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21
Copyright © 2011 Pearson Education, Inc.
4) A good that can be consumed even if the consumer does not pay for it
A) is necessarily rival in consumption.
B) completely avoids the free rider problem.
C) does not exist because firms won't produce goods for which consumers won't pay.
D) is nonexcludable.
E) might be nonexcludable but is definitely nonrival.
Skill: Level 1: Definition
Section: Checkpoint 10.2
Author: SA
AACSB: Reflective thinking
5) The free-rider problem
i) means that people can consume a good without paying for it.
ii) means that people pay too much for a good in order to consume it.
iii) applies to a public good.
A) i only
B) iii only
C) i and ii
D) ii and iii
E) i and iii
Skill: Level 2: Using definitions
Section: Checkpoint 10.2
Author: CD
AACSB: Reflective thinking
6) Which of the following is an example of the free-rider problem?
A) John attends a lecture on investing in high-tech companies for which he paid $100 to hear.
B) Tom watches Mystery on his local PBS television station but Tom does not contribute
anything to PBS.
C) Sarah works overtime while her co-workers opt for a traditional schedule.
D) Jethro buys a skunk-hunting permit that he refuses to share with his sister.
E) Katie catches a swordfish in the ocean.
Skill: Level 2: Using definitions
Section: Checkpoint 10.2
Author: JC
AACSB: Reflective thinking
22
Copyright © 2011 Pearson Education, Inc.
7) Because national defense is potentially subject to free riding, a private sector market for
national defense would lead to
A) the efficient amount of national defense if there is free riding.
B) more than the efficient amount being produced if there is free riding.
C) less than the efficient amount being produced if there is free riding.
D) less than the efficient amount being produced if there is not free riding.
E) None of the above answers is correct.
Skill: Level 2: Using definitions
Section: Checkpoint 10.2
Author: JC
AACSB: Reflective thinking
8) Which of the following is a correct statement?
A) To obtain the economy's marginal benefit for a public good, marginal benefits of all
individuals at each quantity have to be added.
B) To obtain the economy's marginal benefit for a public good, the quantity that all individuals
are willing to buy at each price must be added.
C) To obtain the economy's marginal benefit curve for a public good, we sum the individual
demand curves horizontally.
D) Because public goods are nonexcludable, the economy's marginal benefit curve for a public
good is the same as its marginal cost curve.
E) None of the above answers is correct.
Skill: Level 2: Using definitions
Section: Checkpoint 10.2
Author: SA
AACSB: Analytical reasoning
9) If we know everyone's individual marginal benefit curve for a public good, then the
economy's marginal benefit curve for that public good can be found by
A) finding the average of everyone's marginal benefit.
B) summing horizontally the amount of everyone's marginal benefit.
C) summing vertically the amount of everyone's marginal benefit.
D) averaging either horizontally or vertically the amount of everyone's marginal benefit.
E) none of the above, it is impossible to find this value.
Skill: Level 3: Using models
Section: Checkpoint 10.2
Author: TS
AACSB: Analytical reasoning
23
Copyright © 2011 Pearson Education, Inc.
10) To find the economy's marginal benefit curve of a public good, we
A) sum the marginal benefits of each individual at each quantity.
B) sum the costs of the inputs used to produce the good.
C) sum the quantities demanded at each individual price.
D) sum the prices consumers are willing to pay for different quantities of the good.
E) average the prices consumers are willing to pay for the same quantity of the good.
Skill: Level 1: Definition
Section: Checkpoint 10.2
Author: SB
AACSB: Analytical reasoning
11) We determine the economy's marginal benefit curve for a public good or service by
A) vertically summing the individual marginal benefit curves of each member of society.
B) horizontally summing the individual marginal benefits curves of each member of society.
C) multiplying the marginal benefits of each member of society.
D) dividing the sum of the marginal benefits of each member of society by the number of people
in society.
E) vertically summing the individual firm's marginal cost curves.
Skill: Level 2: Using definitions
Section: Checkpoint 10.2
Author: PH
AACSB: Analytical reasoning
12) For which type of good is it necessary to sum the marginal benefit curves vertically in order
to obtain the economy's marginal benefit curve?
A) public goods
B) mixed goods
C) private goods
D) goods that are subject to the exclusion principle
E) common resources
Skill: Level 2: Using definitions
Section: Checkpoint 10.2
Author: PH
AACSB: Analytical reasoning
24
Copyright © 2011 Pearson Education, Inc.
13) 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) $7,000.
B) $4,000.
C) $3,000.
D) $1,000.
E) $12,000.
Skill: Level 3: Using models
Section: Checkpoint 10.2
Author: SB
AACSB: Analytical reasoning
14) The marginal benefit of a public good ________ as more of the good is produced.
A) increases
B) decreases
C) stays the same
D) None of the above is correct because the marginal benefit could increase, decrease, or not
change depending on whether the marginal cost increases, decreases, or does not change as more
is produced.
E) None of the above is correct because the marginal benefit could increase, decrease, or not
change depending on whether more, fewer, or the same number of people consume the good as
more is produced.
Skill: Level 2: Using definitions
Section: Checkpoint 10.2
Author: SB
AACSB: Reflective thinking
15) 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) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; decreases
E) does not change; does not change
Skill: Level 2: Using definitions
Section: Checkpoint 10.2
Author: SA
AACSB: Reflective thinking
25
Copyright © 2011 Pearson Education, Inc.
16) Marginal cost curves for public goods are usually
A) downward sloping.
B) upward sloping.
C) horizontal.
D) vertical.
E) U-shaped.
Skill: Level 2: Using definitions
Section: Checkpoint 10.2
Author: SB
AACSB: Reflective thinking
17) A library is a public good. The marginal cost curve for libraries in Lafayette, California
A) has a negative slope.
B) is definitely a horizontal line.
C) has a positive slope.
D) is a vertical line.
E) is identical to the marginal benefit curve because libraries are nonrival.
Skill: Level 2: Using definitions
Section: Checkpoint 10.2
Author: JC
AACSB: Reflective thinking
18) 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) marginal benefit and marginal cost are equated, the same as is done to determine the efficient
quantity of a private good.
C) total benefit is equated to total cost, the same as is done to determine the efficient quantity of
a private good.
D) politicians use the principle of maximum differentiation.
E) marginal benefit must exceed marginal cost by as much as possible.
Skill: Level 2: Using definitions
Section: Checkpoint 10.2
Author: WM
AACSB: Reflective thinking
26
Copyright © 2011 Pearson Education, Inc.
19) Which of the following represents an efficient quantity of a public good? The quantity at
which the
A) marginal cost of production is minimized.
B) number of free riders is maximized.
C) marginal benefit minus marginal cost is minimized.
D) marginal benefit is equal to the marginal cost.
E) marginal benefit exceeds the marginal cost by the maximum amount possible.
Skill: Level 2: Using definitions
Section: Checkpoint 10.2
Author: TS
AACSB: Reflective thinking
20) The efficient quantity of a public good is the quantity at which marginal benefit is
A) greater than marginal cost by any amount.
B) less than marginal cost.
C) equal to marginal cost.
D) zero.
E) greater than marginal cost by the maximum amount.
Skill: Level 3: Using models
Section: Checkpoint 10.2
Author: SB
AACSB: Reflective thinking
21) To achieve the efficient level of national defense,
A) the government could provide national defense because it is a public good.
B) private firms can provide national defense because it is a private good.
C) the government can provide national defense because it is a private good.
D) the government can provide national defense because it is a common resource.
E) None of the above answers is correct.
Skill: Level 3: Using models
Section: Checkpoint 10.2
Author: CD
AACSB: Reflective thinking
27
Copyright © 2011 Pearson Education, Inc.
22) 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) 3 units.
B) 4 or more units.
C) 0 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.
Skill: Level 3: Using models
Section: Checkpoint 10.2
Author: PH
AACSB: Analytical reasoning
23) Suppose the government is producing a public good. If the marginal benefit of the last unit of
a public good produced is greater than the marginal cost of that unit, to achieve the efficient
amount of production, what should be done?
A) The government should produce more units.
B) The government should cease production.
C) Private firms should take over the production and sale of the good.
D) Nothing because the government is already producing the efficient quantity of the public
good.
E) The government should produce fewer units.
Skill: Level 2: Using definitions
Section: Checkpoint 10.2
Author: TS
AACSB: Analytical reasoning
28
Copyright © 2011 Pearson Education, Inc.
24) 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) $16 million
B) $8 million
C) $12 million
D) $10 million
E) $4 million
Skill: Level 4: Applying models
Section: Checkpoint 10.2
Author: PH
AACSB: Analytical reasoning
25) 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) $1 million
E) $40 million
Skill: Level 4: Applying models
Section: Checkpoint 10.2
Author: PH
AACSB: Analytical reasoning
29
Copyright © 2011 Pearson Education, Inc.
26) 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) 1 boat
B) 2 boats
C) 3 boats
D) 4 boats
E) More information about whether the services provided by missile gunboats are rival or not is
needed.
Skill: Level 4: Applying models
Section: Checkpoint 10.2
Author: PH
AACSB: Analytical reasoning
Minutes of
fireworks
Anita's MB
(dollars per
minute)
Steve's MB
(dollars per
minute)
16 $20 $28
17 18 25
18 16 22
19 14 19
20 12 16
27) The table above shows Anita and Steve’s marginal benefits for the annual 4th of July
fireworks show at City Park. If Anita and Steve are the only two people in the economy, what is
the economy’s marginal benefit from the 18th minute of fireworks?
A) $38
B) $33
C) $30
D) $162
E) $129
Skill: Level 3: Using models
Section: Checkpoint 10.2
Author: KG
AACSB: Analytical reasoning
30
Copyright © 2011 Pearson Education, Inc.
28) The table above shows Anita and Steve’s marginal benefits for the annual 4th of July
fireworks show at City Park. If Anita and Steve are the only two people in the economy, what is
the economy’s marginal benefit from the 19th minute of fireworks?
A) $38
B) $30
C) $162
D) $129
E) $33
Skill: Level 3: Using models
Section: Checkpoint 10.2
Author: KG
AACSB: Analytical reasoning
29) The table above shows Anita and Steve’s marginal benefits for the annual 4th of July
fireworks show at City Park. If Anita and Steve are the only two people in the economy and the
marginal cost to produce one minute of fireworks is $28, what is the efficient quantity of
fireworks?
A) 16 minutes
B) More than 20 minutes
C) 19 minutes
D) Less than 16 minutes
E) 20 minutes
Skill: Level 3: Using models
Section: Checkpoint 10.2
Author: KG
AACSB: Analytical reasoning
