Question 1

Advocates of antipoverty programs claim that

Accepted Answer

A)  the government has good information about what people are willing to pay to eliminate poverty. 
B)  fighting poverty is a public good. 
C)  private sector will incur higher costs than the public sector for these programs. 
D)  All of the above are correct. 
A)  the government has good information about what people are willing to pay to eliminate poverty. 
B)  fighting poverty is a public good. 
C)  private sector will incur higher costs than the public sector for these programs. 
D)  All of the above are correct.

Question 2

Private markets usually fail to provide lighthouses because

Accepted Answer

A)  lighthouses cost too much to build relative to their benefits. 
B)  government intervention makes it hard for private lighthouse owners to compete in the market. 
C)  ship captains have incentives to use lighthouses without paying. 
D)  lighthouses are valued very little by ship captains these days. 
A)  lighthouses cost too much to build relative to their benefits. 
B)  government intervention makes it hard for private lighthouse owners to compete in the market. 
C)  ship captains have incentives to use lighthouses without paying. 
D)  lighthouses are valued very little by ship captains these days.

Question 3

Free goods are usually efficiently allocated without government intervention.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following quotations illustrates the Tragedy of the Commons?

Accepted Answer

A)  "A bird in the hand is worth two in the bush." 
B)  "The only difference between the rich and other people is that the rich have more money." 
C)  "What is common to many is taken least care of, for all men have greater regard for what is their own than for what they possess in common with others." 
D)  "Anyone who is not a socialist before he is 30 has no heart; anyone who is still a socialist after he is 30 has no head." 
A)  "A bird in the hand is worth two in the bush." 
B)  "The only difference between the rich and other people is that the rich have more money." 
C)  "What is common to many is taken least care of, for all men have greater regard for what is their own than for what they possess in common with others." 
D)  "Anyone who is not a socialist before he is 30 has no heart; anyone who is still a socialist after he is 30 has no head."

Question 5

Simply asking people how much they value a highway is not a reliable way of measuring the benefits and costs because

Accepted Answer

A)  those who stand to gain have an incentive to tell the truth. 
B)  those who stand to lose have an incentive to exaggerate their true costs. 
C)  answers to the survey questions will always be downwardly biased. 
D)  not everyone asked will be using the highway. 
A)  those who stand to gain have an incentive to tell the truth. 
B)  those who stand to lose have an incentive to exaggerate their true costs. 
C)  answers to the survey questions will always be downwardly biased. 
D)  not everyone asked will be using the highway.

Question 6

A toll on a congested road is in essence

Accepted Answer

A)  an interstate highway tax. 
B)  a Department of Motor Vehicles tax. 
C)  a gasoline tax. 
D)  a corrective tax. 
A)  an interstate highway tax. 
B)  a Department of Motor Vehicles tax. 
C)  a gasoline tax. 
D)  a corrective tax.

Question 7

A town engineer comes to the city council with a proposal to install a traffic light at a certain intersection that currently has a stop sign. The benefit of the traffic light is increased safety because the light will reduce the incidence of fatal traffic accidents by 50 percent per year. Which of the following statements is correct?

Accepted Answer

A)  The city council should vote to install the traffic light because the benefits will outweigh the costs. 
B)  The city council should carefully evaluate the benefits of reduced fatalities against only the explicit costs of the light. 
C)  The city council should carefully evaluate the benefits of reduced fatalities against the costs of the light and of the extra time that drivers will spend waiting for a green light. 
D)  The costs will invariably outweigh the benefits. 
A)  The city council should vote to install the traffic light because the benefits will outweigh the costs. 
B)  The city council should carefully evaluate the benefits of reduced fatalities against only the explicit costs of the light. 
C)  The city council should carefully evaluate the benefits of reduced fatalities against the costs of the light and of the extra time that drivers will spend waiting for a green light. 
D)  The costs will invariably outweigh the benefits.

Question 8

The Ogallala aquifer is a large underground pool of fresh water under several western states in the United States. Any farmer with land above the aquifer can at present pump water out of it. We might expect that

Accepted Answer

A)  over time, the aquifer is likely to be overused. 
B)  each farmer has a sufficient incentive to conserve the water. 
C)  state governments have an incentive to insure that their farmers do not overuse the water. 
D)  resources would be used more efficiently if the government paid for the pumps farmers use to get the water. 
A)  over time, the aquifer is likely to be overused. 
B)  each farmer has a sufficient incentive to conserve the water. 
C)  state governments have an incentive to insure that their farmers do not overuse the water. 
D)  resources would be used more efficiently if the government paid for the pumps farmers use to get the water.

Question 9

In determining whether and how much of a public good to provide, cost-benefits analysts use the same type of price signals for public goods as are readily available for private goods.

Accepted Answer

A) True 
 B)False

Question 10

Private companies will invest in medical research if

Accepted Answer

A)  they will produce general knowledge. 
B)  they will produce a specific product for which they may receive a patent. 
C)  there is no government intervention in the market for medical products. 
D)  others will benefit from their discoveries. 
A)  they will produce general knowledge. 
B)  they will produce a specific product for which they may receive a patent. 
C)  there is no government intervention in the market for medical products. 
D)  others will benefit from their discoveries.

Question 11

It would always be a mistake to view

Accepted Answer

A)  a streetlight as a common resource. 
B)  a nontoll road as a public good. 
C)  the environment as a common resource. 
D)  a lighthouse as a public good. 
A)  a streetlight as a common resource. 
B)  a nontoll road as a public good. 
C)  the environment as a common resource. 
D)  a lighthouse as a public good.

Question 12

Nine friends who love the beach decide to pool their financial resources and equally share the cost of a one-week house rental on Nantucket. Suppose that the beach outside of the house becomes more congested when the nine additional people join the other beachgoers. Which of the following statements is not correct?

Accepted Answer

A)  Use of the beach by the nine new beachgoers will yield a negative externality. 
B)  The town can reduce the congestion externality by raising the fee to access the beach. 
C)  An increase in the fee to access the beach could be viewed as a corrective tax on the externality of congestion. 
D)  Each of the nine friends would have been better off staying at home. 
A)  Use of the beach by the nine new beachgoers will yield a negative externality. 
B)  The town can reduce the congestion externality by raising the fee to access the beach. 
C)  An increase in the fee to access the beach could be viewed as a corrective tax on the externality of congestion. 
D)  Each of the nine friends would have been better off staying at home.

Question 13

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

Accepted Answer

A)  a common resource problem. 
B)  a public good. 
C)  a natural monopoly. 
D)  All of the above are correct. 
A)  a common resource problem. 
B)  a public good. 
C)  a natural monopoly. 
D)  All of the above are correct.

Question 14

National defense is a classic example of a public good because

Accepted Answer

A)  there is no market for private security services. 
B)  it is difficult to exclude people from receiving the benefits from national defense once it is provided. 
C)  everyone agrees that some level of national defense is important, but only the government knows the optimal amount. 
D)  there are no private firms willing to supply defense goods such as tanks and weapons. 
A)  there is no market for private security services. 
B)  it is difficult to exclude people from receiving the benefits from national defense once it is provided. 
C)  everyone agrees that some level of national defense is important, but only the government knows the optimal amount. 
D)  there are no private firms willing to supply defense goods such as tanks and weapons.

Question 15

Market failure associated with the free-rider problem is a result of

Accepted Answer

A)  a problem associated with pollution. 
B)  benefits that accrue to those who don't pay. 
C)  losses that accrue to providers of the product. 
D)  market power. 
A)  a problem associated with pollution. 
B)  benefits that accrue to those who don't pay. 
C)  losses that accrue to providers of the product. 
D)  market power.

Question 16

Figure 11-1
-Refer to Figure 11-1. With which of the boxes - A, B, C, or D - do we associate the Tragedy of the Commons?

Accepted Answer

We associate the Tra

Question 17

At the local park there is a playground that anyone may use. There is rarely anyone using the playground, so children who use the playground receive full enjoyment from its use. The playground is

Accepted Answer

A)  rival in consumption and is excludable. 
B)  not rival in consumption, but is excludable. 
C)  rival in consumption, but is not excludable. 
D)  not rival in consumption nor is it excludable. 
A)  rival in consumption and is excludable. 
B)  not rival in consumption, but is excludable. 
C)  rival in consumption, but is not excludable. 
D)  not rival in consumption nor is it excludable.

Question 18

People can be prevented from using a good if the good is

Accepted Answer

A)  a private good or a club good. 
B)  a private good or a common resource. 
C)  a public good or a common resource. 
D)  a private good or a public good. 
A)  a private good or a club good. 
B)  a private good or a common resource. 
C)  a public good or a common resource. 
D)  a private good or a public good.

Question 19

A good that is rival in consumption is one that someone can be prevented from using if she did not pay for it.

Accepted Answer

A) True 
 B)False

Question 20

Cost-benefit analysts often encounter the problem that those who would benefit from government provision of a public good tend to

Accepted Answer

A)  overstate the benefit they would receive from the public good and those who would be harmed by government provision of a public good tend to overstate the costs they would incur from the public good. 
B)  overstate the benefit they would receive from the public good and those who would be harmed by government provision of a public good tend to understate the costs they would incur from the public good. 
C)  understate the benefit they would receive from the public good and those who would be harmed by government provision of a public good tend to overstate the costs they would incur from the public good. 
D)  understate the benefit they would receive from the public good and those who would be harmed by government provision of a public good tend to understate the costs they would incur from the public good. 
A)  overstate the benefit they would receive from the public good and those who would be harmed by government provision of a public good tend to overstate the costs they would incur from the public good. 
B)  overstate the benefit they would receive from the public good and those who would be harmed by government provision of a public good tend to understate the costs they would incur from the public good. 
C)  understate the benefit they would receive from the public good and those who would be harmed by government provision of a public good tend to overstate the costs they would incur from the public good. 
D)  understate the benefit they would receive from the public good and those who would be harmed by government provision of a public good tend to understate the costs they would incur from the public good.

Exam 11: Public Goods and Common Resources

Advocates of antipoverty programs claim that

Private markets usually fail to provide lighthouses because

Free goods are usually efficiently allocated without government intervention.

Which of the following quotations illustrates the Tragedy of the Commons?

Simply asking people how much they value a highway is not a reliable way of measuring the benefits and costs because

A toll on a congested road is in essence

The Ogallala aquifer is a large underground pool of fresh water under several western states in the United States. Any farmer with land above the aquifer can at present pump water out of it. We might expect that

In determining whether and how much of a public good to provide, cost-benefits analysts use the same type of price signals for public goods as are readily available for private goods.

Private companies will invest in medical research if

It would always be a mistake to view

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

National defense is a classic example of a public good because

Market failure associated with the free-rider problem is a result of

Figure 11-1 -Refer to Figure 11-1. With which of the boxes - A, B, C, or D - do we associate the Tragedy of the Commons?

At the local park there is a playground that anyone may use. There is rarely anyone using the playground, so children who use the playground receive full enjoyment from its use. The playground is

People can be prevented from using a good if the good is

A good that is rival in consumption is one that someone can be prevented from using if she did not pay for it.

Cost-benefit analysts often encounter the problem that those who would benefit from government provision of a public good tend to

Ten Principles of 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 Costs of Production

Firms in Competitive Markets

Monopoly

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

The Basic Tools of Finance

Unemployment

The Monetary System

Money Growth and Inflation

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

Filters