Public Goods and Common Resources 2815
80.
Refer to Table 11-3. If the marginal cost of police protection is constant at $72 per person-hour,
what is the
efficient level of police protection to provide?
a.
9 person-hours
b.
18 person-hours
c.
39 person-hours
d.
66 person-hours
2816 Public Goods and Common Resources
Table 11-4
There are four homes along Belmont Circle, which surrounds a small plot of land. The land
currently has no trees,
and the 4 homeowners — Adams, Benitez, Chen, and Davis — are
considering the idea of contributing to a pool of
money that will be used to plant up to 4 trees.
The table represents their willingness to pay, that is, the maximum
amount that each homeowner is
willing to contribute toward each tree.
Adams
Benitez
Chen
Davis
First tree
$100
$115
$120
$90
Second tree
50
110
110
50
Third tree
20
100
80
30
Fourth tree
10
50
40
0
81.
Refer to Table 11-4. Suppose the cost to plant each tree is $300. How many trees should be
planted to maximize the total surplus of the four homeowners?
a.
1
b.
2
c.
3
d.
4
82.
Refer to Table 11-4. Suppose the cost to plant each tree is $90. How many trees should be
planted to maximize
the total surplus of the four homeowners?
a.
1
b.
2
c.
3
d.
4
83.
Refer to Table 11-4. Suppose the cost to plant each tree is $380 and the 4 homeowners have
agreed to split all
tree-planting costs equally. Which homeowner(s) would be opposed to planting
any trees?
a.
only Davis
b.
only Adams and Davis
c.
only Adams, Benitez, and Davis
d.
Adams, Benitez, Chen, and Davis
84.
Refer to Table 11-4. Suppose the cost to plant each tree is $120 and the 4 homeowners have
agreed to split all
tree-planting costs equally. How many trees would Adams prefer to plant?
a.
0
b.
1
c.
2
d.
3
2818 Public Goods and Common Resources
85 Refer to Table 11-4. Suppose the cost to plant each tree is $220 and the 4 homeowners have
agreed to split all
tree-planting costs equally. Which homeowner(s) would be in favor of planting
at least 3 trees?
a.
only Benitez
b.
only Benitez and Chen
c.
only Benitez, Chen, and Davis
d.
Adams, Benitez, Chen, and Davis
86.
Refer to Table 11-4. Suppose the cost to plant each tree is $340 and the 4 homeowners have
agreed to split all
tree-planting costs equally. Which homeowner(s) would be in favor of planting
at least 1 tree?
a.
only Benitez
b.
only Benitez and Chen
c.
only Benitez, Chen, and Davis
d.
Adams, Benitez, Chen, and Davis
Public Goods and Common Resources 2819
Table 11-5
A small island off the coast of Cape Cod contains two restaurants and two retail stores. Tourists
need to take a
ferry boat to reach the island, but with a recent slowdown in the economy, tourists
are less willing to pay for the
boat ride to visit the island. The owners of the restaurants and stores
on the island — Restaurants 1 and 2, and
Stores A and B — think that if tourists could ride the
ferry for free, they would be happy to visit the island, eat and
shop. The business owners are
considering contributing to a pool of money that will be used to pay for roundtrip
ferry service
each day. The table represents their willingness to pay, that is, the maximum amount that each
business owner is willing to contribute, per day, to pay for each ferry trip.
Restaurant 1
Store A
Store B
First ferry trip
$300
$200
$180
Second ferry trip
200
150
90
Third ferry trip
100
100
30
Fourth ferry trip
50
50
0
87.
Refer to Table 11-5. Suppose the cost to run the ferry for each roundtrip is $750. How many
ferry trips should
there be to maximize the total surplus of the four business owners?
a.
1
b.
2
c.
3
d.
4
88.
Refer to Table 11-5. Suppose the cost to run the ferry for each roundtrip is $1,000. How many
ferry trips should
there be to maximize the total surplus of the four business owners?
a.
1
b.
2
c.
3
d.
4
89.
Refer to Table 11-5. Suppose the cost to run the ferry for each roundtrip is $500. How many
ferry trips should
there be to maximize the total surplus of the four business owners?
a.
1
b.
2
c.
3
d.
4
90.
Refer to Table 11-5. Suppose the cost to run the ferry for each roundtrip is $750. Then total
surplus for the 4
business owners is
a.
$330 if there is 1 ferry trip.
b.
$370 if there are 2 ferry trips.
c.
$150 if there are 3 ferry trips.
d.
All of the above are correct.
91.
Refer to Table 11-5. Suppose the cost to run the ferry for each roundtrip is $750. Then total
surplus for the 4
business owners is
a.
$750 if there is 1 ferry trip.
b.
$40 if there are 2 ferry trips.
c.
$150 if there are 3 ferry trips.
d.
–$400 if there are 4 ferry trips.
92.
Refer to Table 11-5. Suppose the cost to run the ferry for each roundtrip is $750 per day and
the 4 business
owners have agreed to split the costs of the ferry trips equally. Which business
owner(s) would be opposed to
having any ferry trips?
a.
only the owner of Store B
b.
only the owners of Stores A and B
c.
only the owners of Stores A and B and Restaurant 2
d.
All 4 business owners would be opposed to paying for any ferry trips.
93.
Refer to Table 11-5. Suppose the cost to run the ferry for each roundtrip is $750 per day and
the 4 business
owners have agreed to split the costs of the ferry trips equally. How many ferry
trips would the owner of
Restaurant 1 prefer to have?
a.
0
b.
1
c.
2
d.
3
94.
Refer to Table 11-5. Suppose the cost to run the ferry for each roundtrip is $1,000 per day and
the 4 business
owners have agreed to split the costs of the ferry trips equally. How many ferry
trips would the owner of Store A
prefer to have?
a.
0
b.
1
c.
2
d.
3
95.
Refer to Table 11-5. Suppose the cost to run the ferry for each roundtrip is $750 per day and
the 4 business
owners have agreed to split the costs of the ferry trips equally. Which of the
following statements is correct?
a.
The owner of Restaurant 1 would prefer to have 3 ferry trips.
b.
The owner of Restaurant 2 would prefer to have 2 ferry trips.
c.
The owner of Store A would prefer to have 1 ferry trip.
d.
All of the above are correct.
96.
Refer to Table 11-5. Suppose the cost to run the ferry for each roundtrip is $1,000 per day and
the 4 business
owners have agreed to split the costs of the ferry trips equally. Which of the
following statements is correct?
a.
The owner of Restaurant 1 would prefer to have 2 ferry trips.
b.
The owner of Restaurant 2 would prefer to have 1 ferry trip.
c.
The owners of Stores A and B would prefer to have 0 trips.
d.
All of the above are correct.
97.
If the government decides to build a new highway, the first step would be to conduct a study to
determine the value
of the project. The study is called a
a.
budget analysis.
b.
project analysis.
c.
reimbursement analysis.
d.
cost-benefit analysis.
98.
Suppose the cost to erect a tornado siren in a small town is $15,000. In addition, suppose the value
of a human life
is $10 million. By what percentage would the siren need to reduce the risk of a
fatality for the benefits of the siren
to exceed the costs of the siren?
a.
By at least 0.015 percentage points.
b.
By at least 0.15 percentage points.
c.
By at least 1.5 percentage points.
d.
By at least 5 percentage points.
99.
Studies that compare the wages of more risky and less risky occupations estimate the value of a
human life to be
about
a.
$1 million.
b.
$5 million.
c.
$10 million.
d.
$20 million.
100.
Which of the following is not a reason that the findings of cost-benefit analyses on public goods
are only rough
approximations?
a.
Without prices, it is difficult to be sure how much people really value a good.
b.
Analysts can’t be sure that the respondents to surveys are telling the truth.
c.
Analysis must include not only the cost of building the project but also the cost of maintenance,
if any.
d.
People value goods differently if they are publicly provided rather than privately provided.
101.
Which of the following is an approach used by economists to calculate the value of a human life?
a.
comparing the salaries of people who live in cities with more traffic lights to those who live in
cities with
fewer traffic lights
b.
comparing the wages of more risky occupations to less risky occupations
c.
comparing the costs of vehicles with safety features such as side-impact airbags to those
without such safety
features
d.
All of the above are correct.
102.
Miguel, Maria, and Marcos all would like a place to sit while waiting at their children’s bus stop.
The neighborhood
association is considering installing several park benches at the bus stop.
Miguel values the benches at $20, Maria
at $30, and Marcos at $40. The park benches and labor
for installation cost $100. If Miguel, Maria, and Marcos are
the only residents who value the
benches, what should the neighborhood association do?
a.
Install the park benches because people like places to sit.
b.
Install the park benches because the benefits outweigh the costs.
c.
Do not install the park benches because the costs outweigh the benefits.
d.
Do not install the park benches to prevent the Tragedy of the Commons problem of overuse.
103.
Suppose that the Town of Mapledale is considering hiring an additional firefighter. The expected
benefit is estimated to be worth $5 for each of Mapledale’s 15,000 residents. What should the
city do?
a.
Hire the firefighter because additional fire protection is priceless.
b.
Hire the firefighter if the cost of the new firefighter is less than $75,000.
c.
Do not hire the firefighter because the costs exceed the benefits.
d.
Hire the firefighter only if the benefit to the residents exceeds $75,000.
104.
Suppose that a small county is considering adding a guard rail to a dangerous curve by a river.
The guard rail will
cost $70,000. The average damage done to vehicles that slide off the road at
the curve is $10,000. It is expected
that the guard rail will prevent 5 vehicles from sliding off the
road during its usable life. What should the county do?
a.
Install the guard rail because safety is priceless.
b.
Install the guard rail because the benefits exceed the costs.
c.
Do not install the guard rail because the costs exceed the benefits.
d.
Do not install the guard rail at any cost because drivers can purchase private insurance for
their vehicles.
105.
Economists think that the best way to determine the value of a human life is to
a.
evaluate the value of a person’s expected earnings in the labor market.
b.
evaluate the risks people are willing to take and what they would have to be paid to take them.
c.
determine a person’s accumulated wealth at the time of death.
d.
do nothing; human life is priceless.
106.
A cost-benefit analysis of a highway is difficult to conduct because analysts
a.
cannot estimate the explicit cost of a project that has not been completed.
b.
are unlikely to have access to costs on similar projects.
c.
are not able to consider the opportunity cost of resources.
d.
will have difficulty estimating the value of the highway.
107.
Cost-benefit analysts often encounter the problem that those who would benefit from
government provision of a
public good tend to
a.
overstate the benefit they would receive from the public good and those who would be
harmed by
government provision of a public good tend to overstate the costs they would incur
from the public good.
b.
overstate the benefit they would receive from the public good and those who would be
harmed by
government provision of a public good tend to understate the costs they would incur
from the public good.
c.
understate the benefit they would receive from the public good and those who would be
harmed by
government provision of a public good tend to overstate the costs they would incur
from the public good.
d.
understate the benefit they would receive from the public good and those who would be
harmed by
government provision of a public good tend to understate the costs they would incur
from the public good.
108.
Simply asking people how much they value a highway is not a reliable way of measuring the
benefits and costs
because
a.
those who stand to gain have an incentive to tell the truth.
b.
those who stand to lose have an incentive to exaggerate their true costs.
c.
answers to the survey questions will always be downwardly biased.
d.
not everyone asked will be using the highway.
109.
The greatest difficulty with cost-benefit analysis of a public project is determining
a.
whether government revenue is sufficient to cover the cost of the project.
b.
which contractor should be awarded the project.
c.
the cost of the project.
d.
the value or benefit of the project.
110.
Each of the following explains why cost-benefit analysis is difficult except
a.
there is no price with which to judge the value of a public good.
b.
surveys are often biased and unreliable.
c.
it is difficult to identify all factors that influence costs and benefits of public goods.
d.
government projects rarely have sufficient funding to complete them on time.
111.
Suppose that policymakers are doing cost-benefit analysis on a proposal to add traffic barriers to
divide the flow of
traffic in an effort to increase safety on a given highway. Which of the
following statements is correct?
a.
The benefits are usually easier to measure than the costs.
b.
Because human life is priceless, any measure to increase traffic safety would generate
benefits that
outweigh the costs.
c.
Estimating the value of a human life is difficult but necessary to evaluate the proposal.
d.
Both a and b are correct.
112.
In a cost-benefit analysis, the value of a human life is sometimes calculated on the basis of
a.
the risks that a person voluntarily exposes herself to in her job and/or recreational choices.
b.
the value of each individual‘s assets.
c.
the belief that human life is priceless.
d.
the amount of resources required to adequately sustain life.
113.
Cost-benefit analysis is important to determine the role of government in our economy because
a.
the government should provide all goods for which the benefits exceed the costs.
b.
cost-benefit analysis identifies the possible gains to society from government provision of a
particular good.
c.
markets for private goods cannot effectively assign costs and benefits.
d.
cost-benefit analysis is the best tool to identify market failures.
114.
Before considering any public project, the government should
(i)
compare the total cost and total benefits of the project.
(ii)
conduct a cost-benefit analysis.
(iii)
infer that citizens who vote for a project are willing to pay equally for it.
a.
(i) only
b.
(ii) only
c.
(i) and (ii) only
d.
(i), (ii), and (iii)
115.
Highway engineers want to improve a dangerous stretch of highway. They expect that it will
reduce the risk of
someone dying in an accident from 5.3 percent to 2.1 percent over the life of
the highway. If a human life is worth $10 million, then the project is worth doing as long as it
does not cost more than
a. $53,000.
b. $210,000.
c. $320,000.
d. $2.1 million.
116.
After a recent spike in violent crime, the local police department wants to spend $550,000 on a
new crime fighting
initiative. If a human life is worth $9 million, the crime fighting initiative is
worth the cost if it reduces the risk of
someone dying from crime by at least
a.
3.5 percentage points.
b.
5.5 percentage points.
c.
6.1 percentage points.
d.
9.0 percentage points.
117.
To increase safety at a bad intersection, the mayor must decide whether to install a traffic light
at a cost of $45,000.
If the traffic light reduces the risk of fatality by 0.4 percent, and the value of a human life is
estimated to be $10
million, the mayor should
a.
install the light because the expected benefit of $400,000 is greater than the cost.
b.
install the light because the expected benefit of $45,000 is greater than the cost.
c.
not install the light because the expected benefit of $45,000 is only equal to the cost.
d.
not install the light because the expected benefit of $40,000 is less than the cost.