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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.
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
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.
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.
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.
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.
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.
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.
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
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.
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.
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
16) Marginal cost curves for public goods are usually
A) downward sloping.
B) upward sloping.
C) horizontal.
D) vertical.
E) U-shaped.
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.
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.
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.
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.
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.
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.
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.
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
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
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.
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
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
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
30) The figure above shows the marginal cost and marginal benefit of police protection in the
city of Hugo, Oklahoma. Police protection is a public good. If the city of Hugo hires 25 officers,
then
A) marginal cost will exceed marginal benefit, which means that the efficient number of officers
is more than 25.
B) marginal cost will exceed marginal benefit, which means that the efficient number of officers
is less than 25.
C) marginal benefit will exceed marginal cost, which means that Hugo should reduce the number
of officers they hire.
D) marginal benefit equals marginal cost.
E) None of the above answers is correct.
31) The figure above shows the marginal cost and marginal benefit of police protection in the
city of Hugo, Oklahoma. Police protection is a public good. If the city of Hugo hires 5 officers,
marginal
A) cost exceeds marginal benefit, so therefore fewer officers should be hired.
B) benefit exceeds marginal cost, so therefore more officers should be hired.
C) benefit equals marginal cost.
D) benefit exceeds marginal cost, so therefore no more officers should be hired.
E) benefit exceeds marginal cost but not by as much as possible, so 5 officers is not the efficient
number to be hired.
32) The figure above shows the marginal cost and marginal benefit of police protection in the
city of Hugo, Oklahoma. Police protection is a public good. The efficient number of officers that
should be hired by the city of Hugo is
A) 15.
B) 25.
C) 10.
D) 0.
E) More than 25 because MB > $0 when 25 officers are hired.
33) The free-rider problem for a public good means that
A) a private market would provide less than the efficient amount of the good.
B) a private market would provide more than the efficient amount of the good.
C) the good is rival.
D) the good is excludable.
E) a private market would provide the efficient amount of the good.
34) For any individual consumer, free-riding is
A) common for private goods.
B) rational.
C) irrational.
D) impossible for public goods.
E) the same as paying a fair price for the good.
35) A private, competitive market
A) provides the efficient quantity of a public good.
B) allocates too few resources for a public good.
C) allocates too many resources for a public good.
D) can be relied upon to allocate resources efficiently both for private and public goods.
E) will allocate too many resources for a public good only if free riding occurs.
36) Why are private firms unable to produce public goods?
A) Because the government outlaws private firms from producing them.
B) The marginal cost of production is too high for private production to be possible.
C) They can produce these goods but they would not earn any revenue because of the free-rider
problem.
D) The tragedy of the commons means that private firms produce an inefficient amount of public
goods.
E) None of the above answers is correct.
37) When the United States became involved in the war on terrorism, the marginal benefit of
national defense
A) increased.
B) decreased.
C) did not change.
D) no longer mattered.
E) was subject to free riding.
38) The principle of minimum differentiation describes a tendency of competitors to
A) lower price.
B) offer similar products or policies.
C) decrease the quantity of goods available.
D) offer public goods for sale.
E) free ride.
39) Which of the following describes the principle of minimum differentiation?
A) competitors becoming identical to appeal to the largest number of clients or voters
B) minimizing the difference between marginal benefit and marginal cost
C) voters becoming highly informed to elect the best candidate
D) bureaucrats providing the most efficient level of pubic goods provision
E) minimizing the amount of free riding that occurs
40) The tendency of political parties to propose identical policies which appeal to the maximum
number of voters is referred to as the principle of
A) maximum differentiation.
B) minimum differentiation.
C) minimum marginal utility.
D) maximum returns.
E) agreement.
41) In politics, the principle of minimum differentiation is the tendency toward
A) identical policies to appeal to a minimum number of people.
B) different policies to appeal to a maximum number of people.
C) identical policies to appeal to a maximum number of people.
D) different policies to appeal to a minimum number of people.
E) a minimum number of policies in order to appeal to a maximum number of people.
42) When two competitors try to make themselves identical, they are
A) appealing to rational ignorance.
B) trying to appeal to a maximum number of customers.
C) carrying out the principle of minimum differentiation.
D) Both answers B and C are correct.
E) Both answers A and B are correct.
43) Suppose Burger King builds a new store across the street from a McDonald's. This is an
example of
A) the free-rider problem.
B) the principle of minimum differentiation.
C) the public provision of a good.
D) a public good.
E) rational ignorance on the part of Burger King.
44) Bureaucrats
A) have no incentive to influence the quantity of public goods provided by the government.
B) have no role in the production of public goods.
C) attempt to maximize their budget.
D) make political policy.
E) are generally rationally ignorant about the size of their budget.
45) Voters typically are concerned only about issues that have a perceptible effect on their well-
being and tend not to care much about other issues. Behavior such as this is known as
A) voter preferences.
B) inefficient overprovision.
C) political competition.
D) rational ignorance.
E) the tragedy of voters.
46) It is rational for a voter to be ignorant about an issue unless the
A) voter is maximizing his or her well-being.
B) voter is a member of a political party.
C) issue is on the ballot.
D) issue has a perceptible effect on the voter's well-being.
E) voter worries about the tragedy of the free rider.
47) When Jean makes a decision NOT to obtain information about an issue that doesn't have a
perceptible effect on her, Jean's choice is referred to as
A) rational exuberance.
B) irrational exuberance.
C) irrational intelligence.
D) rational ignorance.
E) the principle of minimum ignorance.
48) Rational ignorance is the decision NOT to
A) vote in elections.
B) acquire information because the marginal benefit of doing so exceeds the marginal cost.
C) acquire information because the marginal cost of doing so exceeds the expected marginal
benefit.
D) acquire information because the marginal cost of doing so equals the expected marginal
benefit.
E) follow the principle of minimum differentiation.
49) The concept of rational ignorance is defined as
A) the decision not to acquire knowledge because of high marginal cost.
B) the deceit by bureaucrats who fool politicians in order to maximize their budgets.
C) politicians not telling the voters the real truth to stay in office.
D) voters being kept from knowing the facts by bureaucrats.
E) bureaucrats not knowing the size of their budget.
50) Very few voters know the enormous cost of providing price supports to farmers. As a result,
these voters most likely exhibit
A) the public provision of a good.
B) the principle of minimum differentiation.
C) rational ignorance.
D) the tragedy of the commons.
E) None of the above answers is correct.
51) Competition in the political marketplace can result in the efficient provision of a public good
if
A) there is only one political party.
B) voters' preferences are unknown.
C) benefits are small.
D) voters are well informed and evaluate the alternatives.
E) politicians need to be elected by majority votes.
52) Which of the following can bring about an efficient level of public goods being provided by
the government?
A) voters who do not care about benefits and costs of public goods
B) rational ignorance on the part of voters
C) competition between political parties trying to win an election
D) self interest among government bureaucrats
E) free riding on the part of voters
53) Which of the following is necessary for competition in the political marketplace to result in
the production of the efficient amount of a public good?
A) bureaucrats practice self-interest
B) well informed voters and political parties
C) rational ignorance
D) maximum differentiation of political competitors
E) an absence of any tragedy of the commons
54) The government can be large in size because of
A) inefficient overprovision caused by high voter turnout in elections.
B) efficient overprovision caused by rational voter ignorance.
C) inefficient overprovision caused by rational voter ignorance.
D) efficient overprovision caused by irrational voter ignorance.
E) inefficient overprovision caused by rational politician/bureaucrat ignorance.
55) One reason the size of the government is large is because
A) people's demand for private goods grows faster than their demand for public goods.
B) politicians do not support spending on things such as education and public health.
C) voters' incomes grow, thereby causing an increased demand for private goods.
D) budget maximization by bureaucrats and rational ignorance by voters lead to overproduction.
E) rational ignorance by politicians who follow the principle of minimum differentiation.
56) Inefficient overproduction of a public good by the government is
A) the only efficient method of producing public goods.
B) not likely to occur when voters choose rational ignorance.
C) the term used to describe a surplus of a public good.
D) one explanation of why government might be large.
E) not likely to occur if voters are rationally ignorant.
57) When someone enjoys the benefit of a good or service but does not pay for it, that person
A) is a free range consumer.
B) is a free rider.
C) receives no marginal benefit from the good.
D) must be consuming an excludable good.
E) is contributing to the tragedy of the commons.
