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Chapter One
Questions and Exercises
1.
a. Yes. Total project benefits (4,900) exceed total project cost (4,000).
b. No. No individual has benefits greater than cost of project.
c. No. Based on net benefits, A and B would vote yes; C, D, and E would vote no.
d. Revise cost shares so that Residents A and B pay more and reduce cost shares borne
by C, D, and E.
2. Many of the benefits of primary and secondary education are public or social (external to
the recipient of the education). The entity paying for the service is not able to capture the
full benefit of the service.
4. No – the bread is rival and exhaustible.
Examination Questions
1. Bain Educational operates an elementary school in Big Bucks, Kansas. It is open to any
student in the local school district and the school is financed by a property tax levied by
the local school district. This represents an example of:
2. Which of the following arguments is based on the concept of adverse selection?
3. Which of the following would be described as a common pool resource?
a. A can of soda
4. Which of the following is an application of the principle of moral hazard?
5. Toll goods are characterized by:
6. Non-appropriability consists of the following two aspects:
7. A public project produces the following pattern of individual benefits and costs for the
people influenced by the project.
Individual
Benefit
Cost Share
A
$8,000
$7,000
B
$6,000
$5,000
C
$10,000
$9,000
D
$4,000
$6,000
E
$2,000
$6,000
Total
$30,000
$33,000
The project:
a. passes the Pareto criterion but is not economically feasible.
8. If a good is characterized by easy exclusion but many may concurrently use it without
reducing the amount available for others, the good is a:
9. Which is not a reason for privatizing government services?
10. Logrolling is the process where:
a. one legislator trades his/her vote on one issue in exchange for the vote of another
