Deck 11: Public Goods and Common Resources

Question 1

A good is rival if

A) it has substitutes.
B) it is excludable.
C) consumption by one person decreases the quantity available for another person.
D) it can be consumed by many people simultaneously.
E) it has no complements.

Answer 1

consumption by one person decreases the quantity available for another person.

Question 2

A good or resource that is both nonrival and nonexcludable is

A) a private good.
B) a natural monopoly good.
C) a good that is impossible to produce.
D) a common resource.
E) a public good.

Answer 2

a public good.

Question 3

Which of the following is the best example of a private good?

A) A public library in Brisbane
B) A footpath in Hobart
C) A shark swimming in the ocean
D) A missile defence system
E) A can of Diet Pepsi

Answer 3

A can of Diet Pepsi

Question 4

An AFL football game played in a completely full stadium is NOT a public good because it is

A) not supplied by the government.
B) nonexcludable and rival.
C) excludable and nonrival.
D) nonexcludable and nonrival.
E) excludable and rival.

Question 5

One important feature that distinguishes a private good from a public good is that

A) a private good is excludable and a public good is nonexcludable.
B) if you consume a unit of a private good, that means there is no less for someone else.
C) nobody can be excluded from enjoying the benefits of a private good.
D) only the government can produce private goods.
E) a private good is nonrival and a public good is rival.

Question 6

A public good is ________ and ________.

A) nonrival; excludable
B) rival; nonexcludable
C) cheap; available
D) rival; excludable
E) nonrival; nonexcludable

Question 7

Which of the following is the best example of a public good?

A) National defence
B) Kakadu National Park
C) Satellite radio
D) A Ford Falcon
E) A bottle of Pepsi

Question 8

An example of a common resource is

A) national defence.
B) a bridge.
C) whales in the ocean.
D) a non-crowded cinema.
E) All of the above are correct.

Question 9

The fact that Zoe's enjoyment of a sunset on Kangaroo Island does not preclude Matthew from enjoying the sunset is an example of

A) a good that is nonrival.
B) a common resource.
C) the rival nature of consumption.
D) a private good.
E) a good that is excludable.

Question 10

A good that is both rival and excludable is

A) a public good.
B) a good that is impossible to produce.
C) a private good.
D) a natural monopoly good.
E) a common resource.

Question 11

A public good

A) is the same as a common resource.
B) is nonrival and nonexcludable.
C) is rival.
D) only yields benefits to those who decide to buy it.

Question 12

A private good is ________ and ________.

A) scarce; expensive
B) nonrival; excludable
C) nonrival; nonexcludable
D) rival; excludable
E) rival; nonexcludable

Question 13

Which of the following goods is best described as nonexcludable?

A) A Netflix subscription
B) A university education
C) A restaurant meal
D) Flood-control levees
E) A cow grazing in a pasture

Question 14

If a good or resource is rival, it could be a

A) public good.
B) private good.
C) common resource.
D) Both answers B and C are correct.
E) Both answers A and C are correct.

Question 15

A good is nonrival if

A) only the government can produce it.
B) when you pay for the good, you are guaranteed to be the sole consumer.
C) nobody can be excluded from enjoying the benefits of the good.
D) when you consume a unit, you have not decreased the amount left for consumption by other people.
E) anybody can be excluded from enjoying the benefits of the good.

Question 16

A private good is

A) excludable and rival.
B) nonexcludable and nonrival.
C) excludable and nonrival.
D) nonrival and excludable.
E) subject to the free-riding problem.

Question 17

To hunters, deer in the woods are an example of a

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

Question 18

Which of the following goods is excludable and nonrival?

A) A streetlight
B) A bottle of Coke
C) The Internet
D) Food
E) Air

Question 19

The fact that Victoria's consumption of national defence does not preclude Tasmania from consuming the same national defence is an example of

A) the rival nature of consumption.
B) a good that is nonrival in consumption.
C) a private good.
D) excludable goods.
E) a common resource.

Question 20

A good or resource is excludable if

A) only the government can produce it.
B) when you consume a unit, that means there is one less for someone else.
C) it is a common resource.
D) nobody can be excluded from enjoying the benefits of the good or resource.
E) when you pay for the good or resource, you are guaranteed to be the sole consumer.

Question 21

Why are private firms unable to produce public goods?

A) The tragedy of the commons means that private firms produce an inefficient amount of public goods.
B) The marginal cost of production is too high for private production to be possible.
C) Because the government outlaws private firms from producing them.
D) They can produce these goods, but they would not earn any revenue because of the free-rider problem.
E) None of the above answers is correct.

Question 22

Voters typically have information only about issues that have a perceptible effect on their wellbeing and tend not to have information about other issues. Behaviour such as this is known as

A) inefficient overprovision.
B) political competition.
C) the tragedy of voters.
D) rational ignorance.
E) voter preferences.

Question 23

Paul and Paula are the only members of society. The table above gives their marginal benefits from missile gunboats, a public good. Determine the marginal benefit to society of the fourth missile gunboat.

A) $8 million
B) $4 million
C) $2 million
D) $40 million
E) $1 million

Question 24

To determine the efficient quantity of a public good to supply,

A) the private firms that will produce the good each produce the exact same quantity.
B) politicians use the principle of maximum differentiation.
C) total benefit is equated to total cost, the same as is done to determine the efficient quantity of a private good.
D) marginal benefit and marginal cost are equated, the same as is done to determine the efficient quantity of a private good.
E) marginal benefit must exceed marginal cost by as much as possible.

Question 25

The figure above shows the marginal cost and marginal benefit of police protection in Queensland. Police protection is a public good. If Queensland hires 5 police officers, marginal

A) benefit exceeds marginal cost but not by as much as possible, so 5 officers is not the efficient number to be hired.
B) cost exceeds marginal benefit, so therefore fewer officers should be hired.
C) benefit exceeds marginal cost, so therefore no more officers should be hired.
D) benefit equals marginal cost.
E) benefit exceeds marginal cost, so therefore more officers should be hired.

Question 26

To find the economy's marginal benefit curve of a public good, we

A) sum the prices consumers are willing to pay for different quantities of the good.
B) sum the costs of the inputs used to produce the good.
C) sum the quantities demanded at each individual price.
D) sum the marginal benefits of each individual at each quantity.
E) average the prices consumers are willing to pay for the same quantity of the good.

Question 27

Rational ignorance is the decision NOT to

A) acquire information because the marginal cost of doing so equals the expected marginal benefit.
B) follow the principle of minimum differentiation.
C) acquire information because the marginal cost of doing so exceeds the expected marginal benefit.
D) acquire information because the marginal benefit of doing so exceeds the marginal cost.
E) vote in elections.

Question 28

We determine the economy's marginal benefit curve for a public good or service by

A) dividing the sum of the marginal benefit of each member of society by the number of people in society.
B) horizontally summing the individual marginal benefit curve of each member of society.
C) multiplying the marginal benefits of each member of society.
D) vertically summing the individual marginal benefit curve of each member of society.
E) vertically summing individual firms' marginal cost curves.

Question 29

The figure above shows the marginal cost and marginal benefit of police protection in Queensland. Police protection is a public good. The efficient number of police officers that should be hired by the Queensland government is

A) 25.
B) 10.
C) zero.
D) 15.
E) more than 25 because MB > $0 when 25 officers are hired.

Question 30

Paul and Paula are the only members of society. The table above gives their marginal benefits from missile gunboats, a public good. Determine the marginal benefit to society of the second missile gunboat.

A) $8 million
B) $10 million
C) $12 million
D) $4 million
E) $16 million

Question 31

Paul and Paula are the only members of society. The table above gives their marginal benefits from missile gunboats, a public good. Suppose the marginal cost of a missile gunboat is $8 million. What is the efficient quantity of missile gunboats?

A) 3 boats
B) 4 boats
C) 2 boats
D) 1 boat
E) More information about whether the services provided by missile gunboats are rival or not is needed.

Question 32

Suppose the marginal cost of the fourth unit of a public good is $20. If Mark and Judy are the only members of society, and they are willing to pay $10 and $11, respectively, for the fourth unit of the good, then the efficient quantity is

A) 4 or more units.
B) zero units.
C) 3 units.
D) More information is needed about the marginal benefits of the first, second and third units of the public good.
E) None of the above answers is correct.

Question 33

The free-rider problem exists because

A) some goods or services are rival and leave some people without them.
B) some goods or services are excludable and cause envy for those who don't have them.
C) people must all consume the same public good and so everyone wants to pay for it.
D) private goods or services cause some people to want to take them for free.
E) people cannot be excluded from consuming public goods even if they don't pay for them.

Question 34

Public goods create a free-rider problem because

A) people do not want to consume public goods.
B) people can enjoy the good or service no matter whether or not they pay for it.
C) only people who pay for the good or service can enjoy the good or service.
D) the good or service is rival in nature.
E) the good or service is excludable.

Question 35

The figure above shows the marginal cost and marginal benefit of police protection in Queensland. Police protection is a public good. If Queensland hires 25 police officers, then

A) marginal benefit equals marginal cost.
B) marginal cost will exceed marginal benefit, which means that the efficient number of officers is more than 25.
C) marginal benefit will exceed marginal cost, which means that Queensland should reduce the number of officers it hires.
D) marginal cost will exceed marginal benefit, which means that the efficient number of officers is less than 25.
E) None of the above answers is correct.

Question 36

As more of a public good is produced, the marginal benefit of each additional unit ________ and as more of a private good is produced, the marginal benefit of each additional unit ________.

A) decreases; increases
B) increases; increases
C) increases; decreases
D) decreases; decreases
E) does not change; does not change

Question 37

Suppose a public good is provided in an economy with only two consumers, Popeye and Captain Hook. If Popeye values the public good at $4,000 per year, and Captain Hook values it at $3,000 per year, the economy's marginal benefit of the public good per year is

A) $4,000.
B) $1,000.
C) $7,000.
D) $3,000.
E) $12,000.

Question 38

For which type of good is it necessary to sum individuals' marginal benefit curves vertically in order to obtain the economy's marginal benefit curve?

A) Mixed goods
B) Goods that are subject to the exclusion principle
C) Private goods
D) Public goods
E) Common resources

Question 39

The efficient quantity of a public good is the quantity at which marginal benefit is

A) less than marginal cost.
B) greater than marginal cost by any amount.
C) greater than marginal cost by the maximum amount.
D) zero.
E) equal to marginal cost.

Question 40

Which of the following is an example of the free-rider problem?

A) Sarah works overtime while her co-workers opt for a traditional schedule.
B) Tom listens to music on his local PBS radio station, but Tom does not contribute anything to PBS.
C) Katie catches a swordfish in the ocean.
D) Jethro buys a crayfish fishing licence that he refuses to share with his sister.
E) John attends a lecture on investing in high-tech companies for which he paid $100 to hear.

Question 41

The marginal benefit of a public good is the

A) benefit of the last person's consumption.
B) marginal benefit of the individual person who places the lowest value on the good, multiplied by the number of people in the economy.
C) sum of the marginal benefits of all individuals at each quantity.
D) marginal benefit of the individual person who places the highest value on the good, multiplied by the number of people in the economy.
E) average of the marginal benefits of all the individuals at each quantity.

Question 42

The table above shows the marginal social benefit of fishing in the Mediterranean Sea. The marginal private cost of operating a fishing boat is the same for all producers; $300 per hour. The marginal social cost is twice the marginal private cost. The efficient quantity of fish caught is ________ tonnes.

A) 100
B) 200
C) 300
D) 400
E) 500

Question 43

When a production quota is used to remedy the tragedy of the commons, then

A) the market equilibrium, but not the efficient outcome, is achieved.
B) users of the resource have an incentive to cheat on the quota.
C) the quota is set so that use of the resource is where marginal private benefit equals marginal social benefit.
D) the quota is set so that use of the resource is where marginal private benefit equals marginal private cost.
E) previous users of the resource are given the incentive to avoid use of the resource.

Question 44

The efficient quantity of a public good can't be produced by private firms because

A) only the government has the necessary resources.
B) consumers have an incentive to free ride and not pay for their share of the good.
C) the price would be too high if private firms produced the goods.
D) private firms aren't large enough.
E) it is impossible to determine the efficient amount.

Question 45

The above figure shows the marginal private cost curve, marginal social cost curve, and marginal social benefit curve for blue fin tuna, a common resource. The market equilibrium with no government intervention is

A) zero tonnes per week.
B) 500 tonnes per week.
C) 400 tonnes per week.
D) 200 tonnes per week.
E) None of the above answers is correct.

Question 46

The table above shows the marginal social benefit of fishing in the Mediterranean Sea. The marginal private cost of operating a fishing boat is the same for all producers; $300 per hour. The marginal social cost is twice the marginal private cost. If the government sets a production quota, the profit on the last tonne of fish caught is ________ per tonne.

A) $0
B) $100
C) $200
D) $300
E) $400

Question 47

The above figure shows the marginal private cost curve, marginal social cost curve and marginal social benefit curve for blue fin tuna, a common resource. The efficient outcome is

A) 300 tonnes per week.
B) zero tonnes per week.
C) 400 tonnes per week.
D) None of the above answers is correct.

Question 48

Which of the following can bring about an efficient level of public goods being provided by the government?

A) Free riding on the part of voters.
B) Competition between political parties trying to win an election.
C) Voters who do not care about the benefits and costs of public goods.
D) Rational ignorance on the part of voters.
E) Self-interest among government bureaucrats.

Question 49

Sue and Mark are the only two members of a community. Sue's marginal benefit from one lighthouse is $2,000 and Mark's marginal benefit is $1,000. If the marginal cost of one lighthouse is $2,500 and if a lighthouse is a public good, then for efficiency the lighthouse should

A) be built, but only Sue should be allowed to use it.
B) be built, but only Mark should be allowed to use it.
C) not be built because its marginal cost exceeds Sue's marginal benefit.
D) not be built because its marginal cost exceeds both Sue's and Mark's marginal benefit.
E) be built and both Sue and Mark should be allowed to use it.

Question 50

The table above shows the marginal social benefit of fishing in the Mediterranean Sea. The marginal private cost of operating a fishing boat is the same for all producers; $300 per hour. The marginal social cost is twice the marginal private cost. If the government sets a production quota, to have the efficient quantity of fish caught, the quote should equal ________ tonnes of fish.

A) 100
B) 200
C) 300
D) 400
E) 500

Question 51

One way to overcome the tragedy of the commons is to

A) educate people in order to overcome the problem of rational ignorance.
B) assign property rights so that someone owns the resource.
C) take away property rights so that no one owns the resource.
D) leave the market alone because the market will reach an equilibrium in which the efficient amount of the resource is used.
E) None of the above answers is correct.

Question 52

The table above shows the marginal social benefit of fishing in the Mediterranean Sea. The marginal private cost of operating a fishing boat is the same for all producers; $300 per hour. The marginal social cost is twice the marginal private cost. With no government intervention, the market is

A) underproducing by 100 tonnes of fish.
B) catching the efficient quantity of fish.
C) overproducing by 200 tonnes of fish.
D) overproducing by 300 tonnes of fish.
E) underproducing by 300 tonnes of fish.

Question 53

Very few voters know the enormous cost of providing price supports to farmers. As a result, these voters most likely exhibit

A) rational ignorance.
B) the tragedy of the commons.
C) the public provision of a good.
D) the principle of minimum differentiation.
E) None of the above answers is correct.

Question 54

In which of the following cases does the tragedy of the commons occur? i. Cattle grazing on private farms.
Ii) Catching lobsters off the coast of Tasmania.
Iii) Raising salmon on salmon farms.
Iv) Using legal services provided by the courts.

A) ii and iii
B) i and iv
C) i and iii
D) ii only
E) i only

Question 55

To achieve the efficient amount of use of a common resource, the use should be such that ________ equals ________.

A) marginal private benefit; marginal cost
B) marginal cost; marginal benefit
C) marginal social cost; marginal social benefit
D) marginal social cost; marginal private cost
E) marginal social benefit; marginal private cost

Question 56

The table above shows the marginal social benefit of fishing in the Mediterranean Sea. The marginal private cost of operating a fishing boat is the same for all producers; $300 per hour. The marginal social cost is twice the marginal private cost. If the government uses individual transferable quotas to achieve the efficient outcome, what is the total quantity of fish caught?

A) 200 tonnes
B) 100 tonnes
C) 300 tonnes
D) 500 tonnes
E) 0 tonnes

Question 57

The table above shows the marginal social benefit of fishing in the Mediterranean Sea. The marginal private cost of operating a fishing boat is the same for all producers; $300 per hour. The marginal social cost is twice the marginal private cost. With no government intervention, the equilibrium quantity of fish caught is ________ tonnes.

A) 100
B) 200
C) 300
D) 400
E) 500

Question 58

The government can be large in size because of

A) efficient overprovision caused by rational voter ignorance.
B) inefficient overprovision caused by high voter turnout in elections.
C) inefficient overprovision caused by rational voter ignorance.
D) efficient overprovision caused by irrational voter ignorance.
E) inefficient overprovision caused by rational politician/bureaucrat ignorance.

Question 59

Government bureaucracies over-provide public goods and grow larger because of their goal of ________ combined with the ________ of the voters.

A) budget minimisation; irrational intelligence
B) budget maximisation; minimum differentiation
C) budget maximisation; rational ignorance
D) budget maximisation; irrational exuberance
E) minimum differentiation; budget maximisation

Question 60

For a common resource, it is the case that

A) MSC > MC
B) MSB > MB
C) MB > MSB
D) MSC < MC
E) None of the above answers is correct.

Question 61

For a common resource, the equilibrium with no government intervention is such that ________ equals ________.

A) marginal social cost; marginal social benefit
B) marginal social benefit; marginal external cost
C) marginal private benefit; marginal social cost
D) marginal social benefit; marginal private cost
E) marginal external benefit; marginal external cost

Question 62

For a common resource, the marginal private cost curve ________ and the marginal social cost curve ________.

A) slopes downward; slopes downward
B) slopes upward; slopes downward
C) slopes upward; slopes upward
D) is vertical; is horizontal
E) slopes downward; slopes upward

Question 63

The above figure shows the marginal private cost curve, marginal social cost curve, and marginal social benefit curve for blue fin tuna, a common resource. A quota to prevent the over-fishing of the tuna sets the catch equal to

A) 300 tonnes per week.
B) 200 tonnes per week.
C) 500 tonnes per week.
D) zero tonnes per week.
E) 400 tonnes per week.

Question 64

The above figure shows the marginal private cost curve, marginal social cost curve, and marginal social benefit curve for blue fin tuna, a common resource. The efficient outcome is

A) 200 tonnes per week.
B) 300 tonnes per week.
C) zero tonnes per week.
D) 500 tonnes per week.
E) 400 tonnes per week.

Question 65

Which of the following is NOT a potential solution to the tragedy of the commons?

A) Granting individual transferable quotas.
B) Setting a production quota.
C) Subsidising use of the resource.
D) Establishing property rights to the resource.
E) None of the above is correct.

Question 66

The market price of an individual transferable quota is equal to the

A) marginal private benefit.
B) marginal private benefit plus the marginal cost.
C) marginal private benefit minus the marginal cost.
D) marginal social benefit minus the marginal cost.
E) marginal social benefit.