cent per year.Which of the following statements is true?

Accepted Answer

A) the project should definitely be accepted 
B) the full cost of the stop light will be relatively small since it only includes the purchase and installation costs 
C) the decision to install the light is likely to require a complex evaluation of the trade-off between the worth of human life and the lost time waiting for the light to change signals 
D) the cost will invariably outweigh the benefit 
A) the project should definitely be accepted 
B) the full cost of the stop light will be relatively small since it only includes the purchase and installation costs 
C) the decision to install the light is likely to require a complex evaluation of the trade-off between the worth of human life and the lost time waiting for the light to change signals 
D) the cost will invariably outweigh the benefit

Question 3

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?

Accepted Answer

A) cows reproduce at a high rate and have adapted well to their environment 
B) public policies have been implemented to protect cows from predators and diseases 
C) cows are privately owned and many endangered species are owned by no-one 
D) there is a natural ecological balance between the birth rate of cows and human consumption 
A) cows reproduce at a high rate and have adapted well to their environment 
B) public policies have been implemented to protect cows from predators and diseases 
C) cows are privately owned and many endangered species are owned by no-one 
D) there is a natural ecological balance between the birth rate of cows and human consumption

Question 4

Common resource goods are:

Accepted Answer

A) rival and non-excludable 
B) rival and excludable 
C) non-rival and excludable 
D) non-rival and non-excludable 
A) rival and non-excludable 
B) rival and excludable 
C) non-rival and excludable 
D) non-rival and non-excludable

Question 5

A huge, very busy museum in Europe is:

Accepted Answer

A) non-excludable and rival 
B) non-excludable and non-rival 
C) excludable and rival 
D) excludable and non-rival 
A) non-excludable and rival 
B) non-excludable and non-rival 
C) excludable and rival 
D) excludable and non-rival

Question 6

Ten friends who love to ski decide to pool their financial resources and equally share the cost of a one-week timeshare unit in the Blue Mountains of New South Wales.If lift lines at the ski resort become more congested when these 10 additional people start to ski, then:

Accepted Answer

A) use of the ski resort by all of these ten new skiers will yield a negative externality 
B) the ski resort can reduce the congestion externality by raising lift ticket prices 
C) an increase in lift ticket prices could be viewed as a Pigovian tax on the externality of congestion 
D) all of the above are true 
A) use of the ski resort by all of these ten new skiers will yield a negative externality 
B) the ski resort can reduce the congestion externality by raising lift ticket prices 
C) an increase in lift ticket prices could be viewed as a Pigovian tax on the externality of congestion 
D) all of the above are true

Question 7

If everyone prefers a society without poverty, then which of the following statements is true:

Accepted Answer

A) taxing private charities will make everyone better off 
B) taxing the wealthy to increase living standards for the poor only makes the poor better off 
C) taxing the wealthy to increase living standards for the poor makes everyone better off 
D) taxing the wealthy to increase living standards for the poor only makes the rich worse off 
A) taxing private charities will make everyone better off 
B) taxing the wealthy to increase living standards for the poor only makes the poor better off 
C) taxing the wealthy to increase living standards for the poor makes everyone better off 
D) taxing the wealthy to increase living standards for the poor only makes the rich worse off

Question 8

General scientific knowledge is so valuable, that a private company generating this knowledge would never need a government subsidy to be profitable.

Accepted Answer

A) True 
 B)False

Question 9

Fish are public goods because there are always enough left to keep reproducing and thus stocks never run out.

Accepted Answer

A) True 
 B)False

Question 10

National defence and basic research have in common:

Accepted Answer

A) that they are both common resources 
B) that they are both difficult to value 
C) that they are both lucrative for the companies that provide them 
D) that they are both natural monopolies 
A) that they are both common resources 
B) that they are both difficult to value 
C) that they are both lucrative for the companies that provide them 
D) that they are both natural monopolies

Question 11

A museum exhibition is excludable because it is possible to prevent someone from seeing the show.

Accepted Answer

A) True 
 B)False

Question 12

In nearly all cases the government can make everyone better off by raising taxes to pay for certain goods that the market fails to provide.

Accepted Answer

A) True 
 B)False

Question 13

Four friends decide to meet at a Chinese restaurant for dinner.They decide that each person will order an item from the menu and they will share all dishes.When the final bill for the meal comes, they decide that they will split the cost evenly among each of the people at the table.In this particular case, a Tragedy of the Commons problem is likely because:

Accepted Answer

A) each person has an incentive to eat as fast as possible, since their individual rate of consumption will not affect their individual cost 
B) there is a consumption externality associated with eating the food on the table 
C) when one person eats, he may not take into account how his choice affects his friends 
D) all of the above are true 
A) each person has an incentive to eat as fast as possible, since their individual rate of consumption will not affect their individual cost 
B) there is a consumption externality associated with eating the food on the table 
C) when one person eats, he may not take into account how his choice affects his friends 
D) all of the above are true

Question 14

Why do governments tend to run programs that help the poor?

Accepted Answer

Advocates of social welfare argue that f

Question 15

Goods that are non-excludable and non-rival are:

Accepted Answer

A) public goods 
B) private goods 
C) natural monopolies 
D) common resources 
A) public goods 
B) private goods 
C) natural monopolies 
D) common resources

Question 16

When a good is not excludable but it is rival, it is an example of a:

Accepted Answer

A) natural monopoly 
B) private good 
C) public good 
D) common resource 
A) natural monopoly 
B) private good 
C) public good 
D) common resource

Question 17

Many people around the world are worried about global warming, yet the consumption of oil-derived products is not falling.One possible solution to this problem could be:

Accepted Answer

A) for the United Nations to outlaw the extraction of oil 
B) for oil-rig workers to work together to reduce the amount of oil they extract from the ground 
C) for environmental groups to bargain with oil producers, as per the Coase theorem 
D) for companies to internalise the externality by joining together and acting as a single company 
A) for the United Nations to outlaw the extraction of oil 
B) for oil-rig workers to work together to reduce the amount of oil they extract from the ground 
C) for environmental groups to bargain with oil producers, as per the Coase theorem 
D) for companies to internalise the externality by joining together and acting as a single company

Question 18

Fire protection is a good example of a natural monopoly good because:

Accepted Answer

A) it is non-excludable 
B) it is rival 
C) protecting an extra house is unlikely to reduce the protection available to others 
D) all of the above are true 
A) it is non-excludable 
B) it is rival 
C) protecting an extra house is unlikely to reduce the protection available to others 
D) all of the above are true

Question 19

What characteristics do public goods and common resources have in common?

Accepted Answer

A) both types of good are non-rival 
B) both types of good are excludable 
C) both types of good are rival 
D) both types of good are non-excludable 
A) both types of good are non-rival 
B) both types of good are excludable 
C) both types of good are rival 
D) both types of good are non-excludable

Question 20

Which of the following statements is true of cost-benefit analysis?
(i) the best way to ascertain the value people put on a good is to ask them
(ii) the analysis should take into account only explicit costs and benefits
(iii) cost-benefit analyses often attempt to value goods for which there are a wide range of social impacts

Accepted Answer

A) (i) 
B) (ii) and (iii) 
C) (iii) 
D) (i), (ii) and (iii) 
A) (i) 
B) (ii) and (iii) 
C) (iii) 
D) (i), (ii) and (iii)

Exam 11: Public Goods and Common Resources

The private market fails to correct for the positive externalities associated with basic research.

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?

Common resource goods are:

A huge, very busy museum in Europe is:

Ten friends who love to ski decide to pool their financial resources and equally share the cost of a one-week timeshare unit in the Blue Mountains of New South Wales.If lift lines at the ski resort become more congested when these 10 additional people start to ski, then:

If everyone prefers a society without poverty, then which of the following statements is true:

General scientific knowledge is so valuable, that a private company generating this knowledge would never need a government subsidy to be profitable.

Fish are public goods because there are always enough left to keep reproducing and thus stocks never run out.

National defence and basic research have in common:

A museum exhibition is excludable because it is possible to prevent someone from seeing the show.

In nearly all cases the government can make everyone better off by raising taxes to pay for certain goods that the market fails to provide.

Why do governments tend to run programs that help the poor?

Goods that are non-excludable and non-rival are:

When a good is not excludable but it is rival, it is an example of a:

Many people around the world are worried about global warming, yet the consumption of oil-derived products is not falling.One possible solution to this problem could be:

Fire protection is a good example of a natural monopoly good because:

What characteristics do public goods and common resources have in common?

Ten Lessons From Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand and Government Policies

Consumers, Producers and the Efficiency of Markets

Application: the Costs of Taxation

Application: International Trade

Externalities

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Business Strategy and Oligopoly

Competition Policy

The Markets for the Factors of Production

Earnings, Unions and Discrimination

Income Inequity and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment and the Financial System

The Natural Rate of Unemployment

The Monetary System

Inflation: Its Causes and Costs

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Trade-Off Between Inflation and Unemployment

Global Financial Crisis of 2008 and Beyond

Five Debates Over Macroeconomic Policy

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