91
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5) National defense is a ________ because ________.
A) public good; it can be an overused resource
B) public good; it is nonrival and nonexcludable
C) common resource; no one has the incentive to pay for his or her share
D) private good; no one has an incentive to conserve the good
E) common resource; it suffers from the tragedy of the commons
Skill: Level 3: Using models
Section: Integrative
Author: CD
AACSB: Analytical reasoning
6) Fish in the ocean are an example of ________ because they are ________.
A) public good; nonexcludable and nonrival
B) public good; rival and excludable
C) common resource; rival and nonexcludable
D) common resource; nonrival and nonexcludable
E) private good; caught by private fishermen
Skill: Level 3: Using models
Section: Integrative
Author: CD
AACSB: Analytical reasoning
7) A natural monopoly, such as the Internet, is
A) nonrival and excludable.
B) rival and excludable.
C) nonrival and nonexcludable.
D) rival and nonexcludable.
E) None of the above answers are correct.
Skill: Level 2: Using definitions
Section: Integrative
Author: CD
AACSB: Reflective thinking
92
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8) The free-rider problem applies
A) to rival and excludable goods.
B) to common resources.
C) to nonrival and nonexcludable goods.
D) when marginal social benefit exceeds marginal private benefit.
E) when marginal social cost equals marginal private cost.
Skill: Level 2: Using definitions
Section: Integrative
Author: CD
AACSB: Reflective thinking
9) The marginal benefit curve of a public good is calculated by ________ individual marginal
________ curves.
A) averaging; cost/benefit
B) horizontally summing; cost
C) averaging; benefit
D) vertically summing; benefit
E) horizontally summing; benefit
Skill: Level 2: Using definitions
Section: Integrative
Author: CD
AACSB: Reflective thinking
10) The reason that private provision of a public good often leads to inefficiency is because
A) private property rights are too costly to enforce.
B) marginal private benefits are too costly to calculate.
C) no one has the incentive to pay for the good.
D) no one has an incentive to conserve the good.
E) the tragedy of the commons occurs and too many public goods are provided.
Skill: Level 3: Using models
Section: Integrative
Author: CD
AACSB: Reflective thinking
93
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11) Which of the following is true?
i. A public good is a good or service that is nonrival and nonexcludable.
ii. A private good creates a free-rider problem: no one has a private incentive to pay for it.
iii. Health care services frequently have external costs.
A) Only i
B) Only ii
C) Only iii
D) i and ii
E) i and iii
Skill: Level 3: Using models
Section: Integrative
Author: CO
AACSB: Reflective thinking
12) Which of the following is true?
i. The efficient level of provision of a public good is that at which marginal benefit exceeds
marginal cost.
ii. Competition between political parties can lead to the efficient scale of provision of a public
good.
iii. Vouchers given to students can help make the market for education more efficient.
A) Only i
B) Only ii
C) Only iii
D) i and ii
E) ii and iii
Skill: Level 3: Using models
Section: Integrative
Author: CO
AACSB: Reflective thinking
13) When people decide whether or not to get a flu vaccination, they ignore the ________ and as
a result ________.
A) marginal private benefit; too few vaccinations are given
B) external benefit; too few vaccinations are given
C) private cost; too many vaccinations are given
D) marginal external cost; vouchers must be provided
E) social cost; too many vaccinations are given
Skill: Level 3: Using models
Section: Integrative
Author: CD
AACSB: Analytical reasoning
94
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10.6 Essay: Classifying Goods and Resources
1) What does it mean for a good to be “nonexcludable”? Are private goods nonexcludable? Are
public goods nonexcludable? Are common resources nonexcludable?
Skill: Level 1: Definition
Section: Checkpoint 10.1
Author: MR
AACSB: Communication
2) When describing goods and services, what is meant by the terms “rival” and “nonrival?” Are
private goods rival or nonrival? Are public goods rival or nonrival? Are common resources rival
or nonrival?
Skill: Level 1: Definition
Section: Checkpoint 10.1
Author: CD
AACSB: Communication
3) A few years back, The Wall Street Journal reported that the government of Thailand “plans to
launch a chain of more than 3,000 Thai restaurants world-wide over the next five years, with the
largest number, more than 1,000, slated for the United States.” The Thai government will have a
30 percent minority stake in the restaurants and the rest will be given to Thai owners. The
country’s deputy commerce minister explains that the government will play an active role in
drawing up menus, making sure that genuine Thai food is served and ensuring that 70 percent of
supplies for the restaurants are imported from Thailand. Because the Thai government will be
part owner of these restaurants, are these restaurants public goods?
Skill: Level 3: Using models
Section: Checkpoint 10.1
Author: SA
AACSB: Analytical reasoning
95
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4) Is a sailboat purchased in Victoria, British Columbia, a private good or a public good?
Skill: Level 3: Using models
Section: Checkpoint 10.1
Author: JC
AACSB: Communication
5) What are the differences between public goods and private goods?
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Author: SB
AACSB: Communication
6) You are studying with a friend and your friend says, “private goods are excludable and
nonrival, while public goods are nonexcludable and rival.” Do you agree?
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Author: PH
AACSB: Communication
96
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7) Some resources are private and others are common. Define a common resource, explain the
definition, and provide an example of a private resource and a common resource.
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Author: MR
AACSB: Communication
8) Explain the difference between a negative production externality and a negative consumption
externality.
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Author: CD
AACSB: Reflective thinking
9) Explain the difference between a positive production externality and a positive consumption
externality.
Skill: Level 2: Using definitions
Section: Checkpoint 10.1
Author: CD
AACSB: Reflective thinking
97
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10.7 Essay: Public Goods and the Free-Rider Problem
1) What is the free-rider problem and with what is it associated?
Skill: Level 1: Definition
Section: Checkpoint 10.2
Author: SB
AACSB: Reflective thinking
2) What is the free-rider problem? What results from the free-rider problem? What is a solution
to the free-rider problem?
Skill: Level 2: Using definitions
Section: Checkpoint 10.2
Author: CD
AACSB: Communication
3) “The principle of increasing marginal cost does not apply to public goods.” Is this statement
correct or not?
Skill: Level 2: Using definitions
Section: Checkpoint 10.2
Author: SB
AACSB: Reflective thinking
4) Protection of rivers in Idaho is a public good. If the marginal cost of protecting rivers in Idaho
exceeds the marginal benefit of river protection, is there more than, less than, or the efficient
amount of river protection taking place?
Skill: Level 2: Using definitions
Section: Checkpoint 10.2
Author: JC
AACSB: Analytical reasoning
98
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5) How is the efficient quantity of public goods determined?
Skill: Level 3: Using models
Section: Checkpoint 10.2
Author: SB
AACSB: Communication
6) How does the principle of minimum differentiation relate to the free-rider problem?
Skill: Level 3: Using models
Section: Checkpoint 10.2
Author: CD
AACSB: Communication
7) Why isn’t national defense provided by free markets?
Skill: Level 3: Using models
Section: Checkpoint 10.2
Author: JC
AACSB: Communication
99
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8) What is rational ignorance?
Skill: Level 1: Definition
Section: Checkpoint 10.2
Author: SB
AACSB: Communication
9) Why is watching sports more important to many prospective voters than watching the news?
In your answer, mention the role played by rational ignorance and the cost of gathering
information.
Skill: Level 5: Critical thinking
Section: Checkpoint 10.2
Author: JC
AACSB: Communication
10) Under what conditions will the political process provide an inefficient amount of a public
good?
Skill: Level 3: Using models
Section: Checkpoint 10.2
Author: SB
AACSB: Communication
100
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11) The table above shows the marginal benefit that arises from providing police protection in an
economy of two people, Paul and Art.
a. Construct a table of the economy’s marginal benefit from providing police protection.
b. What is the economy’s marginal benefit from having 3 police cars on duty?
Skill: Level 4: Applying models
Section: Checkpoint 10.2
Author: SB
AACSB: Analytical reasoning