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118. A town engineer comes to the city council with a proposal to install a traffic light at a certain
intersection that currently has a stop sign. The benefit of the traffic light is increased safety
because the light will reduce the incidence of fatal traffic accidents by 50 percent per year.
Which of the following statements is correct?
a. The city council should vote to install the traffic light because the benefits will outweigh the
costs.
b. The city council should carefully evaluate the benefits of reduced fatalities against only the
explicit costs of the light.
c. The city council should carefully evaluate the benefits of reduced fatalities against the costs of
the light and of the extra time that drivers will spend waiting for a green light.
d. The costs will invariably outweigh the benefits.
119. Suppose that installing an overhead pedestrian walkway would cost a college town $150,000.
The walkway is expected to reduce the risk of fatality by 3 percent, and the cost of a human life
is estimated at $10 million. The town should
a. install the walkway because the estimated benefit is twice the cost.
b. install the walkway because the estimated benefit equals the cost.
c. not install the walkway, since the cost is twice the estimated benefit.
d. install the walkway, since the cost of even a single life is too great not to take action.
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120. Suppose that the cost of installing an overhead pedestrian walkway in a college town is
$150,000. The walkway is expected to reduce the risk of fatality by 1.5 percent, and the cost of a
human life is estimated at $10 million. The town should
a. install the walkway because the estimated benefit is twice the cost.
b. be indifferent between installing and not installing the walkway because the estimated benefit
equals the cost.
c. not install the walkway, since the cost is twice the estimated benefit.
d. install the walkway, since the cost of even a single life is too great not to take action.
121. When an infinite value is placed on human life, policymakers who rely on cost-benefit analysis
a. are forced to pursue any project in which a single human life is saved.
b. are likely to make decisions that optimally allocate society’s scarce resources.
c. would not pursue any public project that would not save human life.
d. would be forced to rely on private markets to provide public goods.
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122. Suppose that you want to build a community garden for your neighborhood, which has 500
residents. The cost of the garden is $2,000, and each person values the garden at $3. After a
month, you have only received 75 donations at $3 each. The result is that
a. the local government should build the garden, but you should not.
b. you should still build the garden, but the local government should not.
c. neither you nor the local government should build the garden.
d. either you or the local government should build the garden.
123. When the value of a human life is calculated according to the economic contribution a person
makes to society (as reflected in her income-earning potential), the troubling implication is that
a. it is possible for a retired or disabled person to have no value to society.
b. economists are more valuable than entrepreneurs.
c. retired people who volunteer in their communities are more valuable than physicians.
d. all workers have equal value.
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124. Suppose a human life is worth $10 million. Installing a better lighting system in the city park
would reduce the risk of someone being murdered there from 3.5 to 2.9 percent over the life of
the system. The city should install the new lighting system if its cost does not exceed
a. $60,000.
b. $290,000.
c. $350,000.
d. $600,000.
125. The Occupational Safety and Health Administration (OSHA) has determined that the probability
of a worker dying from exposure to a hazardous chemical used in the production of fertilizer is
0.008. The cost of imposing a regulation that would ban the chemical is $32 million. If the value
of a human life is equal to $10 million, how many people must the policy affect in order for the
benefits to exceed the costs?
a. 256
b. 401
c. 3201
d. 4001
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126. The Occupational Safety and Health Administration (OSHA) has determined that 100 workers
are exposed to a hazardous chemical used in the production of diet soft drinks. The cost of
imposing a regulation that would ban the chemical is $10 million. OSHA has calculated that each
person saved by this regulation has a value equal to $10 million. If the benefits are exactly equal
to the costs, what probability is OSHA using to assess the likelihood of a fatality from exposure
to this chemical?
a. 0.001
b. 0.01
c. 0.1
d. 1.0
127. In a certain city, the government is considering acquiring some land and turning it into a park
(without any fences or gates). In an attempt to determine the extent to which residents of the city
would value the park, residents are asked to fill out a questionnaire. Which of the following is
correct?
a. On the questionnaire, some residents are likely to exaggerate the value they associate with
the park.
b. On the questionnaire, some residents are likely to exaggerate the costs they associate with the
park.
c. The use of such a questionnaire in cost-benefit analysis is likely to produce only rough
approximations of residents’ perceptions of the costs and benefits of a park.
d. All of the above are correct.
2840 Public Goods and Common Resources
Multiple Choice – Section 03: Common Resources
1. It would always be a mistake to view
a. many species of animals as common resources.
b. a road as a public good.
c. national defense as a common resource.
d. a fireworks display as a public good.
2. It would always be a mistake to view
a. a streetlight as a common resource.
b. a nontoll road as a public good.
c. the environment as a common resource.
d. a lighthouse as a public good.
Public Goods and Common Resources 2841
3. Which of the following statements is correct?
a. Environmental degradation is an example of a free rider problem..
b. The division between public goods and common resources is clear-cut.
c. Some goods, such as lighthouses, may be either private or public goods.
d. The free-rider problem prevents governments from supplying public goods.
4. Which of the following statements is not correct?
a. Common resources are rival in consumption but are not excludable.
b. Uncongested toll roads are examples of club goods.
c. When African elephants were privatized, the survival of the species deteriorated.
d. National defense is not rival in consumption, nor is it excludable.
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5. Neither public goods nor common resources are
a. excludable, but only public goods are not rival in consumption.
b. excludable, but only common resources are not rival in consumption.
c. rival in consumption, but only public goods are not excludable.
d. rival in consumption, but only common resources are not excludable.
6. If the use of a common resource is not regulated,
a. no one can enjoy it.
b. it will tend to be underused.
c. property rights will be clearly defined.
d. it will be overused.
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7. Each of the following would be considered a common resource except a
a. water reservoir.
b. streetlight.
c. a congested road.
d. book from a public library.
8. A textbook is a
a. private good and the knowledge that one gains from reading the book is a common resource.
b. private good and the knowledge that one gains from reading the book is a public good.
c. common resource and the knowledge that one gains from reading the book is a public good.
d. common resource and the knowledge that one gains from reading the book is a private good.
2844 Public Goods and Common Resources
9. Four roommates share an off-campus house and equally share the cost of rent. Everyone says that
she values a clean house, yet the house is usually dirty. To an economist, a clean house in this case
represents
a. a common resource problem.
b. a public good.
c. a natural monopoly.
d. All of the above are correct.
10. Which of the following is not a common resource?
a. elephants in the wild
b. a narrow trail in a park
c. a neighborhood garden
d. Neither a nor b is a common resource.
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11. Which of the following is not a common resource?
a. clean air
b. clean water
c. open grazing land
d. national defense
12. Which of the following is not a way for the government to solve the problem of excessive use of
common resources?
a. regulation
b. taxes
c. turning the common resource into a public good
d. turning the common resource into a private good
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13. The overuse of a common resource relative to its economically efficient use is called
a. the free rider problem.
b. the Tragedy of the Commons.
c. a public good.
d. cost-benefit analysis.
14. One economically efficient way to eliminate the Tragedy of the Commons is to
a. tax the owners of the resource.
b. prevent anyone from using the resource.
c. reduce the marginal social benefit of the resource.
d. establish private ownership of the resource.
15. Which of the following is not a typical solution to the “Tragedy of the Commons?”
a. taxing the use of the common resource
b. turning the common resource into a club good
c. turning the common resource into a private good
d. regulating the use of the common resource
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16. Each of the following is likely to be a successful way for the government to solve the problem of
overuse of a common resource except
a. regulating the use or consumption of the common resource.
b. taxing the use or consumption of the common resource.
c. selling the common resource to a private entity.
d. asking individuals to voluntarily reduce their use of the resource.
17. Which of the following is most likely to face extinction?
a. dogs living as pets in households
b. dairy cows living on farms and producing milk
c. bald eagles living in zoos
d. tigers living in the wild
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18. Which of the following quotations illustrates the Tragedy of the Commons?
a. “A bird in the hand is worth two in the bush.”
b. “The only difference between the rich and other people is that the rich have more money.”
c. “What is common to many is taken least care of, for all men have greater regard for what is
their own than for what they possess in common with others.”
d. “Anyone who is not a socialist before he is 30 has no heart; anyone who is still a socialist after
he is 30 has no head.”
19. Which parable describes the problem of wild animals that are hunted to the point of extinction?
a. Coase theorem
b. The Tragedy of the Commons
c. The Wise Woman
d. The Tortoise and the Hare
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20. An overcrowded beach is an example of
a. a positive externality.
b. a Tragedy of the Commons.
c. an environmentally inefficient allocation of resources.
d. an economically unfair allocation of resources.
21. One way to eliminate the Tragedy of the Commons is to
a. increase law enforcement in public areas.
b. limit access to the commons.
c. increase access to the commons.
d. decrease taxes.
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22. The Tragedy of the Commons results when a good is
a. rival in consumption and not excludable.
b. excludable and not rival in consumption.
c. both rival in consumption and excludable.
d. neither rival in consumption nor excludable.
23. The Tragedy of the Commons occurs because
a. common resources are rival in consumption.
b. government does not efficiently allocate society’s scarce resources.
c. people consider the value of resources in the future more than in the present.
d. markets do not account for the presence of property rights.
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24. The Tragedy of the Commons occurs because
a. government property is most heavily used by the wealthy.
b. everyone deserves an equal share of government property.
c. social and private incentives differ.
d. established property rights create competition.
25. The Tragedy of the Commons for sheep grazing on common land can be eliminated by the
government doing each of the following except
a. assigning land property rights.
b. auctioning off sheep–grazing permits.
c. taxing sheep flocks.
d. subsidizing sheep flocks.
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26. The Tragedy of the Commons
a. occurs most often with public goods.
b. is only applicable to shared grazing rights among sheep herders.
c. is eliminated when property rights are assigned to individuals.
d. occurs when social incentives are in line with private incentives.
27. The Tragedy of the Commons can be corrected by
a. conducting a cost-benefit analysis.
b. assigning property rights to individuals.
c. providing government subsidies for the resource.
d. making certain everyone in the economy has access to the resource.
Public Goods and Common Resources 2853
28. The Tragedy of the Commons will be evident when a growing number of sheep grazing on the
town commons leads to a destruction of the grazing resource. To correct for this problem, the
town could
a. allow individual shepherds to choose their own flock sizes.
b. internalize the externality by subsidizing the production of sheep‘s wool.
c. auction off a limited number of sheep-grazing permits.
d. wait until the market corrects the problem.
29. The parable called the Tragedy of the Commons applies to goods such as
a. fire protection and cable TV.
b. tornado sirens and basic research.
c. clean air and clean water.
d. antipoverty programs and national defense.
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30. In the Tragedy of the Commons parable, if the medieval townspeople had foreseen the tragedy,
then they could have dealt with the problem in much the same way that modern society deals with
a. fire protection.
b. poverty.
c. pollution.
d. national defense.
31. When Rick uses a common resource and diminishes other people’s enjoyment of it, he creates
a. a free rider problem.
b. an externality.
c. a nonrenewable resource.
d. general knowledge.