Deck 7: Public Goods

Question 1

Which of the following is TRUE when there is optimal provision of a public good?

A) marginal cost equals marginal rate of substitution for each consumer
B) each consumer's surplus equals marginal cost
C) total consumer surplus equals marginal cost
D) the sum of all consumers' marginal rates of substitution equals marginal cost

Answer 1

the sum of all consumers' marginal rates of substitution equals marginal cost

Question 2

Public goods:

A) are likely to be underprovided by the private sector due to the free rider problem.
B) are likely to be overprovided by the private sector due to the free rider problem.
C) can only be provided by the public sector,while private goods can only be provided by the private sector.
D) cannot be provided by the private sector because they are rival in consumption.

Answer 2

are likely to be underprovided by the private sector due to the free rider problem.

Question 3

If it is not possible to prevent potential users from consuming or having access to the benefits of a good,that good is:

A) excludable.
B) non-excludable.
C) purely rival.
D) partially rival.

Answer 3

non-excludable.

Question 4

A good for which the price is set at $1 to model choice between goods is:

A) a pure public good.
B) a numeraire good.
C) an impure public good.
D) a pure private good.

Question 5

If one person consumes a good,so that no other person can consume it at all,then that good is:

A) excludable.
B) nonexcludable.
C) purely rival.
D) partially rival.

Question 6

The underprovision of public goods by a private market is characterized by the:

A) holdout problem.
B) assignment problem.
C) free rider problem.
D) irrationality problem.

Question 7

If a good becomes less valuable as a result of one consumer's use of the good,but does not become worthless to other consumers,that good is:

A) purely excludable.
B) partially excludable.
C) purely rival.
D) partially rival.

Question 8

Which is a property of a private good,like a sandwich?

A) non-rival in consumption
B) rival in consumption
C) non-excludable
D) subject to the free rider problem

Question 9

If individuals care about the outcomes for other people as well as for themselves,economists refer to them as:

A) free riders.
B) irrational.
C) actuarially adjusted.
D) altruistic.

Question 10

Which activity is considered altruistic?

A) planting flowers in your yard
B) donating money to the Red Cross
C) going to college
D) saving for retirement

Question 11

What property must a good satisfy to be a pure public good?

A) It must be nonrival in consumption.
B) It must be rival in consumption.
C) It must be nonrival in production.
D) It must be rival in production.

Question 12

Which statement is generally TRUE?

A) Private markets overprovide public goods.
B) Private markets underprovide public goods.
C) Private markets provide the socially optimal amount of public good.
D) Public goods must be priced at more than twice their price in the private market in order to provide the socially optimal amount.

Question 13

Suppose many potential donors reduce their annual gift in response to government grants to local medical research projects.This is an example of the problem associated with:

A) measuring preferences for the public good.
B) crowding-out of private provision.
C) measuring the costs and benefits of public goods.
D) crowding-in of public provision.

Question 14

Which of the following is TRUE when there is the socially optimal amount of a private good with no externality?

A) Private benefits equal private costs.
B) Social marginal benefit equals private marginal cost.
C) Consumer surplus equals producer surplus.
D) Social marginal benefit exceeds social marginal cost.

Question 15

Local phone service is:

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

Question 16

Government may not be able to determine the optimal amount of a public good because:

A) it is easier to determine the costs and benefits associated with public goods than those associated with private goods.
B) it is easier to determine the costs and benefits associated with private goods than those associated with public goods.
C) the quantity of public goods provided by private parties is zero.
D) there is no optimal mix of public and private goods.

Question 17

A road,which can be considered as nonexcludable but rival in consumption,is an example of:

A) a pure private good.
B) a pure public good.
C) an impure public good.
D) an altruistic good.

Question 18

Which of the following is excludable,but nonrival in consumption?

A) a road
B) cable television
C) a lighthouse
D) health insurance

Question 19

A painting by Monet is:

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

Question 20

Suppose a downtown business owner wants to convince the owners of nearby businesses to renovate their buildings to make the downtown area more attractive to shoppers.The problem that is likely to prevent this plan from going into action is called the:

A) free rider problem
B) assignment problem
C) crowding out problem
D) irrationality problem

Question 21

Which factor is likely to prevent private market forces from providing the optimal amount of a public good?

A) non-satiated preferences
B) large differences among individuals in their demand for the public good
C) little to no difference among individuals in their demand for the public good
D) the free rider problem

Question 22

Which activity is most consistent with altruism?

A) buying more of a good as its price rises,all things equal
B) volunteering to pick up trash in the community
C) taxing individuals to pay for a new park
D) taxing businesses to pay for a new park

Question 23

In 1996,legal changes reduced the ability of noncitizens to benefit from cash welfare programs.Evidence on the resulting changes in charitable support by churches suggests that:

A) crowd-out is insignificant because churches in high-immigrant areas increased their charitable spending much more than churches in low-immigrant areas.
B) crowd-out is significant because churches in high-immigrant areas increased their charitable spending much more than churches in low-immigrant areas.
C) crowd-out is insignificant since there was no difference in the charitable spending of churches in high-immigrant areas and those in low-immigrant areas.
D) crowd-out is significant since there was no difference in the charitable spending of churches in high-immigrant areas and those in low-immigrant areas.

Question 24

Business improvement districts have tended to be effective when:

A) laws allow businesses to overcome the free rider problem.
B) business owners are altruistic.
C) there is substantial social capital in the business district.
D) local businesses merge,aligning their interests.

Question 25

Which refers to the idea that even if individuals are willing to tell government how much they are willing to pay for a public good,they may not have an idea of what that is?

A) preference revelation
B) preference aggregation
C) preference knowledge
D) warm-glow effect

Question 26

In right-to-work states,the law allows people to opt out of joining a labor union and paying membership dues while still being covered by the collective bargaining agreement negotiated by the union.If the benefits of collective bargaining agreements are public goods,are these benefits likely to be underprovided in right-to-work states? Explain why or why not.

Question 27

The three problems facing a government trying to determine the optimal quantity of a public good include all of the following EXCEPT:

A) preference revelation because individuals may not tell the government their true valuation of the public good.
B) preference knowledge because individuals may not know their true valuation of the public good.
C) preference implementation because it is hard to produce public goods in practice.
D) preference aggregation because it is difficult to add up the preferences of millions of citizens.

Question 28

Suppose a city manager finds that residents lied about the value to them of a proposed city project.This illustrates the problem of:

A) preference revelation.
B) altruism.
C) preference knowledge.
D) warm-glow effect.

Question 29

"Contracting out" is an approach through which government:

A) is responsible for public goods,but hires private-sector firms to produce them.
B) mandates that individuals pay for public goods through the private sector instead of using tax dollars to finance their provision.
C) holds private business firms financially responsible for the provision of public goods.
D) is responsible for private goods but uses taxpayer money to produce them.

Question 30

Which is generally TRUE of the empirical evidence on the crowding-out of individual contributions by government spending?

A) The crowd-out effect is close to zero in both empirical and experimental studies.
B) The crowd-out effect is approximately 50% in both empirical and experimental studies.
C) The crowd-out effect is substantially larger in empirical studies than in experimental studies.
D) The crowd-out effect is substantially smaller in empirical studies than in experimental studies.

Question 31

Suppose the local public radio station,which is supported partly by voluntary contributions,reaches eight towns.Suppose also that the radio station vowed not to report on the local news events of any town unless it received a certain level of contributions from the residents of that town.This could be best characterized as a:

A) private provider method of providing a public good.
B) private provider method of providing a private good.
C) government solution to the free rider problem.
D) public sector provider method of providing a public good.

Question 32

Which is not a barrier to solving the free rider problem in the provision of public goods?

A) Individuals may not know their valuation of a good.
B) Individuals may not reveal their valuation of a good to government.
C) The government may not be able to put together preferences of many citizens.
D) Some individuals may voluntarily choose to pay for a public good.

Question 33

The outcome in which each actor is pursuing his or her optimal strategy,given the strategy of the other actors,is:

A) the altruistic equilibrium.
B) the Nash equilibrium.
C) the general equilibrium.
D) the dominant strategy.

Question 34

Which factor is likely to enable private market forces to provide more of a public good than it might otherwise provide?

A) large differences among individuals in their demand for the public good
B) little to no difference among individuals in their demand for the public good
C) the existence of free riders who enjoy benefits but refuse to pay.
D) the fact that the benefits of the public good are available to everyone.

Question 35

If government provision of a public good results in an equal reduction in the privately provided amount of that good,then:

A) private provision is partially crowded out.
B) private provision is not crowded out.
C) the warm glow effect caused an increase in the net amount of the public good.
D) private provision is fully crowded out.

Question 36

Assume private individuals are already providing some quantity of a public good in the absence of government intervention.If government begins to provide the public good,it is likely that:

A) private provision will be unaffected and the amount of the public good will substantially increase.
B) taxpayers will refuse to support the provision of a public good that is already being provided in the private sector.
C) private provision will be replaced by public provision,reflecting crowding out.
D) private provision will be replaced by public provision,reflecting crowding in.

Question 37

Which action can be best described by the warm glow model?

A) making a donation to a charitable organization to reduce tax obligations
B) using a national park without contributing.
C) making a large donation to a charitable organization to gain acceptance from friends.
D) not being able to consume a private good and blaming the government for it.

Question 38

Health care reform implemented in Massachusetts in 2006 provides an example of:

A) unsuccessful contracting out.
B) successful contracting out.
C) a private sector solution to the free rider problem.
D) awarding government contracts without competitive bidding.

Question 39

Which of the following is a reason to be cautious about interpreting results from laboratory experiments in economics?

A) The experiments do not typically allow subjects to keep real money.
B) The typical subjects in the experiments may not be representative of the entire population.
C) The stakes are typically greater in experiments than in the real world.
D) Laboratory experiments cannot really be conducted in economics since it is a social science.

Question 40

The value of altruistic and communal behavior in society is:

A) social capital.
B) human capital.
C) the benefits index.
D) the human factor.

Question 41

What are the options available to government when deciding whether to rely on the private sector or the public sector to provide public goods? Use the example of prisons to illustrate.

Question 42

Suppose that two individuals,Jon and David,form a community and would like to construct a communal fort that would protect them from attacks.They both consume good X,a private good,and the protection of the fort,P.One unit of good X costs 1 unit of currency,and one unit of P costs 2 units of currency.Both Jon and David have an income of 100 and a utility function of the form:
U = log(X_i)+ 2 × log(P_J + P_D)
The budget constraint for each is given by:
X_i + 2 × P_i = 100
(a)Find the amount of protection Jon will provide as a function of how much David provides,and explain why the relationship is the way it is.
(b)How much protection P will be privately provided in this case?
(c)Explain the economic intuition behind this amount,and compare it to the socially optimal amount without solving for the socially optimal amount.

Question 43

Suppose someone observes that people in areas where residents have more education tend to donate more money for local parks than do people in areas where residents are less well educated,and the observer concludes that education increases altruism.Use what you have learned in this course to evaluate the validity of this conclusion.

Question 44

Roads are typically viewed as a public good.However,some highways are financed by tolls levied on drivers instead of through taxes.Discuss why this model works for some roads and not others in terms of the properties of public goods.

Question 45

Suppose that Scott and Bob live on the same street.In the winter,both of them like their streets plowed.Bob's demand is given by Q = 40 - P,and Scott's demand is given by Q = 30 - 2P.Suppose that the marginal cost of plowing the snow is constant at $35.
(a)What is the social marginal benefit curve?
(b)What is the socially efficient amount of plowing that should be done?
(c)What would be the socially efficient amount of plowing if the marginal cost of plowing were $5?