14) If you watch a football game on a cable TV, the cable TV is
A) a private good but nonrival in consumption.
B) a private good and rival in consumption.
C) a public good but excludable.
D) a public good and nonexcludable.
15) If you watch a pay-per-view movie on a cable TV, the movie is
A) a private good but nonrival in consumption.
B) a private good and rival in consumption.
C) a public good but nonexcludable.
D) a public good and excludable.
16) Shows on broadcast TV, like ABC or NBC, are ________ and shows on cable TV, like MTV
or HBO, are ________.
A) nonexcludable; excludable
B) excludable; nonexcludable
C) rival; nonrival
D) nonrival; nonexcludable
17) When economists say that a good is nonrival in consumption, they mean that
A) no one wants the good.
B) everyone wants the good.
C) the good is widely available.
D) more than one person can enjoy the good at the same time.
18) An example of a good that is nonrival in consumption is
A) a campsite at Yellowstone National Park.
B) a ticket to an Omnimax movie at the Smithsonian.
C) the Lincoln Memorial in Washington, D.C.
D) All of the above are nonrival in consumption.
19) An example of a good that is nonrival in consumption is
A) a music CD.
B) a radio broadcast of a song.
C) a ticket to a concert.
D) a guitar.
20) An example of a good that is rival in consumption is
A) a radio program.
B) a copy of an economics textbook.
C) an economics web page.
D) a poster of famous economists.
21) An example of a good that is rival in consumption is
A) flowers planted on the side of the highway.
B) a floral display at a large university’s graduation ceremony.
C) a scientific discovery that allows florists to grow flowers to which no one is allergic.
D) none of the above
22) When economists say that a good is nonexcludable, they mean that
A) everybody wants it.
B) there is no practical way to stop a person from enjoying the good.
C) more than one person can consume the good.
D) everybody is willing to pay for it.
23) Suppose that a state installs a toll booth on a highway and requires drivers to pay $1.00
before entering the highway. Installation of the toll booth changes
A) a nonexcludable good into an excludable good.
B) a nonrival good into a rival good.
C) public good into a private good.
D) a nonrival good into a nonexcludable good.
24) An example of a good that is excludable is
A) a park.
B) a river.
C) a boat.
D) clean air.
25) An example of a good that is excludable is
A) broadcast television.
B) an outdoor sculpture visible from the street.
C) an aerial fireworks display.
D) a television set.
26) An example of a good that is nonexcludable is
A) cable TV.
B) a computer.
C) a published scientific discovery.
D) a concert.
27) An example of a good that is nonexcludable is
A) an art exhibition with admission fee.
B) a piece of Velcro.
C) space exploration.
D) a bottle of Tang.
28) A distinguishing feature of a public good is that it
A) is not possible to exclude people who don’t pay for the public good.
B) is possible to exclude people who pay for the public good.
C) may have external costs.
D) is provided by the government.
29) An external benefit is the benefit experienced by people who
A) do not decide how much of the good to produce or consume.
B) did not know why they are experiencing the benefit.
C) decide how much of the good to produce or consume.
D) consume the good.
30) The free-rider problem implies that
A) each person will pay the full cost of the public good.
B) nobody wants the public good.
C) everybody will pay a portion of the cost of the public good.
D) each person will try to benefit from the public good without paying for it.
31) When people try to benefit from a public good without paying for it we call it the
A) free-rider problem.
B) duopolists’ dilemma.
C) public goods problem.
D) taxation problem.
32) The free-rider problem occurs for
A) private goods and public goods.
B) private goods but not public goods.
C) public goods but not private goods.
D) neither public nor private goods.
33) The free-rider problem arises because
A) once provided, a public good is available to all regardless of whether they paid for it.
B) poor people cannot afford to contribute to public goods.
C) enforcement of tax laws is inadequate.
D) people disagree with how the government spends it s money.
34) Suppose 100 townspeople value a statue of the local hero at $1 each, and construction of the
statue would cost $90. Which of the following is true:
A) It would be efficient to build the statue, but it may not be built because some of the
townspeople who value the statue will not contribute to its construction.
B) It would be efficient to build the statue and it will be built because at least ninety of the
townspeople will contribute to its construction.
C) the statue will not be built because it is not efficient to build a statue that costs $90 if the
townspeople value it at only $1.
D) the statue will not be built because the local government does not have the power to tax only
those who value it.
35) When the government provides a public good by taxing citizens and using tax money to
provide the good
A) the result is efficient if the total value of the public good is greater than the cost of providing
it.
B) the result is inefficient because the government is an inefficient provider of goods and
services.
C) the result is inefficient because if it were efficient the good would have been provided in a
free market.
D) the result is efficient only if voters specifically agreed to provision of that good.
36) During pledge week your local public television station asks viewers to contribute to the
station. People who watch public television but do NOT contribute are
A) free-riding.
B) engaged in moral hazard.
C) those who do not value public television.
D) causing adverse selection.
37) Which of the following is likely to overcome the free-rider problem?
A) offer people a private gift for contributing
B) arrange for matching contributions
C) appeal to peoples’ sense of civic or moral responsibility
D) all of the above
38) Which of the following is least likely to overcome the free-rider problem?
A) offer people a private gift for contributing
B) arrange for matching contributions
C) appeal to peoples’ sense of civic or moral responsibility
D) maintain anonymity of contributions
39) An appeal to peoples’ sense of civic or moral responsibility will ________ the free-rider
problem and lead to a ________ level of contribution to the public good.
A) increase; smaller
B) increase; larger
C) reduce; smaller
D) reduce; larger
40) Offering contributors private goods such as coffee mugs, books, or magazine subscriptions
will ________ the free-rider problem and lead to a ________ level of contribution to the public
good.
A) reduce; smaller
B) reduce; larger
C) increase; smaller
D) increase; larger
41) Arranging matching charitable contributions will ________ the free-rider problem and lead
to a ________ level of contribution to the public good.
A) increase; smaller
B) increase; larger
C) reduce; smaller
D) reduce; larger
42) A charity that used to make an appeal to peoples’ sense of civic or moral responsibility, but
no longer does, is likely to ________ the free-rider problem and lead to a ________ level of
contribution to the public good.
A) reduce; smaller
B) reduce; larger
C) increase; smaller
D) increase; larger
43) A charity that used to offer contributors private goods such as coffee mugs, books, or
magazine subscriptions, but no longer does, is likely to ________ the free-rider problem and lead
to a ________ level of contribution to the public good.
A) increase; smaller
B) increase; larger
C) reduce; smaller
D) reduce; larger
44) A charity that used to arrange matching charitable contributions, but no longer does, is likely
to ________ the free-rider problem and lead to a ________ level of contribution to the public
good.
A) reduce; smaller
B) reduce; larger
C) increase; smaller
D) increase; larger
45) Public Broadcasting, in its fund drives, often appeals to viewers by saying, “without you,
there will be no Big Bird.” This is likely to ________ the free-rider problem and lead to a
________ level of contribution to the public good.
A) increase; smaller
B) increase; larger
C) reduce; smaller
D) reduce; larger
46) Public Broadcasting, in its fund drives, often arranges for a corporation to match donations
made by its employees. This is likely to ________ the free-rider problem and lead to a ________
level of contribution to the public good.
A) reduce; smaller
B) reduce; larger
C) increase; smaller
D) increase; larger
47) Public Broadcasting reads the names of local contributors on the air. This is likely to
________ the free-rider problem and lead to a ________ level of contribution to the public good.
A) increase; smaller
B) increase; larger
C) reduce; smaller
D) reduce; larger
48) When private goods have external benefits
A) marginal social cost is greater than marginal private cost.
B) marginal privates cost is greater than marginal social cost.
C) marginal social benefit is greater than marginal private benefit.
D) marginal private benefit is greater than marginal social benefit.
49) The forces of supply and demand will provide a quantity that is
A) less than the efficient quantity if a good generates external benefits.
B) more than the efficient quantity if a good generates external benefits.
C) exactly the efficient quantity if a good generates external benefits.
D) either more than or less than the efficient quantity if a good generates external benefits. It is
impossible to know whether it will be too much or too little without more information.
50) If a private good generates external benefits
A) the social benefit will be greater than the private benefit.
B) the social benefit will equal the private benefit.
C) the social benefit will equal the private benefit minus the external benefit.
D) the external benefit will equal the private benefit plus the social benefit.
Recall the Application about towns that built clock towers to help their citizens keep track
of time to answer the following question(s).
51) Recall the Application. A town tried to prevent free riding by
A) not putting a clock face on the tower in the direction of those the one who refused to
contribute to building the clock tower.
B) setting the time wrong on the face of the tower in the direction of those who refused to
contribute to building the clock tower.
C) making it illegal for those who did not contribute to the clock tower to use it.
D) taxing those who would not contribute to the clock tower project.
52) Recall the Application. Before people generally carried their own time pieces, towns often
built their own clock towers. In these situations there was a free rider problem because
A) many people at that time refused to pay taxes.
B) towns paid for the clock towers with voluntary contributions.
C) few people could tell time.
D) only a small fraction of the population was taxed by the towns.
53) A market in which there are neither external benefits nor external costs is inefficient.
54) Externalities always consist of benefits that are not confined to the person or organization
that decides how much of a good to produce or consume.
55) To be an example of a public good a good must be both rival in consumption and
nonexcludable.
56) A good is nonrival in consumption if it is not practical to exclude people who don’t pay for it
from enjoying its benefits.
57) A good is nonexcludable in consumption if it is not practical to exclude people who don’t pay
for it from enjoying its benefits.
58) If you can consume a good without having to pay for it, the good must be a public good.
59) If you can consume a good at the same time that others consume the same good, the good is
nonrival in consumption.
60) Protecting endangered species is NOT an example of a public good because there are no
external benefits associated with it.
61) Public goods are always provided by the government because private markets do not have an
incentive to provide them.
62) If you can consume a good without having to pay for it, the good must be nonrival in
consumption.
63) Fireworks on the night on July 4th are neither rival nor excludable.
64) The free-rider problem is larger for private goods than it is for public goods.
65) Alissa is studying for her principles of economics exam. She tells her study partner that
“Only a very small number of people ever get to become astronauts and go into space. Therefore
space exploration is not a public good.” Do you agree? Explain.
66) Suppose that your local government provides drinking water and charges a 10 cent per
gallon. Explain whether or not the drinking water is a public good.
67) Provide an intuitive explanation of the free-rider problem.
68) Explain intuitively why the market for a nonexcludable good fails to provide efficient
quantity.
69) Global warming has become a major international environmental issue. Using the concept of
externality, explain why countries around the world seldom reach an agreement to reduce the use
of fossil fuels.
70) What are some of the ways a private group can overcome a free rider problem?
71) Why is it easier to raise $1 million in voluntary contributions for medical research into a
deadly disease like cancer than it is to raise the same amount for space exploration?
9.5 The Optimal Level of Pollution
1) An external cost is the cost experienced by people who
A) do not decide how much of a good to produce or consume.
B) did not know why they are experiencing the cost.
C) decide how much of a good to produce or consume.
D) consume a good.
2) Market failure is a situation in which
A) production generates costs that are not paid for by the producer.
B) a market is not in equilibrium.
C) purchasers cannot afford the goods that they need.
D) the government intervenes in the market.
3) The reason that air and water pollution impose external costs is that
A) providers of goods and services ignore costs that they do not have to pay.
B) they affect the quality of the out-of-doors.
C) environmentalists object to the degradation of the earth.
D) the damage from pollution crosses international boundaries.
4) A solution to market failure in the particular application of environmental policy
A) can be the establishment of a new market where one had not existed before.
B) can never be market-based, as market failure implies that markets damage the environment.
C) can never involve the government because the government initially created the market failure.
D) is impossible because firms and consumers follow their self-interest.
5) The optimal level of pollution abatement is where
A) the marginal benefit of abatement is greater than its marginal cost.
B) the marginal benefit of abatement is less than its marginal cost.
C) the marginal benefit of abatement is equal to its marginal cost.
D) none of the above
6) The marginal principle ________ to the determination of the optimal level of pollution
abatement because ________.
A) applies; there are tradeoffs in terms of the costs and benefits of pollution abatement
B) applies; pollution abatement causes greater harm than benefits
C) does not apply; it is immoral to trade a dirtier environment for material wealth
D) does not apply; the costs and benefits of pollution abatement cannot be measured
7) In which of the following situations should a firm reduce its efforts to abate pollution?
A) The marginal benefit of abatement is less than its marginal cost.
B) The marginal benefit of abatement is greater than its marginal cost.
C) The marginal benefit of abatement is equal to its marginal cost.
D) none of the above
8) In which of the following situations should a firm increase its efforts to abate pollution?
A) The marginal benefit of abatement is less than its marginal cost.
B) The marginal benefit of abatement is greater than its marginal cost.
C) The marginal benefit of abatement is equal to its marginal cost.
D) none of the above
9) If the marginal benefit of reducing water pollution is constant at $10 per ton, then it is
efficient to reduce water pollution
A) to zero.
B) until marginal cost of reducing water pollution equals $10 per ton.
C) as long as the marginal cost of reducing water pollution is greater than $10 per ton.
D) to whatever level the market determines.
10) If the marginal benefit from water pollution abatement increases, then it is efficient to
A) reduce water pollution to zero.
B) allow more water pollution.
C) let the market determine water pollution
D) reduce water pollution further, but maybe not to zero.
11) The Coase bargaining solution applies to a situation when there is a ________ number of
affected parties, and the transactions costs of bargaining are relatively ________.
A) large; high
B) large; low
C) small; high
D) small; low