41
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58) The marginal benefit of a public good is the
A) sum of the marginal benefits of all the individuals at each quantity.
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) marginal benefit of the individual person who places the highest value on the good, multiplied
by the number of people in the economy.
D) benefit of the last person’s consumption.
E) average of the marginal benefits of all the individuals at each quantity.
Skill: Level 2: Using definitions
Section: Checkpoint 10.2
Author: STUDY GUIDE
AACSB: Analytical reasoning
59) The marginal benefit curve of a public good
A) slopes downward.
B) slopes upward.
C) is vertical.
D) is horizontal.
E) is U-shaped.
Skill: Level 2: Using definitions
Section: Checkpoint 10.2
Author: STUDY GUIDE
AACSB: Reflective thinking
60) 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) be built and both Sue and Mark should be allowed to use it.
D) not be built because its marginal cost exceeds Sue’s marginal benefit.
E) not be built because its marginal cost exceeds both Sue’s and Mark’s marginal benefit.
Skill: Level 1: Definition
Section: Checkpoint 10.2
Author: STUDY GUIDE
AACSB: Analytical reasoning
42
Copyright © 2011 Pearson Education, Inc.
61) The efficient quantity of a public good is
A) the quantity produced by private firms.
B) the quantity at which the marginal benefit equals the marginal cost.
C) impossible to determine because each person’s marginal benefit is different.
D) the quantity at which the marginal benefit exceeds the marginal cost by as much as possible.
E) the quantity determined by the intersection of the demand curve and the supply curve.
Skill: Level 1: Definition
Section: Checkpoint 10.2
Author: STUDY GUIDE
AACSB: Reflective thinking
62) The efficient quantity of a public good can’t be produced by private firms because
A) only the government has the necessary resources.
B) it is impossible to determine the efficient amount.
C) consumers have an incentive to free ride and not pay for their share of the good.
D) private firms aren’t large enough.
E) the price would be too high if private firms produced the goods.
Skill: Level 2: Using definitions
Section: Checkpoint 10.2
Author: STUDY GUIDE
AACSB: Reflective thinking
63) If the two political parties propose similar or identical policies, they are following the
principle of
A) rational ignorance.
B) inefficient overprovision.
C) free riding.
D) minimum differentiation.
E) the commons.
Skill: Level 1: Definition
Section: Checkpoint 10.2
Author: STUDY GUIDE
AACSB: Reflective thinking
43
Copyright © 2011 Pearson Education, Inc.
64) ________ is the decision not to acquire information because the marginal cost of doing so
exceeds the marginal benefit.
A) Rational ignorance
B) The principle of minimum differentiation
C) A free rider
D) Consumer ignorance
E) The tragedy of the commons
Skill: Level 1: Definition
Section: Checkpoint 10.2
Author: STUDY GUIDE
AACSB: Reflective thinking
65) Government bureaucracies over-provide public goods and grow larger because of their goal
of ________ combined with ________ of the voters.
A) budget maximization; rational ignorance
B) budget minimization; irrational intelligence
C) budget maximization; minimum differentiation
D) budget maximization; irrational exuberance
E) minimum differentiation; budget maximization
Skill: Level 2: Using definitions
Section: Checkpoint 10.2
Author: STUDY GUIDE
AACSB: Reflective thinking
10.3 Education and Health Care Services
1) The additional benefit that Marvin gets from being vaccinated against the flu is known as the
A) external benefit.
B) marginal private benefit.
C) private cost.
D) social cost.
E) marginal social benefit.
Skill: Level 1: Definition
Section: Checkpoint 10.3
Author: JC
AACSB: Reflective thinking
44
Copyright © 2011 Pearson Education, Inc.
2) The benefit that Joan gets from eating cherries is an example of
A) when the external benefit equals the private benefit.
B) a private benefit.
C) an external benefit.
D) an external cost.
E) the marginal social cost of eating cherries.
Skill: Level 1: Definition
Section: Checkpoint 10.3
Author: JC
AACSB: Reflective thinking
3) If the marginal private benefit of attending college for Shelly is $40,000 and the marginal
external benefit is $15,000, she will attend college if the cost of attendance is no more than
A) $55,000.
B) $45,000.
C) $40,000.
D) $25,000.
E) $15,000.
Skill: Level 3: Using models
Section: Checkpoint 10.3
Author: SA
AACSB: Reflective thinking
4) When a person receives a flu vaccination, the ________ is the additional benefit the person
receives from getting the shot.
A) marginal private benefit
B) marginal external benefit
C) marginal social benefit
D) marginal social cost
E) marginal external cost
Skill: Level 1: Definition
Section: Checkpoint 10.3
Author: CD
AACSB: Reflective thinking
45
Copyright © 2011 Pearson Education, Inc.
5) When the benefits of producing a good or service spill over to other people, rather than just
the buyer, the spillover is referred to as
A) an external benefit.
B) an external cost.
C) a marginal cost.
D) an equilibrium social output.
E) a Coasian good.
Skill: Level 1: Definition
Section: Checkpoint 10.3
Author: PH
AACSB: Reflective thinking
6) External benefits are the extra
A) benefits a consumer gets from consuming a good.
B) costs a producer creates in producing a good.
C) benefits that accrue to people other than the consumers.
D) costs a producer bears for producing a polluting good.
E) benefits a producer obtains for reducing production of a polluting good.
Skill: Level 1: Definition
Section: Checkpoint 10.3
Author: WM
AACSB: Reflective thinking
7) Research leading to the discovery of new knowledge has external benefits because
A) the new knowledge increases profits.
B) the new knowledge decreases costs.
C) others can use the new knowledge.
D) Both answers A and B are correct.
E) Both answers A and C are correct.
Skill: Level 2: Using definitions
Section: Checkpoint 10.3
Author: SB
AACSB: Reflective thinking
46
Copyright © 2011 Pearson Education, Inc.
8) Individuals making decisions about how much to purchase of a product with an external
benefit base their decisions on which of the following?
A) the price and marginal private benefit
B) the economically efficient output
C) the price and the marginal social benefit
D) the size of the deadweight loss
E) the size of the external benefit and the price
Skill: Level 2: Using definitions
Section: Checkpoint 10.3
Author: TS
AACSB: Reflective thinking
9) When Keisha receives a flu vaccination, the additional benefit enjoyed by Keisha’s friends is
the
A) marginal private benefit.
B) marginal external benefit.
C) marginal social benefit.
D) private benefit.
E) marginal private cost.
Skill: Level 1: Definition
Section: Checkpoint 10.3
Author: CD
AACSB: Reflective thinking
10) A example of a good with external benefits is
A) a pizza.
B) a dose of flu vaccine.
C) a sewing machine.
D) an imported good.
E) a pair of running shoes.
Skill: Level 2: Using definitions
Section: Checkpoint 10.3
Author: SA
AACSB: Reflective thinking
47
Copyright © 2011 Pearson Education, Inc.
11) Education leads to external benefits because
A) the people who become better educated get better jobs.
B) better educated people commit fewer crimes.
C) better educated people are less lazy.
D) little pollution is created when educating people.
E) better educated people are more productive.
Skill: Level 2: Using definitions
Section: Checkpoint 10.3
Author: WM
AACSB: Reflective thinking
12) Which of the following is the best example of a good or service with an external benefit?
A) gasoline
B) education
C) garbage disposal
D) fertilizers
E) bread
Skill: Level 1: Definition
Section: Checkpoint 10.3
Author: SB
AACSB: Reflective thinking
13) Which of the following is an example of a publicly provided product with an external
benefit?
A) milk
B) gasoline
C) mink coats
D) purses
E) None of the above answers is correct.
Skill: Level 2: Using definitions
Section: Checkpoint 10.3
Author: TS
AACSB: Reflective thinking
48
Copyright © 2011 Pearson Education, Inc.
14) Which of the following actions would most likely have an external benefit?
A) eating a peanut butter sandwich
B) throwing trash out your car window as you drive to class
C) sleeping
D) attending college
E) developing a better marketing strategy for Honda
Skill: Level 2: Using definitions
Section: Checkpoint 10.3
Author: TS
AACSB: Reflective thinking
15) Which of the following is an example of an external benefit?
A) a ton of coal burned in a power plant to produce electricity
B) a car accident that crowds a major Los Angeles freeway
C) the production of a slice of pizza
D) the cleanup of a large lake
E) the consumption of a can of Mt. Dew
Skill: Level 2: Using definitions
Section: Checkpoint 10.3
Author: JC
AACSB: Reflective thinking
16) Which of the following is true?
A) MSB = MB + Marginal external benefit.
B) MB = Marginal external benefit – MSB.
C) MB = Marginal external benefit + MSC.
D) MSB = Marginal external cost – marginal external benefit.
E) MSB = MB + Marginal external benefit – Marginal external cost.
Skill: Level 1: Definition
Section: Checkpoint 10.3
Author: SA
AACSB: Analytical reasoning
49
Copyright © 2011 Pearson Education, Inc.
17) MSB equals
A) MC + the marginal external cost.
B) MC + the marginal external benefit.
C) MB + the marginal external cost.
D) MB + the marginal external benefit.
E) MB + MC.
Skill: Level 1: Definition
Section: Checkpoint 10.3
Author: PH
AACSB: Analytical reasoning
18) If an external benefit is present in the consumption of a good or service, then
A) there can be no external cost.
B) the marginal social benefit is greater than the marginal private benefit.
C) the marginal social benefit is equal to the marginal private benefit.
D) the marginal private benefit is equal to the marginal social benefit plus the marginal external
benefit.
E) the marginal external benefit is equal to the marginal private benefit minus the marginal social
benefit.
Skill: Level 1: Definition
Section: Checkpoint 10.3
Author: WM
AACSB: Analytical reasoning
19) If a product has an external benefit, how does its marginal private benefit compare to its
marginal social benefit?
A) Marginal private benefit is less than marginal social benefit.
B) Marginal private benefit is greater than marginal social benefit.
C) At low quantities, marginal private benefit is less than marginal social benefit but at high
quantities, marginal private benefit is greater than marginal social benefit.
D) At low quantities, marginal private benefit is greater than marginal social benefit but at high
quantities, marginal private benefit is less than marginal social benefit.
E) Marginal private benefit cannot be compared to marginal social benefit.
Skill: Level 2: Using definitions
Section: Checkpoint 10.3
Author: TS
AACSB: Reflective thinking
50
Copyright © 2011 Pearson Education, Inc.
20) The sum of the marginal private benefit and the marginal external benefit derived from eco-
tourism in British Columbia is called the
A) total private benefit.
B) net gain.
C) total external benefit.
D) marginal social benefit.
E) total Coase benefit.
Skill: Level 1: Definition
Section: Checkpoint 10.3
Author: JC
AACSB: Reflective thinking
21) Suppose Julie plants a beautiful garden in her front yard. The benefits of the garden to Julie
and to her neighbors equals the
A) external benefit.
B) marginal private benefit.
C) marginal external benefit.
D) marginal social benefit.
E) marginal social cost.
Skill: Level 2: Using definitions
Section: Checkpoint 10.3
Author: CD
AACSB: Reflective thinking
22) Suppose scientific research generates external benefits. Without government intervention, the
market for scientific research would
A) produce the efficient amount.
B) produce more than the efficient amount.
C) produce some research, but less than the efficient amount.
D) produce zero research.
E) either produce more than or less than the efficient amount depending on whether the external
benefit is on the production or consumption of the research.
Skill: Level 3: Using models
Section: Checkpoint 10.3
Author: SB
AACSB: Reflective thinking